Asarco, L.L.C. v. Barclays Capital, Inc.
702 F.3d 250
| 5th Cir. | 2012Background
- ASARCO filed a voluntary Chapter 11 bankruptcy in August 2005 in the Southern District of Texas.
- ASARCO initially retained Lehman Brothers as financial advisor; an Engagement Letter set scope and compensation with monthly fees and a $4 million potential transaction fee credited by advisory fees.
- Barclays later acquired Lehman’s advisory business; a Revised Engagement Letter increased monthly fees and a $5 million transaction fee, and allowed a discretionary fee for a successful outcome.
- Plan confirmation in November 2009 yielded a 100% creditor return and Grupo Mexico’s reacquisition of ASARCO; Barclays’s role was praised for aiding the successful reorganization.
- Barclays sought $1,202,500 for unanticipated services, a $2 million Success Fee, and a $6 million Auction Fee; the bankruptcy court awarded $975,000 for unanticipated services but denied the Success and Auction Fees.
- The district court affirmed the bankruptcy court’s rulings; ASARCO appealed the $975,000 award, and Barclays appealed the denial of the Success Fee.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the § 328(a) award of $975,000 was proper | ASARCO argues the developments were anticipatable; the agreement’s terms were improvident only if truly unanticipatable. | Barclays contends the later services were outside the original scope and not capable of anticipation. | Reversed; the $975,000 enhancement was improper under § 328(a). |
| Whether the district courts should review the anticipation standard de novo | ASARCO contends de novo review is proper for the 'not capable of anticipation' finding. | Barclays argues the record supports improvidence and should be reviewed for abuse of discretion. | De novo review applies to the anticipation issue; improper to review the enhancement for clear error. |
| Whether the Success Fee should be awarded after reversing the fee enhancement | Barclays requests the discretionary Success Fee under the Revised Engagement Letter's terms. | ASARCO argues no basis remains for a Success Fee if the enhancement is improper. | Remand to consider if a discretionary Success Fee is appropriate after vacating the $975,000 award. |
| Whether § 330(a)(3) factors apply to a pre-approved § 328(a) contingency/ discretionary fee | Barclays contends § 330(a)(3) factors should govern the Success Fee since it was discretionary. | ASARCO and the court held that § 328(a) contract governs; § 330 factors not required absent explicit contract. | The contract governs; the bankruptcy court did not err by declining to apply § 330(a)(3) absent express language. |
| Whether Barclays’ market-rate compensation finding was clearly erroneous | Barclays asserts it was compensated at market rate. | ASARCO asserts the finding was not clearly erroneous. | No clear error; Barclays was paid at market rate. |
Key Cases Cited
- In re Barron II, 325 F.3d 690 (5th Cir. 2003) (improvident fee adjustments require specific, unforeseeable developments)
- In re Barron I, 225 F.3d 583 (5th Cir. 2000) (district court must explain why post-approval changes are warranted)
- In re Coho Energy, Inc., 395 F.3d 198 (5th Cir. 2004) (improvident exception for contingent fees when initial terms were improvident due to unforeseen arbitration findings)
- Nat'l Gypsum Co., 123 F.3d 861 (5th Cir. 1997) (protects § 328(a) agreements once approved)
- In re Texas Securities, Inc., 218 F.3d 443 (5th Cir. 2000) (distinguishes § 328(a) vs § 330 review when pre-approval occurs)
- Smart World Techs., LLC, 552 F.3d 228 (2d Cir. 2009) (§ 328(a) provides certainty; improvising after the fact is disfavored)