No Pay for Preparing Bankruptcy Fee Requests: Business of Law

Bankruptcy lawyers can’t get compensated for the time spent preparing -- and sometimes defending -- their fee requests, the U.S. Supreme Court said Monday.

In an opinion by Justice Clarence Thomas in which four other justices joined, the court said lawyers aren’t entitled to those fees.

Thomas based his ruling on the American Rule, which generally provides that each side pays its own attorneys’ fees. That longstanding rule, Thomas wrote, is a “bedrock principle” to be employed “unless a statute or contract provides otherwise.”

Justice Sonia Sotomayor reached the same result in a short concurring opinion, saying there is no “textual” support for shifting the burden of fees to the bankrupt company.

Justice Stephen G. Breyer dissented in an opinion joined by Justices Ruth Bader Ginsburg and Elena Kagan.

The dissenters criticized the majority for requiring the statute to explicitly overrule the American Rule. They said an earlier high court decision on fee shifting had no such requirement.

The appeal arose from the Chapter 11 reorganization of Asarco LLC. Two Texas firms -- Baker Botts LLP and Corpus Christi-based Jordan, Hyden, Womble, Culbreth & Holzer PC -- represented the company in successfully prosecuting a fraudulent-transfer suit worth $7 billion to $10 billion against the metal producer’s Mexican owner, Grupo Mexico SAB. As a result of the victory, all creditors were paid in full.

The bankruptcy judge awarded $113 million in fees as base compensation to Baker Botts and $7 million to Jordan Hyden. The bankruptcy court also granted bonuses of $4.1 million and $125,000 to the firms and gave Baker Botts $5 million, and Jordan Hyden $15,000, as reimbursement for successfully defending their fee requests from attack by Grupo Mexico.

That money, like their other fees, would come from the Asarco bankruptcy estate.

The U.S. Court of Appeals in New Orleans, however, ruled in April 2014 that bankruptcy lawyers can never be paid for defending their fee requests unless opposition was mounted in bad faith. It was that ruling that the Supreme Court upheld.

The ruling comes even though the U.S. Department of Justice intervened in the case as well, siding with Baker Botts. DOJ was involved because the attorney general appoints U.S. Trustees to oversee the administration of bankruptcy cases.

In a statement, Aaron Streett, the chairman of Baker Botts’s Supreme Court and constitutional practice who argued the case on behalf of his firm, said that while “we are of course disappointed in the holding that bankruptcy attorneys may not be compensated under Section 330(a) for defeating meritless objections to their fee applications, we respect the Court’s conclusion. We are gratified that the Court recognized Baker Botts’ exceptional performance in the ASARCO bankruptcy, which led to the Fifth Circuit affirming a $4.1 million bonus for Baker Botts’ extraordinary performance and results -- an outcome that remains undisturbed by the Supreme Court’s opinion.”

Jeff Oldham, the partner from Bracewell & Guiliani LLP who argued the case for Asarco, said in a statement that the firm “is delighted with the Supreme Court’s decision.” He added that firms shouldn’t get repaid for litigating “underlying fee requests.”

The case is Baker Botts LLP v. Asarco LLC, 14-103, U.S. Supreme Court (Washington).

On the Move

Squire Patton Boggs hired Kristine Blackwood as a partner in its health-care public-policy practice. Blackwood most recently served as deputy director for congressional oversight and investigations at the U.S. Department of Health and Human Services’ office of the assistant secretary for legislation.

At HHS, Blackwood was responsible for developing strategic responses to congressional oversight and investigations for the office of the secretary on Affordable Care Act implementation.

Previously she served as chief counsel for the Senate Special Committee on Aging and investigative Counsel at the House Committee on Energy and Commerce. She also worked at the Department of Justice. Prior to joining the public sector, she was a partner at McDermott, Will & Emery LLP.

Boies, Schiller & Flexner hired Kenneth Beale as a partner in its international disputes and regulatory practice in London. Beale, who was previously a counsel at Wilmer Cutler Pickering Hale & Dorr LLP in London and Washington, has represented clients in international arbitrations, cross-border disputes, criminal investigations and internal investigations.

White & Case LLP hired Farhad Jalinous as a partner in its Washington office. Jalinous will be a member of both the Global International Trade and the Global Mergers & Acquisitions practices. He will head White & Case’s National Security and Committee on Foreign Investment in the U.S. The practice focuses on helping foreign entities address U.S. national security issues that arise when they acquire or invest in U.S. businesses. Jalinous was previously a partner at Kaye Scholer LLP.

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