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Supreme Court Hears Argument on Recovery of Defense Fees

 
 

February 26, 2015

 
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  NEWS AND ANALYSIS

SUPREME COURT HEARS ARGUMENT ON RECOVERY OF DEFENSE FEES

by Valerie P. Morrison and Dylan G. Trache of Nelson Mullins Riley and Scarborough LLP (Washington, D.C.)

The Supreme Court yesterday heard oral argument in the case of Baker Botts LLP, et al. v. Asarco LLC. The issue before the Court is whether bankruptcy judges have discretion under Sect. 330(a) of the Bankruptcy Code to award compensation for fees and costs incurred by counsel to defend their fee applications in bankruptcy court. Based largely on a textual analysis of Sect. 330 of the Bankruptcy Code, the Fifth Circuit held that bankruptcy judges do not have such discretion, and established a per se rule prohibiting such awards. ASARCO, L.L.C. v. Jordan Hyden Womble Culbreth & Holzer, P.C. (In re ASARCO, L.L.C.), 751 F.3d 291 (5th Cir. 2014). By contrast, the Ninth Circuit held in In re Smith, 317 F.3d 918, 929 (9th Cir. 2002), that bankruptcy courts do have discretion to award defense fees in appropriate circumstances. At the oral argument yesterday, the Court appeared to be divided as to whether fees incurred defending objections to fee applications are compensable. Read the full analysis.

For more information on the case, including a copy of the transcript and amicus briefs, be sure to visit the Supreme Court page in the ABI Newsroom.

GOODLATTE: PUERTO RICO BANKRUPTCY ACCESS MAY AID ISLAND

The top Republican on the House Judiciary Committee said that there are benefits to letting Puerto Rican agencies seek bankruptcy in U.S. court, a step that would give the junk-rated island the ability to cut its debts to investors, Bloomberg News reported today. Chairman Bob Goodlatte's comments came at the beginning of a hearing today before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law to examine H.R. 870, the "Puerto Rico Chapter 9 Uniformity Act of 2015." Goodlatte stopped short of endorsing the legislation, saying that he had concerns about its impact on bondholders. Puerto Rico and its agencies have $73 billion of debt, most of which has traded at distressed levels for more than a year on concern that the island won't be able to repay. Its main electric utility is negotiating with creditors in what may become the largest municipal debt-restructuring ever. Moody's Investors Service said in a Feb. 19 report that there's a high probability that the commonwealth will default on its general obligations within two years. Pedro Pierluisi, the island's nonvoting congressional delegate, filed the municipal bankruptcy bill this month after a federal judge in San Juan threw out a Puerto Rican law that would allow agencies to restructure their debts. Franklin Resources Inc. and OppenheimerFunds Inc., which hold more than $1.5 billion in bonds issued by the Puerto Rico Electric Power Authority, have sued to have the law struck down. At the hearing today, Thomas Moers Mayer, a lawyer at Kramer Levin Naftalis & Frankel LLP in New York who represents Franklin and Oppenheimer, testified that extending bankruptcy to Puerto Rico would be unfair to investors. Representative Darrell Issa (R-Calif.) said that he doesn't support the legislation in its current form, adding that the island's bonds "are in fact based on people who took the law as it was, not as it perhaps should have been." Read more.

To watch a recap of the hearing and read the prepared witness testimony, please click here.

To view a copy of H.R. 870, the "Puerto Rico Chapter 9 Uniformity Act of 2015," please click here.

