COMMENTARY: Supreme Court Denies Law Firm Payment for Defending Right to be Paid
On 6/16/15, the US Supreme Court issued its decision in Baker Botts, LLP v. ASARCO, LLC. The US Supreme Court had granted certiorari to decide the issue of: “whether Sect. 330(a)(1) permits a bankruptcy court to award attorneys’ fees for work performed in defending a fee application.” By a vote of 6-3, with US Supreme Court Justice Thomas writing for the majority, the US Supreme Court held that Bankruptcy Code section 11 USC 330(a) does not give bankruptcy courts 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. While fees may be awarded for work done in preparing a fee application (per the express language of 11 USC 330(a)(6), the Court found no comparable basis for authorizing compensation for fees incurred in defending an application. Although Baker Botts superintended a challenging reorganization and then successfully defended its fees against all challenges, it took a $5 million hit. According to Prof. Tabb, the law firm should have been allowed to recover compensation for that defense. Not allowing that compensation is unfair to estate professionals, according to Prof. Tabb, and weakens the incentives for the best and brightest professionals to work in the bankruptcy arena. Because the US Supreme Court’s decision is based on the "plain language" (ie wording) of Bankruptcy Code section 11 USC 330(a), the decision would likely not apply to attorneys fees sought pursuant to fee shifting statutes, because it has long been the rule that when a prevailing plaintiff’s attorney is entitled to be paid attorneys fees, pursuant to a federal fee shifting statute, that the attorney is entitled both to be paid for preparing the attorney’s fee application, and for defending the attorney’s fee application, if any party in interest objects to that fee application.