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U.S. Supreme Court Holds Bankruptcy Lawyers Not Entitled to Compensation for Defending Fees

In Baker Botts v. Asarco, 576 U.S. __ (2015), the United States Supreme Court held that Section 330(a)(1) of the Bankruptcy Code does not permit a bankruptcy court to award attorney’s fees for work performed in defending a fee application in court. Debtor-in-possession’s law firms had prosecuted a fraudulent-transfer claim against Debtor’s parent company and obtained a judgment against it worth between $7 and $10 billion. The law firms were awarded $120 million for their work plus a $4.1 million fee enhancement. Post-bankruptcy, the Debtor was again controlled by its judgment-debtor parent, which objected to the law firms’ fees. The bankruptcy court rejected the fee challenge following extensive discovery and a 6-day trial. The court also awarded the law firms over $5 million for time spent litigating in defense of their fee applications. The Supreme Court reversed this award, holding that Congress did not expressly depart from the American Rule — that each litigant pays its own attorney’s fees, win or lose — to permit compensation for fee-defense litigation by professionals hired to assist trustees in bankruptcy proceedings. The Court noted that Section 330(a)(1) does not authorize the award of fees for defending a fee application, and that is the end of the matter. “Our job is to follow the text even if doing so will supposedly undercut a basic objective of the statute.” (internal quotations omitted).

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