Baker Botts has to be feeling good about the amicus support it received this week at the U.S. Supreme Court, where the firm is trying to overturn a decision by the 5th U.S. Circuit Court of Appeals that not only cut $5 million from the fees awarded to Baker Botts in the Asarco bankruptcy but also held that the U.S. Bankruptcy Code, as a matter of law, precludes debtors’ lawyers from charging for the cost of defending their fee applications. Baker Botts persuaded the Supreme Court in October to take up the question, arguing that the Bankruptcy Code gives judges the authority to award fees for the successful defense of a fee application.
Among this week’s eight amicus briefs backing Baker Botts
were filings by a group of bankruptcy bar associations, two former bankruptcy
judges and nine bankruptcy professors. All of them agreed with the law firm
that the 5th Circuit’s ruling dilutes overall fees for bankruptcy lawyers and
discourages lawyers from taking bankruptcy cases – exactly what Congress was
trying to avoid when it gave bankruptcy judges the discretion to award fees
that put bankruptcy lawyers on a par with colleagues in other practices. In its
amicus brief, the National Association of Consumer Bankruptcy Attorneys warned
that individuals and small businesses won’t be able to find lawyers at all if
the 5th Circuit ruling stands because the cost of defending their fee
applications could swallow the fee awards themselves.
The most interesting of the amicus briefs for Baker Botts is
from the Justice Department. I say that not because of the arguments advanced
by Solicitor General Donald Verrilli on behalf of the U.S. bankruptcy trustees.
The Justice Department quibbles a little bit with Baker Botts’ merits brief
about which provision of the Bankruptcy Code justifies fees for the work
expended to defend fee applications, but on the whole, Justice makes points
similar to those of Baker Botts’ other amici. Instead, what’s notable about the
DOJ brief is that the federal government changed its mind about whether judges
can grant the fees.
As the filing acknowledges, when the Asarco fee dispute was
in federal district court in 2011, the U.S. trustee took the position that the
Bankruptcy Code bars compensation for the cost of defending a fee application –
the essence of the 5th Circuit opinion. The Executive Office for U.S. Trustees
subsequently issued guidelines that hedged on the question, saying fees for
defending fee applications are “generally” not appropriate but judges may carve
out exceptions in extraordinary cases.
In this week’s amicus brief, however, the government offered
a firmer, broader policy on these fees. The Justice brief contends that when
bankruptcy lawyers successfully fend off challenges to the core fees they have
been awarded, they are entitled also to recover the cost of defending their fee
application. The 5th Circuit’s contrary holding, the government said – aligning
with Baker Botts and its other amici – creates a statutorily unjustified
distinction between bankruptcy lawyers and lawyers in other practice areas who
are permitted to seek fees in similar fee-shifting circumstances.
The background of this case makes it easy to see why Baker
Botts was so distressed by the 5th Circuit’s ruling. Asarco was a subsidiary of
Americas Mining Corporation, which is wholly owned by Grupo Mexico. After
Asarco entered Chapter 11, Baker Botts accused the parent companies of
stripping the metals producer of its key assets. The firm’s multibillion-dollar
fraudulent conveyance case was so successful that every Asarco creditor ended
up being paid in full. Baker Botts was eventually awarded $120 million in core
fees and costs and a $4 million enhancement for its outstanding results in the
fraud litigation. The firm was awarded an additional $5 million because Grupo
Mexico – which controlled the reorganized Asarco after it emerged from Chapter
11 – vehemently opposed the firm’s fee application. It cost Baker Botts $5
million to defend its core fees from Grupo Mexico’s challenge.
Both Asarco and the U.S. trustee initially filed appeals to
the 5th Circuit. The trustee ended up dropping its appeal, which challenged
whether Baker Botts could be compensated for costs tied to its application for
enhanced fees. The U.S. government took no position in Asarco’s case at the 5th
Circuit, which challenged both the enhancement itself and the $5 million fees
based on Baker Botts’ defense of its fee application. The Justice Department
also did not volunteer any view when Baker Botts asked for Supreme Court
review.
Typically, after the justices grant cert in a case in which
the government has not taken a position, both sides will lobby the solicitor
general for support. Neither Aaron Streett of Baker Botts nor Asarco counsel
Jeffrey Oldham of Bracewell Giuliani would comment when I asked them about the Justice
Department’s brief. Streett said in an emailed statement that the firm was
“grateful for the strong amicus support from various bankruptcy bar
associations, as well as from the United States, former bankruptcy judges,
leading bankruptcy law professors, and national organizations who represent
consumers and small businesses in bankruptcy.” Those amici, he said,
“understand that the 5th Circuit’s decision creates an improper incentive for
parties to raise meritless challenges to the fees earned by lawyers entitled to
compensation under the Bankruptcy Code.”
Oldham said that Asarco and its lawyers “obviously think the
5th Circuit got it right,” adding that the issue is a matter not of policy
interpretations but of what the Bankruptcy Code actually says. Asarco’s merits
brief is due next month, when we will also find out about amicus support for
its position.
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