Baker Botts LLP v. Asarco LLC

Litigation Fees Incurred By Counsel in Defense of Bankruptcy Fee Application are not Compensable

By Michael L. Moskowitz and Michele K. Jaspan

The Supreme Court recently ruled that bankruptcy courts may not award legal fees to professionals for the costs incurred in defending their fees. The decision in Baker Botts, LLP v. ASARCO, LLC, written by Justice Clarence Thomas for the majority, held that section 330(a) of the United States Code does not give bankruptcy courts the discretion to award fee-defense fees under any circumstances. Thus, the Supreme Court affirmed the ruling by the Court of Appeals for the Fifth Circuit which reversed the bankruptcy court’s fee award to Debtor’s counsel for costs incurred in defense of its $120 million fee application.  The Baker Botts firm sought to recover in excess of $5 million for time spent litigating in defense of their fee application in Asarco’s Chapter 11 bankruptcy case.

The United States Supreme Court recently reversed a ruling from the Eleventh Circuit in the case of Bank of America, N.A. v. Caulkett, which had permitted individual chapter 7 debtors to “strip” junior liens off their homes when the first mortgage lien was underwater. The Supreme Court held that a debtor in a chapter 7 proceeding may not void a junior mortgage lien under section 506(d) of the Bankruptcy Code when the debt owed on a senior mortgage lien exceeds the current value of the collateral, if the creditor’s claim is both secured by a lien and allowed under section 502 of the Bankruptcy Code.