In the Matter of: ASARCO, L.L.C., Debtor, ASARCO, L.L.C., Appellant v. JORDAN HYDEN WOMBLE CULBRETH & HOLZER, P.C., Appellee (Consolidated With Case Nos. 12-40998 & 13-40409, In the Matter of: ASARCO, L.L.C., Debtor, ASARCO, L.L.C., Appellant v. BAKER BOTTS, L. L. P., Appellee)
No. 12-40997
United States Court of Appeals for the Fifth Circuit
April 30, 2014
Before STEWART, Chief Judge, and HIGGINBOTHAM and JONES, Circuit Judges. EDITH H. JONES, Circuit Judge.
EDITH H. JONES, Circuit Judge:
Baker Botts and Jordan, Hyden, Womble, Culbreth & Holzer, P.C. (“Jordan Hyden“) served as debtor‘s counsel to ASARCO LLC (“ASARCO“) during its Chapter 11 bankruptcy and helped ASARCO confirm a reorganization plan that paid all of its creditors in full. The firms were well compensated pursuant to
I. Background
ASARCO is an integrated copper mining, smelting, and refining company.1 ASARCO entered Chapter 11 bankruptcy in 2005 facing cash flow deficiencies, various environmental liabilities, and tax and labor problems. Two years before ASARCO commenced its bankruptcy case, its Parent company directed ASARCO
Baker Botts and Jordan Hyden successfully prosecuted complex fraudulent transfer claims to recover ASARCO‘s controlling interest in SCC (the “SCC Litigation“). The judgment against ASARCO‘s Parent, valued at between $7 and $10 billion, was the largest fraudulent transfer judgment in Chapter 11 history. After 52 months in bankruptcy, ASARCO emerged pursuant to a plan of reorganization in late 2009 (funded by its Parent as a result of the SCC Litigation) with little debt, $1.4 billion in cash, and the successful resolution of its environmental, asbestos and toxic tort claims.
In their final fee applications, Baker Botts and Jordan Hyden sought lodestar fees, expenses, a 20% fee enhancement for the entire case, and fees and expenses for preparing and litigating their final fee applications. ASARCO, now once again controlled by its Parent, challenged the fees on a large scale (a challenge that included a discovery request covering every document Baker Botts produced during the 52-month bankruptcy, resulting in the production of 2,350 boxes of hard copy documents and 189 GB of electronic data).2 None of the objections to Bakers Botts‘s core fees were joined by the United States Trustee.
After a six-day fee trial, the bankruptcy court rejected all of ASARCO‘S objections to the core fee request and awarded more than $113 million to Baker Botts and $7 million to Jordan Hyden for core feеs and expenses. Approving percentage fee enhancements only for the work they performed on the SCC Litigation (rather than, as requested, on the entire case), the court awarded Baker Botts an additional $4.1 million and Jordan Hyden over $125,000. The court‘s calculation was based on “rare and exceptional” performance and results in the adversary proceeding and a finding that the standard rates charged by
On appeal to the district court, ASARCO abandoned its objections to the Baker Botts core fee award. The same judge who had presided over the SCC Litigation heard the appeal. The district court affirmed the fee enhancements, stating that “there is an abundance of evidence which supports [the bankruptcy] court‘s enhancement award . . . . A seven billion dollar judgment, which is recoverable, which saves a company, and funds a 100% recovery for all concerned is a once in a lifetime result.” The district court agreed that Baker Botts‘s and Jordan Hyden‘s fees to defend their core fees were compensable, and it did nоt disturb the bankruptcy court‘s authorization to seek an award of appellate fees for the same purpose. Because the court also held that attorneys’ fees were improperly awarded for Baker Botts‘s pursuit of its fee enhancement,3 it remanded to the bankruptcy court to determine whether any of the firm‘s $5 million defense-fee award related to the enhancement.
On remand, the bankruptcy court concluded that all of the defense-fee award compensated Baker Botts for defending core fees incurred in connection with the case. On appeal, the district court affirmed the final award. The district court also held that the firms’ appellate fees was permissible but premature. ASARCO has appealed.
II. Standard of Review
A bankruptcy court has “broad discretion” to determine reasonable attorneys’ fees, as the “bankruptcy court is more familiar with the actual services performed and has a far better means of knowing what is just and
We review a “district court‘s decision by applying the same standard of review to the bankruptcy court‘s conclusions of law and findings of fact that the district court applied.” Id. at 539 (citation omitted).
