A recent Texas Lawyer story, “Tough Questions at $5 Million Fee Fight Before SCOTUS,” reports that predicting how the highest court’s nine justices will rule after they have heard oral arguments and before they issue an opinion qualifies as “risky business,” according to Aaron Streett, a Baker Botts partner. Street recently argued his firm’s $5 million fee fight waged against a company that acquired ASARCO, a copper mining company, before the U.S. Supreme Court.
Baker Botts served as debtor’s counsel to ASARCO when it entered Chapter 11 bankruptcy in 2005. The bankruptcy court awarded Baker Botts, and its co-counsel, about $120 million in fees, including enhancements, for winning a $7 billion fraudulent-transfer verdict on behalf of their client. But Baker Botts and another firm also serving as debtor’s counsel wound up fighting for payment from the company that acquired their client.
The U.S. Court of Appeals for the Fifth Circuit issued a ruling that allowed the lawyers to keep their core fees and enhancements, but not the more than $5 million they had sought for the expenses of litigating to preserve those fees.
During oral arguments at the Supreme Court on Feb. 25, Streett uttered less than two paragraphs of his argument before Justices Sonia Sotomayor and Antonin Scalia—a pair that rarely works in tandem—began peppering him with questions. Scalia asked if Baker Botts, as debtor’s counsel seeking fees, was acting against the bankruptcy trustee’s interest. Sotomayor asked, if Baker Botts had hired another law firm to represent it, would it have been “entitled to fees too?”
She later added: “When you’re defending fees, you’re acting for yourself. There is a self-interest involved, because you could just give up on the objections and walk away. The only reason you’re fighting them is because it puts more money in your pocket.”
Chief Justice Roberts also seemed skeptical. If Congress wanted fees on fee to be awarded, “they would have spelled it out a little more clearly” in the bankruptcy statutes, he said. After that, Scalia commented: “I assume that the lawyer’s fees are set at a high enough level that they take into account the fact that sometimes you will have to litigate to get the fees.”
But the hearing had moments that looked favorable for Baker Botts. At the hearing, the firm got an assist from the U.S. Department of Justice, which had filed a friend of the court brief in Baker Botts’ favor. Brian Fletcher, an assistant to the U.S. solicitor general, argued that U.S. trustees need to have debtor’s counsel compensated.
Compensation for the successful defense of a fee application may be appropriate because it ensures that the professional receives the statutorily prescribed reasonable compensation for the services it rendered in the underlying bankruptcy case,” Fletcher told the justices.
During his allotted time, Jeffrey Oldham, a partner in Houston’s Bracewell & Giuliani, who represents ASARCO, argued that the bankruptcy code compensates “all types of professionals for their services rendered,” but “when adversarial fee litigation arises and a professional either hires a lawyer or just happens to be a lawyer and engages in purely self-interested fee litigation work at the expense of the estate, that is not a service rendered on behalf of the estate.” He added: “There is simply nothing in the statute that authorizes estate funds for a professional to engage in self-interested litigation.”
NALFA also reported on this case in “NALFA Bankruptcy Fee Examiners File Amicus Brief in Asarco Case” and “U.S. Supreme Court to Hear Historic Fee Enhancement Case” and “Fifth Circuit Upholds 20 Percent Fee Enhancement in Historic Case”