01 February 2016

ASARCO Bites: Boomerang Tube and Attorneys Fees for Committee Counsel

This past November I posted a series of entries dealing with bankruptcy cases from the Supreme Court's most recent term. In Part 5 here I discussed Baker Botts v. ASARCO. Briefly, the law firm of Baker, Botts did an outstanding job for a Chapter 11 debtor. In fact, through the law firm's efforts, ASARCO's creditors received payment of 100% of their claims. One entity, however, was most unhappy with the work of Baker, Boots, the parent corporation of ASARCO who Baker, Botts had sued for looting its subsidiary. Anyway, after losing the lawsuit against it and putting the cookies back into the jar, so to speak, and getting ASARCO's creditors paid, the parent corporation re-took control of it subsidiary and objecting to paying Baker, Botts for its work.

To no one's surprise, the courts, including SCOTUS, approved the fees incurred by Baker, Botts excluding, however, the fees it incurred in fending off the objections by the disgruntled parent corporation. In other words, Baker, Botts had to "eat" the cost of getting what every objective observer agreed it deserved.

The majority of SCOTUS came to its conclusion based on its reading of the relevant section of the Bankruptcy Code. The Court went on to note, however, that it might be possible for a firm in the position of Baker, Botts to recover the cost of successfully defending its fees if its contract with the Chapter 11 debtor so provided.

Fast forward to January 2016 when the law firm representing the committee of unsecured creditors in the Chapter 11 of Boomerang Tube inserted such a fee-shifting term in its agreement with the committee. Committees, for those not engaged with the details of Chapter 11 practice, jointly represent all unsecured creditors but, after court approval, are paid by the Chapter 11 debtor. The United States Trustee objected to inclusion of the fee-shifting provision and the bankruptcy court eliminated it.

The bankruptcy court found the provision objectionable for several reasons only one of which seems compelling to me: it would require a third party, the Chapter 11 bankruptcy estate, to pay for the defense fees of another party, its creditors' committee. You can read the full opinion here. The remainder of Judge Walrath's opinion is a cramped reading of every aspect of the Supreme Court's opinion in ASARCO and the relevant statutes.

I don't think it would be worth the Committee's time to appeal this decision. After all, getting a third party to pay fees spent in defending your fees is a stretch. I remain hopeful, however, that counsel for Chapter 11 debtors will fight for the contractual right to get paid in the face of formulaic objections to their fees from parties have no skin in the game. 

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