Tuesday, November 08, 2016

A narrowing of Baker Botts v. ASARCO?

By Steve Stapleton

In Baker Botts v. ASARCO, 135 S.Ct. 2158, 2163 (2015), in an opinion authored by Justice Clarence Thomas, the United States Supreme Court held that Bankruptcy Code §330(a) does not authorize an award of attorney’s fees for work performed defending the attorney’s fee application because such defense is work performed for the benefit of the attorney, not for the benefit of the bankruptcy estate.  Recently an opinion from the bankruptcy court for the Middle District of Florida may herald a narrowing of the Supreme Court’s opinion.

In In re Stanton,1*  the chapter 7 trustee employed counsel to pursue fraudulent transfer claims against the debtor’s former wife.  The claims were ultimately settled, resulting in a recovery of $3.5 million in proceeds from the sale of certain stock and the recovery of certain real property that eventually sold for $3 million.  

Counsel for the trustee filed his fee application which conformed to the guidelines for such fee applications under the court’s local rules, to which the U.S. Trustee objected requesting additional information.  Counsel supplemented the fee application and filed a response to the U.S. Trustee’s objection.  Subsequently, counsel for the trustee filed a second interim fee application seeking an additional $33,840 for the work associated with the trustee’s objection and the supplemental application.  The U.S. Trustee filed an objection to $27,520 of the supplemental application stating the fees requested were incurred in defending the fee application and were therefore not recoverable under the Supreme Court’s Baker Botts decision.  The bankruptcy court, however, concluded otherwise.

In holding that the fees were recoverable, the court offered an analogy, offered first by Justice Thomas in his opinion:

By way of analogy, it would be natural to describe a car mechanic’s preparation of an itemized bill as part of his “services” to the customer because it allows a customer to understand – and, if necessary, dispute – his expenses.  But it would be less natural to describe a subsequent court battle over the bill as part of the “services rendered” to the customer.

Id. at 2167.

The bankruptcy court, seizing on the analogy, held that “[t]he touchstone … for determining whether fees are recoverable …[is] whether they were incurred in service to the estate.”  Id. n. 1 at *7.  The bankruptcy court concluded that here “the parties were not fighting over the amount of the bill but whether it was detailed enough.”  Id.  The “additional disclosure provided [a benefit to] the administration of the estate” because it allowed “other parties in interest to understand the work … performed and , if necessary, the ability to dispute [the] fees.”  Id. at *9.  

The bankruptcy court sums up its holding:  it is the nature of the work, not when it is performed, that determines whether it is compensable.  Notwithstanding an objection filed by the U.S. Trustee, if the work “allow[s] other parties in interest to understand the work performed,” it necessarily benefits the estate.  Had the trustee objected to the value of the services performed, it would arguably have not been compensable; but because the objection went to the quality and quantity of the disclosure, it was.  It is posited that smart lawyers will find this an opportunity large enough to drive a truck through.

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*1   Hyman v. Stanton, et al., Adv. No. 8:13-ap-0057-MGW (Bankr.M.D. Fla., Oct. 26, 2016).

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