ASARCO LLC v. Barclays Capital Inc. (In Re ASARCO LLC)
457 B.R. 575
S.D. Tex.2011Background
- ASARCO filed Chapter 11; Lehman Brothers served as financial advisor; Lehman sought and received an initial fee arrangement approved under §328(a).
- After Lehman’s own bankruptcy, BarCap acquired Lehman’s contracts/assets and renegotiated terms to a BarCapEngagementLetter approved under §328(a).
- BarCap sought discretionary fees including $1.2M for Lehman’s unanticipated services and $8M in discretionary fees; the Bankruptcy Court awarded $975k for Lehman’s unanticipated services but denied the other discretionary fees.
- SCC Judgment (a valuable ASARCO asset) was auctioned; BarCap proposed a supplemental engagement letter with up to $6M for a Successful Sale/Bid Fee, which was not approved.
- Post-confirmation, ASARCO and Parent appealed the Bankruptcy Court’s rulings on the Lehman-related $975k, the denial of the $2M Success Fee, and the denial of the $6M SCC Auction Fee; the district court consolidated the actions.
- The district court ultimately affirmed the Bankruptcy Court’s rulings and denied BarCap’s requested $2M and $6M fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Lehman $975,000 award complied with §328(a) standard | ASARCO argues the award misapplies the 'incapable of anticipation' standard | BarCap contends the award reflects proper §328(a) analysis recognizing unforeseeable developments | Affirmed: the award complied with §328(a) and the 'incapable of anticipation' standard. |
| Whether the $2,000,000 Success Fee was permissible | BarCap seeks the fee under the BarCap Engagement Letter’s §6(f) factors | BarCap argues totality of circumstances supports the fee; court should apply §328 or §330 | Denied: the court affirmed denial of the $2M, finding a coalescence of factors beyond BarCap’s services and no single factor justified the award. |
| Whether the $6,000,000 SCC Auction Fee was warranted | BarCap asserts the Supplemental Engagement Letter authorized a Success Fee for the auction | Bankruptcy Court found the Supplemental Letter was never approved and that the auction was not successful | Denied: the fee was not warranted; the SCC auction was covered by the original engagement and no completed successful auction occurred. |
Key Cases Cited
- Barron II, 325 F.3d 690 (5th Cir. 2003) (strict §328(a) standard controls fee adjustments; must be improvident due to unanticipatable developments)
- National Gypsum, 123 F.3d 861 (5th Cir. 1997) (purpose of §328 is to attract professionals to bankruptcy estates)
- In re Cahill, 428 F.3d 536 (5th Cir. 2005) (trump §330 factors when pre-approved under §328; post-approval §330 analysis limited)
- In re XO Communications, 398 B.R. 106 (Bankr. S.D.N.Y. 2008) (§330 factors may apply if engagement not pre-approved under §328)
- In re Tex. Sec., Inc., 218 F.3d 443 (5th Cir. 2000) (§330 factors govern reasonableness when not pre-approved under §328)
- In re Coho Energy, Inc., 395 F.3d 198 (5th Cir. 2004) (abuse-of-discretion standard for bankruptcy compensation decisions)
- In re Mirant Corp., 354 B.R. 113 (Bankr. N.D. Tex. 2006) (rare and exceptional standard for fee enhancements cited by some courts)