Baker Botts L.L.P. v. ASARCO LLC
The Supreme Court ruled that bankruptcy law firms cannot be paid out of the bankruptcy estate for the time they spend defending their own fee requests against objections.
The decision reinforces the long-standing rule that each side in litigation pays its own lawyers unless a law clearly says otherwise, meaning bankruptcy professionals bear the cost of fighting for their fees themselves rather than passing it on to the estate.
“Because § 330(a)(1) does not explicitly override the American Rule with respect to fee-defense litigation, it does not permit bankruptcy courts to award compensation for such litigation.”
The Court's core holding that the bankruptcy fee statute does not cover fee-defense work.
How it got here: The Bankruptcy Court awarded the firms fees including for defending their fee applications; the District Court affirmed that award, but the Fifth Circuit reversed, and the Supreme Court agreed to review it.
The Case in Depth
What happened
ASARCO, a copper company, filed for bankruptcy and hired the law firms Baker Botts and Jordan Hyden to help manage the case. The firms won a multibillion-dollar judgment that helped ASARCO pay all its creditors in full. When the firms sought over $120 million in fees, ASARCO's new owners challenged the request, forcing a lengthy fee fight, and the firms also sought payment for the time spent defending their fee applications.
The question before the Court
Can a bankruptcy court pay a law firm's fees for time the firm spent defending its own fee request in court?
Why it matters
Lawyers, accountants, and other professionals who work on bankruptcy cases will have to absorb the cost of defending their fee requests out of their own pocket rather than billing the bankruptcy estate for that time. This could make bankruptcy fee litigation more costly for professionals and may discourage some objections-heavy disputes over fees.
What changes now
This is a final merits ruling that resolves the legal question nationwide: bankruptcy courts may not award fees for time spent defending fee applications under this provision. The case does not go back for further proceedings on this issue since the Fifth Circuit's judgment denying such fees is affirmed. Any change to this rule would require Congress to amend the bankruptcy fee statute.
What this does not decide
The ruling does not address whether other Bankruptcy Code provisions could authorize fee-defense compensation in different circumstances, and it does not disturb the firms' roughly $120 million award for their underlying work administering the estate — only the additional fees for defending that award are barred.
Concurrences and dissents
Concurrence in part — Justice Sotomayor
Justice Sotomayor agreed with nearly all of the majority's reasoning and its conclusion that the statute's text gives no support for compensating fee-defense work. She wrote separately only to decline joining the portion of the opinion that rebutted the government's policy argument, believing the statutory text alone resolved the case without needing to address whether the result was good policy.
Dissent — Justice Breyer
Justice Breyer argued that bankruptcy courts have broad discretion to decide what counts as 'reasonable compensation,' and that this discretion lets courts account for the cost of defending a fee application so that professionals are not effectively underpaid for their original work. He pointed to the Court's decision in Commissioner v. Jean, which allowed fee-defense compensation under a similar statute, and warned that without this flexibility, bankruptcy attorneys would be paid less than comparable non-bankruptcy attorneys, discouraging skilled lawyers from taking bankruptcy work.
How the Court got there
The legal reasoning, step by step
- The Court applied the American Rule, the long-standing default that each side pays its own attorney's fees unless a statute or contract clearly says otherwise, and required 'explicit statutory authority' before departing from it.
- The Court examined the bankruptcy statute's text, which allows 'reasonable compensation for actual, necessary services rendered' by professionals hired to help administer a bankruptcy estate, and asked whether defending a fee application counts as such a 'service.'
- The Court reasoned that 'services' means labor performed for the benefit of the estate administrator, and that litigating to defend one's own fee request is adversarial work performed for the professional's own benefit, not for the estate.
- The Court rejected the law firms' argument that fee defense benefits the estate by ensuring a fair fee determination, noting that this supposed benefit exists regardless of whether the professional wins or loses the fee dispute.
- The Court also rejected the government's argument that fee-defense costs should be folded into compensation for the underlying work, finding no textual basis for treating fee-defense litigation as part of 'services rendered' and noting Congress could have written an explicit fee-shifting rule as it did elsewhere in the Bankruptcy Code.
- Concluding that the statute's language does not clearly override the American Rule for fee-defense litigation, the Court held that such work is simply not compensable under the statute.
Doctrinal impact
Cases affected by this decision
Reaffirms Alyeska Pipeline Service Co. v. Wilderness Society (421 U.S. 240)
The Court relies on Alyeska's rule that departures from the American Rule require specific, explicit statutory authorization.
Distinguishes Commissioner v. Jean (496 U.S. 154)
The Court says Jean involved different statutory text that already covered fee-defense work, so it doesn't control here.