U.S. Supreme Court Taking On Fees for Bankruptcy Attorneys
Tuesday, October 7, 2014

The U.S. Supreme Court has agreed to hear a case that challenges the right of bankruptcy courts to award attorneys’ fees at their discretion, giving rise to a concern that the high court will set precedent in dictating how attorneys are compensated for their work.

The case involves the 2005 bankruptcy filing by Asarco LLC, the Arizona copper mining division of Grupo Mexico, which sought protection from a number of environmental and toxic-tort claims as well as a labor strike.  After a Texas judge assessed a $6 billion judgment against the company for improperly transferring Asarco’s main asset to the parent company prior to the bankruptcy filing, Grupo Mexico agreed to compensate Asarco’s creditors in full.

Baker Botts, lead counsel for Asarco, earned $113 million in fees as well as a $4 million bonus awarded by the judge for its work on the case settlement.  In addition, the judge gave Baker Botts another $5 million in fees for having to defend itself against an array of fee objections from Asarco.

Grupo Mexico then challenged both the $4 million bonus and the $5 million in fee defense expenses and a U.S. District Court upheld the awards.  On appeal, the Fifth U.S. Circuit Court of Appeals reversed the district court’s opinion, saying that litigation over fees could escalate if law firms can be compensated for “their self-interested efforts” and that the Bankruptcy Code does not allow for these types of payments.

Circuit courts have split on how much power bankruptcy courts have in awarding fees, leaving it to the U.S. Supreme Court to deal the final hand.  The high court is expected to decide on the case during its new term that ends next June.

 

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