The U.S. Court of Appeals for the Fifth Circuit delivered good news and bad news on the attorney fees front to lawyers who served as debtor’s counsel to ASARCO, an integrated copper mining, smelting and refining company that entered Chapter 11 bankruptcy in 2005.
The good news: The ASARCO debtor’s counsel get to keep the roughly $124 million in fees that a court awarded them; those include enhancements for winning fraudulent-transfer litigation on behalf of their client.
The bad news: They don’t get to keep the more than $5 million that they were awarded for the expense of litigating to preserve those fee enhancements. That also could become unwelcome tidings for other lawyers in bankruptcy court who seek to preserve their fee awards; the Fifth Circuit’s ASARCO ruling could mean uphill, expensive battles to preserve such fee awards in the future.
In ASARCO v. Baker Botts, a three-judge panel of Chief Judge Carl E. Stewart, Senior Judge Patrick Higginbotham and Judge Edith H. Jones ruled on April 30 that the lower courts had not abused their discretion when they authorized fee premiums to ASARCO’s cocounsel, Houston’s Baker Botts and Corpus Christi’s Jordan, Hyden, Womble, Culbreth & Holtzer.
A bankruptcy court had awarded those fee premiums—20 percent for Baker Botts and 10 percent for Jordan Hyden—for a total fee award of more than $124 million. Jones, writing the Fifth Court’s opinion, described the debtor’s counsel’s “unusually successful fraudulent transfer litigation,” in which they helped the client win a $7 billion to $10 billion judgment, “the largest fraudulent transfer judgment in Chapter 11 history.” Jones also noted that “after 52 months in bankruptcy, ASARCO emerged pursuant to a plan of reorganization in late 2009 … with little debt, $1.4 billion in cash and the successful resolution of its environmental, asbestos and toxic tort claims.”
But when Baker Botts and Jordan Hyden filed their fee applications seeking the enhancements, ASARCO, which a parent company now controls, objected. ASARCO had won the fraudulent transfer judgment against that parent company.
Because of the objections to their fee applications, Baker Botts and Jordan Hyden had to meet ASARCO’s discovery request, calling for the lawyers to produce 2,350 boxes of hard copy documents and 189 GB of electronic data, according to Jones’ opinion. A six-day fee trial ensued; then the bankruptcy court rejected all of ASARCO’s objections, including objections to fees and expenses for the firms’ litigation in defense of their attorney fee claims, resulting in an additional “$5 million (plus expenses) to Baker Botts and over $15,000 to Jordan Hyden,” Jones wrote.
ASARCO appealed to a district court, which affirmed the bankruptcy court’s ruling. ASARCO then sought review by the Fifth Circuit, which issued the April 30 ruling.
In the opinion, Jones wrote that in non- bankruptcy cases, “Congress designed fee-shifting provisions” so “the losing party should bear the full costs of counsel for the winner.”
But she noted, “In bankruptcy, the equities are quite different. Both the debtor and creditors have enforceable rights, and there is a limited pool of assets to satisfy those rights and compensate court-approved professionals; in certain cases, moreover, professionals paid from the debtor’s estate represent competing interests. No side wears the black hat for administrative fee purposes. In the absence of explicit statutory guidance, requiring professionals to defend their fee applications as a cost of doing business is consistent with the reality of the bankruptcy process.”
Jones anticipated worries about the implications of the ASARCO ruling for bankruptcy lawyers seeking fees: “This opinion should not be read as encouraging tactical or ill-supported objections to fee applications. The Bankruptcy Code and rules require ample documentation of fee requests in part to deter satellite litigation. … We are confident that bankruptcy courts, practicing vigilance and sound case management, can thwart punitive or excessively costly attacks on professional fee applications,” Jones wrote.
Shelby Jordan, a partner in Jordan Hyden, did not return a call seeking comment. Mike Cinelli, a spokesman for Baker Botts, did not provide comment. Bryan Dumesnil, a partner in Houston’s Bracewell & Giuliani, who represents ASARCO, did not return a call seeking comment.