III. Discussion
A. Fee Enhancement
Section 330(a)(3) of the Bankruptcy Code provides a non-exclusive list of factors that bear on a court‘s determination of the reasonable compensation for actual, necessary services and expenses rendered by attorneys and other court-supervised bankruptcy professionals. See
[T]he court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including—
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;
(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
Elaborating on this provision, bankruptcy courts use the lodestar method, multiplying the number of hours of work performed by attorneys and paraprofessionals by the hourly rates of each. The total yields a lodestar amount. In re Pilgrim‘s Pride Corp., 690 F.3d 650, 654–55 (5th Cir. 2012) (citing Lawler, 807 F.2d at 1211). “[A]fter calculating the lodestar, bankruptcy courts retain[] the discretion to adjust the lodestar upwards or downwards to reflect their consideration of the Johnson factors.” Id.; Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir. 1974). See also
(1) The time and labor required; (2) The novelty and difficulty of the questions; (3) The skill requisite to perform the legal service properly; (4) The preclusion of other employment by the attorney due to acceptance of the case; (5) The customary fee; (6) Whether the fee is fixed or contingent; (7) Time limitations imposed by the client or other circumstances; (8) The amount involved and the results obtained; (9) The experience, reputation, and ability of the attorneys; (10) The “undesirability” of the case; (11) The nature and length of the professional relationship with the client; (12) Awards in similar cases.
Pilgrim‘s Pride, 690 F.3d at 654 (citations omitted) (emphasis added).
This court has clarified that Section 330(a), the lodestar method, and the Johnson factors work in conjunction with each other to guide the court‘s discretion. Id. at 656 (citing Cahill, 428 F.3d at 539–40). Because the four Johnson factors related to attorney skill and legal complexity are presumably
Although these general, well understood standards cover nearly all bankruptcy fee applications, the bankruptcy court here broke out of the usual lodestar mode by authorizing fee enhancements equal to 20% and 10%, respectively, of each firm‘s attorneys’ fees for pursuing the SCC Litigation. ASARCO takes a swipe at arguing that bankruptcy fee enhancements are never allowable solely for extraordinary attorney performance and results obtained. More pointedly, ASARCO challenges the lower courts’ additional findings of fact and their degree of articulation of the basis for the additurs. We address each of appellant‘s arguments.
ASARCO argues that the Supreme Court decision in Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 130 S. Ct. 1662, 176 L. Ed. 2d 494 (2010) prohibits court awarded fee enhancements subject to only three exceptions, and that neither law firm‘s enhancement request satisfies any of the exceptions.4 Perdue dealt with fee-shifting in civil rights cases.
ASARCO‘s contention that the judgment the firms achieved in the fraudulent transfer litigation was not “rare and exceptional” falls flat. In affirming the bankruptcy court‘s fee enhancement, the district court, which tried and rendered judgment in the SCC Litigation, stated that “there is an abundance of evidence which supports [the bankruptcy] court‘s enhancement award . . . . A seven billion dollar judgment, which is recoverable, which saves a company, and funds a 100% recovery for all concerned is a once in a lifetime result.” We do not disagree with the lower courts’ effusive evaluations of the results obtained.
Irrespective of exceptional results, ASARCO maintains that this court has never affirmed such a fee enhancement without some additional compelling factor. ASARCO argues, for instance, that the fees in Pilgrim‘s Pride were consented to, that the attorneys demonstrated exceptional efficiency, and that they had otherwise been compensated at below market rates. See id. at 653. The enhancement in Rose Pass Mines was also allegedly based on below market
In further critique of the enhancements for thе SCC Litigation, ASARCO challenges the bankruptcy court‘s finding that Baker Botts‘s rates were “below-market,” a fact that reinforced the court‘s fee enhancement decision. The court, however, amply documented its finding by reference to Baker Botts‘s customary practices, the charges of competitive firms in Texas, and the charges by comparable firms when representing parties to Chapter 11 cases pending in
ASARCO next contends that its arguments apply equally to Jordan Hyden and that, even if exceptional performance and results alone could justify an enhancement, Jordan Hyden‘s role in the SCC Litigation was largely administrative and undeserving of an enhancement. Jordan Hyden counters that it played an integral role in the SCC Litigation. While Jordan Hyden served as local counsel, the enhancement it received was less than 3% of that awarded to Baker Botts. The district court also addressed Jordan Hyden‘s importance at length, finding that its services were “necessary to the trial,” “essential to the overall result,” “necessary to the result,” and “part and parcel of the same team effort that achieved an extraordinary result.” There is no clear error.