 

 
ANALYSIS: FIFTEEN CORINTHIAN COLLEGES ALUMNI REFUSING TO PAY BACK STUDENT LOANS, WILLING TO DESTROY THEIR CREDIT ON PRINCIPLE

 

Fifteen former students announced on Monday that they'd had enough of their student loan debt debacle and were going on a "debt strike" until the government canceled their student loans, Bloomberg News reported yesterday. The "Corinthian 15" took out federal loans to attend colleges run by Corinthian Colleges, a for-profit company that has agreed to close or sell all of its schools amid investigations into wrongdoing by multiple state attorneys general. The campaign peels the cover off a long-simmering headache for the Department of Education, which has forgiven most of the private loans that Corinthian sold students, but has not granted relief to the people who owe the government for their time at the disgraced for-profit colleges. Refusing to pony up on student loans is a tactic that has grabbed headlines, but is unlikely to result in any relief for students, and may even make things worse, experts say. "They are taking a huge risk," says Robyn Smith, a lawyer with the National Consumer Law Center. "Not only will [a default] affect their credit report, but the government has draconian debt-collection abilities." When someone goes into default on their student loans -- meaning they have failed to make payments for at least 270 days -- the government can skim money from their tax return and wages to repay the loan. The government can also charge the borrower collection fees of up to 25 percent of the interest and principal of the loan, says Smith, adding to an ever-expanding pile of debt. About a quarter of Americans whose student loans became due in the last decade have gone into default, according to the Federal Reserve Bank of New York. Read more.

A related commentary yesterday in the National Law Review pointed out that the students in question do not owe money to Corinthian Colleges, but rather to third parties, those being private lenders and the federal government. The students in question took out loans and used their credit to purchase a defective product, according to the commentary, no different from putting a bucket of magic beans on a MasterCard. There is an excellent case to be made that they were defrauded by Corinthian -- or, at the very least, that Corinthian failed to deliver on services contracted -- and that the students are therefore entitled to a refund of the money they paid to the firm, according to the commentary. But just as MasterCard is not responsible if you put a faulty product on your credit card, according to the commentary, banks and the federal government are not responsible for legal adults who borrow money to buy subpar educational services. This is not to say that the students in question weren't mistreated -- it certainly appears that they were -- but they were not mistreated by their banks. Read more.

For further perspectives on the student loan crisis, be sure to register for the March 18 ABI Live Webinar titled, "New Developments in Student Loans." Click here for more information and to register.

CRACKS STARTING TO APPEAR IN PUBLIC PENSIONS' ARMOR

First in Detroit, then in Stockton, Calif., and now in New Jersey, judges and other top officials are challenging the widespread belief that public pensions are untouchable, the New York Times reported yesterday. New Jersey Governor Chris Christie (R) delivered the latest blow on Tuesday, when he proposed to freeze that state's public pension plans and move workers into new ones intended not to overwhelm future budgets or impose open-ended demands on taxpayers. The first crack came in Detroit, where a judge ruled that public pensions could, in fact, be reduced, at least in bankruptcy. Then, just a few weeks ago, an opinion by the bankruptcy judge for Stockton, which emerged from chapter 9 yesterday, called CalPERS a bully for insisting in court that pension cuts were wholly out of the question. Such dogma "encourages dysfunctional strategies," wrote Bankruptcy Judge Christopher Klein for the Eastern District of California. He said that CalPERS's legal arguments were invalid, concluding that it lacked standing to dominate the courtroom discussion the way it had. Stockton did not even seek permission to freeze its pension plans, but the judge nevertheless wrote that it was entitled to do so and went on to cite steps that struggling cities in general should take to trim their pension costs legally. It may be sheer coincidence, but New Jersey seems have taken Judge Klein's instructions to heart, even though states cannot file for bankruptcy and thus lack that particular leverage. For months, a pension commission formed by Governor Christie has been working quietly with the New Jersey Education Association, normally one of the state's most litigious pension adversaries. By talking to each other instead of battling in court again, the two groups managed to find enough common ground to issue what they called a "road map" toward solving New Jersey's daunting pension problems. Read more.

ABI held a webinar today titled "Pension Tension: Dealing with Plans in the Restructuring World." If you missed the program, it will be available soon in ABI's eLearning site.

