Should you be paid for your services? ‘Absolutely!‘, you yell at the first person in front of you.

Should you get a bonus for the hard work you did on behalf of debtor’s estate, which allowed the estate to recoup a lot of assets? “Well of course…” you murmur under your breathe — “In Re Smith (2002) says so!”

Not so fast. The Supreme Court will answer the latter question by the end of the term. Submit those fee-apps quickly…just in case.

The Court will be tackling the issue of whether fees that resemble a form of bonus to the fee applicant, and costs incurred in defending that fee application should be compensable?

Ironically, on the fifth Tuesday in September – yes, fifth – the Court granted certiorari to the Fifth Circuit’s Baker Botts LLP v. Asarco LLC (“Asarco”), to answer this question.

The story unfolds like this — the law firm of Baker Botts represented Asarco during the company’s $1.7 billion bankruptcy settlement in 2009, which at the time was the largest environmental bankruptcy in U.S. history.

During the complicated case, Baker Botts did an exceptional job in recouping assets valued at nearly $7 billion via a successful fraudulent transfer litigation. Baker Botts submitted a $120 million fee application — plus a $4 million bonus to themselves for their hard work in recouping such assets for the estate.

I assume Baker Botts argued “‘but-for’ our hard work, the debtor’s estate would not have realized $7 billion of recouped assets”. While applauding the firm’s hard work, the bankruptcy judge agreed. The Debtor was livid at such a fee application, and vehemently objected. In defending its fee application, Baker Botts incurred an additional $5 million. Now, should Baker Botts be able to recoup this $5 million additional fee?  We will find out.

While the bankruptcy and district court approved the fees under §330 — the Fifth Circuit said not so fast.  The Fifth Circuit said those fees do not benefit the debtor’s estate nor are they necessary for the administration of the case — and as such, sorry Baker Botts, but you do not get those fees.

Baker Botts immediately filed a petition to the high court arguing that the Fifth Circuit’s decision conflicts with the Ninth Circuit’s (which allows the bankruptcy court discretion to award such fees under 330(a)).

Our Ninth Circuit, in In re Smith (2002), has said that fees stemming from those types of services that Baker Botts performed are “actual and necessary services”, and thus compensable. Phew.

Come June 2015, the circuit split shall be resolved, and we should finally find out how discretionary §330 can be.

For further information, please see the source: ABI World, In Asarco Case, by Valeria Morrison and John Farnum.

Link http://www.abiworld.org/e-news/AsarcoAnalysisArticle.pdf