ASARCO finally asserts that the fee enhancement was not “supported by both specific evidence on the record and detailed findings by the lower courts.” Pilgrim‘s Pride, 690 F.3d at 656 (internal quotation marks and citations omitted). We disagree. The bankruptcy court explained in detail how “rare and exceptional” the circumstances are. The bankruptcy court found that “Baker Botts‘s services were instrumental in producing the exceptional results.” Baker
The court singled out the firms’ prosecution of the SCC Litigation for fee enhancement precisely because it ascribed success to their efforts alone. The court described the SCC Litigation as ASARCO‘s “crown jewel.” “Baker Botts was able to quickly and efficiently” prevail “[t]hrough its creativity, tenacity, and legal talent.” The court found the results “were due to Baker Botts‘s performance and not to inferior performance by opposing counsel, unanticipated defense concessions, unexpectedly favоrable rulings, a sympathetic fact-finder, or simple luck.” Most impressive, Baker Botts won the trial “by deciphering millions of pages of documents and using those documents to tell a compelling story primarily out of the mouths of adverse witnesses.” The result was a
The bankruptcy court also found that Jordan Hyden was “involved in the overall planning and strategy with Baker Botts” and active at both the “top strategy level” and in the “day-to-day, often emergency, work” of the bankruptcy. Regarding the SCC Litigation, Jordan Hyden was “not an active trial participant” but prepared “twice-daily summaries of the trial” that “kept the entire Chapter 11 teams of lawyers and staff up to date on the SCC Litigation” and “assisted in the physical planning of [the] trial.” Consequently, Jordan Hyden‘s attorneys were an integral part of a successful team effort that was central to the success of the bankruptcy, and the bankruptcy court was within its discretion to award Jordan Hyden the modest fee enhancement.
B. Fees for Defense of Fees
The parties debate at length the bankruptcy court‘s award of counsel fees for counsel‘s defense of their fees for representing the debtor. The issues presented transcend debtor‘s counsel, because Section 330(a) governs compensation of all professionals whose fees are paid by the bankruptcy estate.6
Relevant here, Section 330(a)(3) instructs the court to consider “all relevant factors” concerning the professional services rendered, “including” “whether their services were necessary for the administration of, or beneficial . . . toward the completion of a case . . . ,” and “whether the compensation is reasonable” based on charges by comparable practitioners in non-bankruptcy cases. Section 330(a)(3)(C), (F). Compensation is not allowed for services that were not reasonably likely to benefit the debtor‘s estate or necessary to case administration. Section 330(a)(4) (with immaterial exceptions). Finally, “[a]ny compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application.” Section 330(a)(6).
Parties in interest as well as the United States Trustee are entitled to receive notice and the opportunity for a hearing to question bankruptcy professional fees. Section 330(a)(1). Implicit in this procedure is the possibility of fee litigation. Nevertheless, Section 330 states twice, in both positive and negative terms paraphrased above, that professional services arе compensable only if they are likely to benefit a debtor‘s estate or are necessary to case administration. Matter of Pro-Snax Distributors, Inc., 157 F.3d 414, 418 n.7 (5th Cir. 1998). The primary beneficiary of a professional fee application, of course, is the professional. While the debtor‘s estate or its administration must have benefitted from the services rendered, the debtor‘s estate, and therefore
Further supporting this interpretation is Section 330(a)(6), which limits potential professional fees in two ways. First, the specification of an award for “preparation of a fee application” is clearly different from authorizing fees for the defense of the application in a court hearing. Second, tailoring the award to the “level and skill reasonably required to prepare the application” emphasizes scrivener‘s skills over other professional work. It is untenable to construe this language alone to encompass satellite litigation over a fee application. Had Congress intended compensation for professional fee applications to be allowable as “reasonable and necessary” under Section 330(a)(3)(C), there would have been no need to create the limits specified in subdivision (4). The broad reading of Section 330(a)(3)(C) urged by Baker Botts would render Section 330(a)(4) superfluous.
