The U.S. Supreme Court on June 15 ruled (6-3) in the case of Baker Botts LLP v. ASARCO LLC, No. 14-103 that §330(a)(1) of the Bankruptcy Code does not permit bankruptcy courts to award fees to §327(a) professionals for defending fee applications.
Former Bankruptcy Judge Judith Fitzgerald (W.D. Pa.; Pittsburgh)(ret.) is currently an attorney at Tucker Arensberg (Pittsburgh) and has more than 25 years of experience as a bankruptcy judge. Judge Fitzgerald signed onto an amicus brief with former Bankruptcy Judge Leif Clark in support of appellant Baker Botts.
Robert J. Keach is a shareholder at Bernstein, Shur, Sawyer & Nelson, Portland, Maine. In addition to being the co-chair of ABI's Chapter 11 Reform Commission, Keach has served as an appointed fee examiner in high-profile cases such as AMR (American Airlines) and Exide, and signed on to an amicus brief in the Baker Botts case.
Prof. Lawrence Ponoroff is the Samuel M. Fegtly Chair in Commercial Law at, and former Dean of, the University of Arizona James E. Rogers College of Law (Tucson, Ariz.). He teaches courses in the business and commercial law courses and filed an amicus brief with fellow bankruptcy professors in support of the respondent in the case, ASARCO LLC.
Gregory W. Werkheiser is a partner in Morris, Nichols, Arsht & Tunnell LLP’s Business Reorganization & Restructuring Group (Wilmington, Del.). He has considerable experience representing debtors, creditors and other parties in complex business bankruptcy cases and out-of-court restructurings. He wrote an analysis of the case in the January edition of the ABI Journal.
The U.S. Supreme Court on June 15 ruled (6-3) in the case of Baker Botts LLP v. ASARCO LLC, No. 14-103 that § 330(a)(1) of the Bankruptcy Code does not permit bankruptcy courts to award fees to § 327(a) professionals for defending fee applications. Justice Thomas writing for the majority in the opinion said that § 330(a) does not give the bankruptcy court the discretion to award fee-defense fees under any circumstances. The Court reasoned that the plain text of the statute, which only permits “reasonable compensation for actual, necessary services rendered by” a professional retained by the estate, does not suffice in the context of fee-defense awards to override the “American Rule” that each party bears its own attorneys’ fees.
Lawyers and professionals working for a bankrupt company or unsecured creditors’ committee must seek approval from a bankruptcy judge for their fees because it potentially reduces the amount that will be paid to creditors. As professional fees in bankruptcy are continually a contentious issue, ABI’s Commission to Study the Reform of Chapter 11 provided recommendations to Congress to make the chapter 11 process more efficient and cost-effective.
How will the Court’s decision in Baker Botts affect professional fees? Will there be an increase in fee litigation in future chapter 11 cases?
ABI’s media teleconference presented experts involved in the Baker Botts case to discuss the effects of the Court’s ruling and take questions from the media. If you have any questions for speakers participating on this teleconference, please contact ABI Public Affairs Manager John Hartgen at [email protected] or 70
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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 12,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals providing a forum for the exchange of ideas and information. For additional information on ABI, visit ABI World at www.abi.org. For additional conference information, visit www.abi.org/calendar-of-events.