Baker Botts L.L.P. v. ASARCO LLC

Background

A mining company called ASARCO filed Chapter 11 bankruptcy and acted as the debtor in possession. ASARCO hired two law firms to represent the estate and those firms worked on claims that helped the company reorganize. After the case ended, the firms filed formal fee requests under 11 U.S.C. §330(a)(1). The bankruptcy court approved large fees and also awarded over $5 million for time the firms spent defending their fee applications. ASARCO appealed.

Reasoning

The Court addressed whether §330(a)(1)'s phrase "reasonable compensation for actual, necessary services rendered" lets bankruptcy judges shift the costs of fee-defense litigation to the estate. It relied on the American Rule that each litigant pays its own lawyers unless a statute clearly says otherwise. The Court held that defending a fee request is not a "service rendered" to the estate administrator and that §330(a)(1) does not explicitly authorize fee shifting for that work.

Real world impact

This decision means bankruptcy attorneys generally cannot recover fees for time spent fighting objections to their own fee applications under §330(a)(1). As a result, attorneys will usually bear those defense costs themselves unless Congress or another statute says otherwise. Debtors and estates will not be forced to pay those defense costs. The ruling leaves room for Congress to change the rule and for courts to address fee issues through existing sanctions or reimbursement provisions.

Dissents or concurrances

Justice Sotomayor largely joined the opinion. Justice Breyer, joined by two colleagues, dissented, arguing courts should have discretion to factor the burden of defending fee requests into "reasonable compensation," to keep bankruptcy pay comparable.