A recent Texas Lawyer story, “Fifth Circuit Kills Controversial Attorney Fee Rule,” reports that, in a decision that will come as a relief to Texas bankruptcy lawyers, the U.S. Court of Appeals for the Fifth Circuit has done away with its controversial attorney fee standard that allows trial courts to perform a “hindsight” analysis on whether their work benefited an estate before they can get paid.
Yet it remains to be seen whether the Austin law firm that won a recent decision can use it to restore their $134,000 attorney fee request, an amount that was cut to $19,409—an 85 percent reduction---by U.S. bankruptcy court in the Western District of Texas.
In the underlying case, Barron & Newburger v. Texas Skyline, in May 2010, while facing a major state court judgment against him in a business dispute, debtor Clifford Woerner hired Barron & Newburger (B&N) to file a voluntary Chapter 11 bankruptcy relief, which brought the state court proceedings to a halt. In the ensuing 11 months of litigation, B&N claimed its $134,800 in legal fees for its services.
The court cut B&N’s fee request in 2012 by citing In Re Pro-Snax Distributers, a 1998 Fifth Circuit ruling that finds that for a professional’s service to be compensable under 11 U.S.C. § 330 of the U.S. Bankruptcy Code, an applicant must prove that their services resulted in an “identifiable, tangible and material benefit to the estate.” The court cut B&N’s fees by 85 percent mainly because of its lack of success.
B&N appealed the fee ruling to the district court, alleging that Pro-Snax was wrongly decided—a position that the U.S. trustee agrees with. Yet the district court affirmed the bankruptcy court’s decision by finding there was no error in applying Pro-Snax to B&N’s fee application. B&N appealed to the Fifth Circuit, which affirmed the district court’s decision in 2014 in In Re Woerner. However, all three members of the Fifth Circuit panel specifically called for en banc reconsideration of Pro-Snax—which the full court agreed to do last year.
“We now recognize that the retrospective, ‘material benefit’ standard enunciated in Pro-Snax conflicts with the language and legislative history of § 330, diverges from the decisions of other circuits and has sown confusion in our circuit,” wrote Judge Ed Prado in his April 9 en banc decision. “Correspondingly, we overturn Pro-Snax attorney fee rule and adopt the prospective, ‘reasonably likely to benefit the estate’ standard endorsed by our sister circuits.”
Because the opinion announced a new legal rule, the Fifth Circuit has remanded the case back to the bankruptcy court to evaluate whether B&N is entitled to its fees under the new “reasonable at the time” standard.