[co-author: Victoria Boyko]

In Baker Botts LLP v. ASARCO LLC, 2015 DJDAR 6509, the United States Supreme Court ruled that Section 330(a)(1) of the U.S. Bankruptcy Code does not authorize an award of attorney fees for defending a fee application.

ASARCO hired law firms to assist in a Chapter 11 bankruptcy. The two law firms prosecuted fraudulent‑transfer claims against ASARCO’s parent company. After the victory, the law firms sought compensation for their fees and filed applications in bankruptcy court. The parent company challenged the fee petitions and lost. In addition to receiving an award for the services performed, the Court also awarded the firms fees for the services incurred in “defending” a fee application. The Court of Appeals for the Fifth Circuit reversed that part of the decision and on appeal to the high court, SCOTUS affirmed.

The Court referenced the often cited to American Rule, which states that “[e]ach litigant pays his own attorney’s fees” unless otherwise provided by contract or statute. Here, the firms cited Section 327(a) of the Bankruptcy Code, which states that fees can be awarded to “professionals . . . hired to serve the administrator of the estate for the benefit of the estate.” The Court noted, however, that litigating fee applications against the bankruptcy administrator are not services performed for the benefit of the estate. The Court noted that if the legislature wanted to shift the burdens of fee‑defense litigation, it could have done so as it has in other Bankruptcy Code provisions.