Baker Botts L.L.P. v. ASARCO LLC
The Supreme Court ruled that lawyers and other professionals hired to help a bankrupt company cannot bill the bankruptcy estate for time spent defending their own fee applications against objections.
Because federal law only lets courts award fees for work actually done to help the estate, and defending your own paycheck request doesn't count as that kind of work, bankruptcy professionals must cover fee-fight legal costs themselves — like most litigants do under the everyday rule that each side pays its own lawyer.
“Time spent litigating a fee application against the administrator of a bankruptcy estate cannot be fairly described as “labor performed for”—let alone “disinterested service to”—that administrator.”
The Court's core reason for holding that fee-defense work isn't compensable under the statute.
How it got here: The bankruptcy court awarded fee-defense costs; the district court affirmed that award; the Fifth Circuit reversed, and the law firms appealed to the Supreme Court.
The Case in Depth
What happened
ASARCO, a copper mining company, hired two law firms to help it navigate Chapter 11 bankruptcy. The firms successfully won a multibillion-dollar judgment for the estate and sought roughly $120 million in fees. ASARCO's new owners challenged the fee request, and after a six-day trial, the bankruptcy court awarded the fees plus more than $5 million for the firms' time spent defending their fee applications in court.
The question before the Court
Can a law firm hired to help run a company's bankruptcy get paid, out of the bankruptcy estate, for the time it spends defending its own fee request in court?
Why it matters
Lawyers, accountants, and other professionals working on corporate bankruptcies will now have to absorb the cost of defending their fee requests when creditors or the debtor challenge them, rather than passing that cost on to the estate. This could make some professionals more cautious about padding fee requests, and it may affect how aggressively bankruptcy professionals litigate fee disputes going forward.
What changes now
The ruling is final on the merits and resolves the legal question nationwide: bankruptcy professionals cannot recover fees for defending their own fee applications under this statute. The Fifth Circuit's judgment denying those fees stands. Any change to this rule going forward would require Congress to amend the bankruptcy fee statute to explicitly authorize such awards.
What this does not decide
The decision does not address whether Congress could write a bankruptcy statute that clearly authorizes fee-defense compensation, nor does it disturb the firms' underlying $120 million fee award for their work on the bankruptcy itself — only the extra fees for defending that award are barred.
Concurrences and dissents
Concurrence in part — Justice Sotomayor
Justice Sotomayor agreed with almost all of the majority's reasoning and joined the judgment, but did not join the portion of the opinion responding at length to the Government's policy arguments about why fee-defense costs should be compensable. She emphasized that given the statute's clear text, policy considerations should not be allowed to override the American Rule.
Dissent — Justice Breyer
Justice Breyer agreed that fee-defense work is not itself a 'service,' but argued that courts can still consider fee-defense costs when deciding what counts as 'reasonable compensation' for the underlying work, since uncompensated fee litigation could effectively shrink an attorney's real pay below a reasonable level. He argued this reading better serves Congress's goal of keeping skilled professionals willing to work on bankruptcies, and pointed to the Court's treatment of similar language in a prior fee-shifting case as support.
How the Court got there
The legal reasoning, step by step
- The Court started from the American Rule, the long-standing default in American law that each side pays its own attorney no matter who wins, unless a statute clearly says otherwise.
- Because courts require very clear statutory language before deviating from that default — typically words like 'prevailing party' or 'litigation costs' — the Court looked closely at whether the bankruptcy fee statute contained that kind of clear override.
- The statute lets courts award 'reasonable compensation for actual, necessary services rendered' by professionals hired to help run the bankruptcy. The Court read 'services rendered' to mean work done to help the estate's administrator, not work done to fight for one's own pay.
- Time spent defending a fee application benefits only the professional seeking payment, not the estate, so it does not fit the ordinary meaning of a 'service rendered' to the estate under the statute.
- The Court noted that other Bankruptcy Code provisions do explicitly shift litigation costs between parties when Congress wants that result, showing Congress knew how to write such a rule but did not do so here.
- Having found no clear statutory departure from the American Rule for fee-defense litigation, the Court concluded the statute simply does not authorize paying professionals for the time they spend defending their own fee requests.
Doctrinal impact
Cases affected by this decision
Distinguishes Commissioner v. Jean (496 U. S. 154)
The Court said Jean involved different statutory language that clearly covered fee-defense litigation, unlike the bankruptcy statute here.
Reaffirms Alyeska Pipeline Service Co. v. Wilderness Society (421 U. S. 240)
The Court relied on Alyeska's rule that courts need explicit statutory language before departing from the American Rule.