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

Background

A large copper company, after filing for Chapter 11, hired two law firms to handle its bankruptcy matters and to pursue claims against the company’s parent. The firms won a multibillion‑dollar judgment for the estate and sought payment under 11 U.S.C. § 330(a)(1). The Bankruptcy Court awarded about $120 million plus additional enhancements and over $5 million for the firms’ time spent defending their fee applications. A district court allowed the fee‑defense award, but the Fifth Circuit reversed, holding such awards are not authorized by the Code. The Supreme Court granted review and considered the same question.

Reasoning

The central question was whether § 330(a)(1) lets bankruptcy courts shift the cost of defending a fee request from the attorneys to the estate. The majority relied on the long‑standing American Rule that each side pays its own attorney fees unless a statute clearly says otherwise. The Court read § 330(a)(1) as authorizing compensation for actual, necessary services performed for the estate, and concluded defending a fee application is not a service rendered to the estate. The majority rejected arguments from the firms, the United States, and parts of the dissent that fee‑defense costs should be treated as part of reasonable compensation.

Real world impact

The ruling means bankruptcy professionals generally cannot recover attorneys’ fees for litigating their own fee requests under § 330(a)(1); they ordinarily must bear those costs. The Court affirmed the Fifth Circuit. Justice Sotomayor largely joined the opinion; Justice Breyer, joined by Justices Ginsburg and Kagan, dissented, arguing courts may consider fee‑defense costs when setting reasonable compensation.

Dissents or concurrances

The dissent would allow bankruptcy courts discretion to account for reasonable fee‑defense expenses as part of overall compensation to keep bankruptcy pay comparable to other legal work.