ASARCO hired the plaintiff law firms to assist it in carrying out its duties as a Chapter 11 Debtor in Possession (DiP) per 11 U.S.C. 327(a). When ASARCO emerged from Bankruptcy the law firms filed Fee Applications pursuant to 11 U.S.C. 330(a)(1), which permits the Bankruptcy Court to “award …reasonable compensation for actual, necessary services” by professionals.
Lower Court Rulings
ASARCO objected to the Fee Applications brought by its Attorneys. The Bankruptcy Court rejected ASARCO’s objections and went on to award fees for time spent defending the Fee Applications. On appeal from the Bankruptcy Court Order, The District Court held that the Law Firms could be awarded fees for defending their Fee Applications. On appeal from the District Court’s Order, the Fifth Circuit Court of Appeals reversed.
Supreme Court Opinion
The Supreme Court affirmed, noting that Sec. 330(a)(1) does not permit Bankruptcy Courts to award fees to 327(a) professionals for defending Fee Applications. The “American Rule” provides the point of reference for such decisions: namely, that every litigant pays his own Attorneys’ Fees, win or lose, unless a statute or contract provides otherwise.
The Court went on to observe that Congress did not depart from the American Rule in 330(a)(1) for fee-defense litigation. The phrase “reasonable compensation for services rendered” implies “loyal and disinterested service in the interest of” a Client. Thus, time spent litigating a Fee Application against the Bankruptcy Estate’s Administrator does not “labor performed for”—let alone “disinterested service to”—that Administrator.
As stated by the Court, requiring Bankruptcy Attorneys to bear the costs of their fee-defense litigation under 330(a)(1) “creates no disincentive to bankruptcy practice.” Hear that Bankruptcy lawyers? You’re on your own.
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