PRE-ORDER NOW: ABI'S NEWEST PUBLICATION EXAMINES ISSUES SURROUNDING LITIGATION AND LIQUIDATION TRUSTS IN BANKRUPTCY

ABI's newest publication, A Practitioner's Guide to Liquidation and Litigation Trusts, tackles issues surrounding litigation and liquidation trusts established in an insolvent company's bankruptcy proceedings. Such cases as General Motors, ASARCO, Tronox, Enron and Bernard L. Madoff Investment Securities LLC have established these types of trusts as vehicles that can be separated from the insolvent company's business operations to administer assets that have uncertain recoveries or that may require significant time to handle (such as environmental claims). A Practitioner's Guide to Liquidation and Litigation Trusts is designed to give bankruptcy and other professionals an overview of how and when trusts can be used to handle significant large-scale litigation matters and the liquidation of other assets for the purpose of accumulating recoveries and distributing them across multiple claimants. The book offers guidance on the most common issues faced in establishing, managing, monitoring and ultimately concluding a liquidation trust or litigation trust. Convenient checklists, relevant case citations and references to bankruptcy-related issues, as well as recommended forms of trust agreements and suggested provisions for bankruptcy plans and disclosure statements, are also provided in this 300-page guide (which includes a separate thumbdrive containing more than 500 sample pages from liquidation and litigation cases).

A Practitioner's Guide to Liquidation and Litigation Trusts is currently available for pre-order (make sure to log in to receive the ABI member price of $85).

NEW CASE SUMMARY ON VOLO: BAKER V. BAKER (IN THE MATTER OF BAKER; 5TH CIR.)

Summarized by Aaron Kaufman of Cox Smith Matthews Inc.

The Fifth Circuit affirmed lower court rulings that a bankruptcy court could exercise jurisdiction to interpret and enforce its own prior sale order. It further added that the district court did not err by affirming the bankruptcy court's denial of the motion to amend a prior deed where the purchaser knew about the ex-spouse's interests in the property at the time of the conveyance. The underlying dispute over the impact of the ex-spouse's residual interest in the property remained an issue to be decided by the state court in the divorce proceeding.

There are more than 1,500 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.

NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: DOES THE BANKRUPTCY CODE NEED VENUE RULE REFORM?

While legislation has been introduced in recent sessions of Congress, a recent blog post series examined the issue of whether the Bankruptcy Code needs venue rule reform.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

ORDER YOUR PRINTED COPY OF THE FINAL REPORT OF ABI'S COMMISSION TO STUDY THE REFORM OF CHAPTER 11!

Order your printed copy of the Final Report of ABI's Commission to Study the Reform of Chapter 11! The 402-page Final Report contains more than 200 discrete recommendations of chapter 11 policy reforms. ABI's Commission to Study the Reform of Chapter 11 was established in 2012 with a mission to study and propose reforms to Chapter 11 of the Bankruptcy Code and related statutory provisions. After months of deliberations, the Commission unanimously adopted this report to provide to Congress. For the special price of $40, you will have all the testimony, studies and figures that went into compiling the recommendations at your fingertips! Click here to order.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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SP15
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UPCOMING EVENTS:

ABI Live Consumer Webinar: "Student Loan Update"
March 18, 2015

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9th Annual Credit and Bankruptcy Symposium
May 7-8, 2015
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17th Annual New York City Bankruptcy Conference
May 14, 2015
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ABI/St. John�s Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015
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14th Annual Litigation Skills Symposium
May 19-22, 2015
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22nd Annual Central States Bankruptcy Workshop
June 11-14, 2015
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  CALENDAR OF EVENTS
 

2014

March
- Paskay Bankruptcy Seminar
March 5-7, 2015 | Tampa, Fla.
- ABI Live Consumer Webinar: "Student Loan Update"
March 18, 2015
- Bankruptcy Battleground West
March 24, 2015 | Los Angeles, Calif.

April
- Annual Spring Meeting
April 16-19, 2015 | Washington, D.C.
 

 

 


May
- Credit and Bankruptcy Symposium
May 7-8, 2015 | Uncasville, Conn.
- New York City Bankruptcy Conference
May 14, 2015 | New York, N.Y.
- Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015 | New York, N.Y.
- Litigation Skills Symposium
May 19-22, 2015 | Chicago, Ill.

June
- Central States Bankruptcy Workshop
June 11-14, 2015 | Traverse City, Mich.

 

 

 
 
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