Several arguments are made in favor of reimbursing fees for the defense of fees from the debtor‘s estate. One argument is that because resolving professional fees is required to close a case, their litigation is a reasonable and necessary aspect of estate administration. See In re Smith, 317 F.3d 918, 929 (9th Cir. 2002). The Smith court ultimately held that such compensation rests
In re Smith actually demonstrates the tension in applying the test of reasonableness and necessity to the debtor‘s estate when it comes to litigation over fee applications in bankruptcy. It cannot be denied that in bankruptcy, “almost everyone loses something.” Grant, 908 F.2d at 882 (internal quotation omitted). In ordinary cases, where there is no 100% payout to creditors, every dollar paid for administrative expenses including professional fees detracts from the unsecured creditors’ recovery. Litigation of professionals’ fee applications may become substantial, costly and time-consuming if counsel can be compensated for their self-interested efforts. Such litigation is detrimental for the debtor if it simply increases the overall administrative costs of the bankruptcy. Moreover, bankruptcy rules require professionals to justify their fee applications with detailed, itemized billing records precisely to assure their integrity and sharpen any potential disputes. See, e.g.,
Baker Botts analogizes granting “fees for fee defense” in bankruptcy to the procedure under federal fee shifting statutes, where counsel‘s time spеnt to prepare, litigate and appeal a fee award is often compensable. See, e.g., Cruz v. Hauck, 762 F.2d 1230, 1233-34 (5th Cir. 1985) (interpreting
Another argument favoring compensation for “fees for fee defense” rests on Section 330(a)(4), the comparability factor. Without reimbursement for “defense fees,” it is contended, a professional firm‘s compensation will be unfairly diluted below what comparably skilled practitioners receive in non-bankruptcy cases. This case, in which Baker Botts expended $5 million to defend its core fee award of over $113 million (excluding the enhancement), allegedly epitomizes such dilution. The claim for comparability is easily made but difficult to analyze. The Bankruptcy Code plainly intended to erase the “economy of the estate” rule under pre-existing law and thus raise the professional fees. In re Pilgrim‘s Pride Corp., 690 F.3d at 654-55. Beyond that, there is no litmus test to determine the comparability of professional services in bankruptcy and other practice areas. Applying reasonably comparable hourly rates and adjusting professional
One astute bankruptcy court turned a claim of dilution for non-comparable fees against the professional fee applicant with the following reasoning: “Because the American Rule applies absent explicit statutory or contractual authority, and because the Code contains no statutory provision for the recovery of attorney fees for defending a fee application, counsel should not normally be able to recover fees for defending a fee application in the bankruptcy court.” In re Teraforce Tech. Corp., 347 B.R. 838, 867 (Bankr. ND Tex. 2006) (emphasis added). See also In re Frazin, 413 B.R. 378, 400-07 (Bankr. N.D. Tex. 2009), In re JNS Aviation, LLC, No. 04-21055-RLJ-7, 2009 WL 80202 (Bankr. N.D. Tex. 2009) (adopting Teraforce). In federal court, the American Rule prohibits awards of counsel fees to a prevailing party absent statutory authority, contractual authorization, or “special circumstances.” In re Teraforce, 347 B.R. at 866 n.64. Baker Botts asserts that the American Rule is inapplicable in bankruptcy, because the statutory provision for professional compensation overrides the American Rule. The only authority cited for this proposition is a footnote in
What Congress has done, while fully recognizing and accepting the general rule, is to make specific and explicit provisions for the allowance of attorneys’ fees under selected statutes granting or protecting various federal rights. [fn. omitted]. These statutory allowances are now available in a variety of circumstances, but they also differ considerably among themselves.
Id. (emphasis added). The Court in Alyeska was hardly endorsing the interpretation of Section 330 fee compensation that Baker Botts persuaded the bankruptcy court to adopt. In any event, the Bankruptcy Act‘s compensation provision was significantly reworked by the more elaborate framework of Section 330, and, as has been discussed, Section 330 is not fairly read to include “fees for defense of fees” either as reasonable, necessary costs of case administration or to prevent dilution of the professional firm‘s core fees.
Finally, the bankruptcy court here repeatedly expressed concern that if “fees for defense of fees” cannot be awarded to professionals under Section 330, there will be an incentive for parties in interest, any of which can object to professional fees, to “mount objections to extract a fee reduction.” The prospect of such objections, in turn, might discourage competent counsel from handling bankruptcy cases. This court, in contrast, observed years ago that, “Too frequently, court-appointed counsel for debtor[‘s] and the official creditor committees’ interests in a case, sharing the mutual goal of securing approval for their fees, enter into a conspiracy of silence with regard to contesting each other‘s fee applications.” In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1255 (5th Cir. 1986).
Be that as it may, this opinion should not be read as encouraging tactical or ill-supported objections to fee applications. The Bankruptcy Code and rules require ample documentation of fee requests in part to deter satellite litigation. Section 330‘s capacious reasonableness and necessity standards shield even many unsuccessful professional actions in bankruptcy from attempts at fee reduction. We are confident that bankruptcy courts, practicing vigilance and sound case management, can thwart punitive or excessively costly attacks on professional fee applications. Where appropriate, the courts should not hesitate to implement the exception to the American Rule that allows fee shifting where an adverse party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S. Ct. 2123 (1991); In re Frazin, supra, 413 B.R. at 403. (No issues falling within Chambers were raised in response to reorganized ASARCO‘s fee objections here.)
Conclusion
For the foregoing reasons, the judgment of the district court is AFFIRMED as to fee enhancements awarded to Baker Botts and Jordan Hyden but REVERSED as to additional fee awards for litigation concerning their fee applications.
AFFIRMED IN PART, REVERSED IN PART.