Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. _____ (2015). A divided court ruled that the plain language of 11 U.S.C. § 330(a)(1) allowed compensation only for “actual, necessary services rendered[,]” and that to allow fees for defending fee applications would be contrary to the statute and the “American Rule” that each litigant pay her own attorneys’ fees unless a statute or contract provides otherwise. Procedural BackgroundIn 2005, ASARCO, a copper mining, smelting, and refining company, filed for Chapter 11 bankruptcy protection.

Well, bankruptcy lawyers wouldn’t like that compensation arrangement any more than you. And on April 9, 2015, the Fifth Circuit issued an important opinion in Woerner v. Barron & Newburger, P.C. (“Woerner”) that overruled the Court’s prior decision in Pro-Snax Distributors, Inc. that had adopted a “hindsight” approach to awarding compensation to estate attorneys.In Woerner, the Fifth Circuit returned to a “prospective” approach stating: “We now recognize that the retrospective, ‘material benefit’ standard enunciated in Pro-Snax conflicts with the language and legislative history of [11 U.S.C. § 330], diverges from the decisions of other circuits, and has sown confusion in our circuit.” Accordingly, the Court overturned Pro-Snax and adopted the prospective, “reasonably likely to benefit the estate” standard endorsed by other circuits.

“Reasonableness” Factors: Section 330(a)(3) and JohnsonIn 2005, the Bankruptcy Code was amended to aid courts in assessing the reasonableness of fees. Section 330(a)(3) of the Bankruptcy Code sets forth six nonexclusive factors for courts to consider in evaluating the reasonableness of fee applications:the time spent on such services;the rates charged for such services;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;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;with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; andwhether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.Since the factors listed in section 330(a)(3) of the Bankruptcy Code are non-exhaustive, courts in the Fourth Circuit also consider the Johnson factors:the time

As Cole Schotz previously reported here, the Supreme Court held in Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (2015) that bankruptcy attorneys may no longer bill the debtor’s estate for fees incurred by the professional while defending its own fees from challenges. The Supreme Court reached this conclusion by looking to the language of 11 U.S.C. §330(a)(1), which provides that a professional employed by the estate may receive “reasonable compensation for actual, necessary services rendered by” the professional. ASARCO, 135 S. Ct. at 2165 (emphasis in original) (quoting 11 U.S.C. § 330(a)(1)).

Currently before the Supreme Court is Baker Botts, L.L.P. v. ASARCO, L.L.C. ,in which the Court will determine whether bankruptcy judges have discretion to award compensation for the defense of a fee application under 11 U.S.C. § 330(a). The decision in Baker Botts will likely resolve a circuit split and make clear whether a defense of a fee application is necessary to the administration of the case and, therefore, compensable.

The fees of these retained professionals are subject to court approval after a determination of “reasonableness” under section 330 of the Bankruptcy Code. Upon a determination that, among other things, the fees were (i) reasonable, necessary or beneficial to the estate (11 U.S.C. § 330(a)(3)(C)), and (ii) the amount of time spent was commensurate with the complexity, nature and importance of the issue or task (11 U.S.C. § 330(a)(3)(D)), a court will usually approve payment of such fees out of estate funds...Please see full publication below for more information.

rt would consider "whether patient care is a concern in the case," whether safeguards have been implemented to protect patients, and "the financial impact an ombudsman will have on the debtor." Id. at 369.Bankruptcy Rule 2007.2 sets forth the procedure for appointing a patient care ombudsman. It provides that the court "shall" order the appointment of an ombudsman unless it determines that the appointment is unnecessary based on a motion filed by a party in interest "no later than 21 days after the commencement of the case or within another time fixed by the court." Fed. R. Bankr. P. 2007.2(a). Bankruptcy Rule 2007.2(d) provides that, upon the motion of a party in interest, the court may terminate the appointment of an ombudsman if it finds that the appointment is not necessary to protect patients.If the court appoints an ombudsman, Bankruptcy Rule 2015.1 obligates the ombudsman to file certain reports with the court, as prescribed by section 333(b)(2) of the Bankruptcy Code. Further, section 330(a) of the Bankruptcy Code provides that patient care ombudsmen are entitled to apply for compensation from the estate.Other provisions of the Bankruptcy Code apply more generally to nonprofit (eleemosynary) entities, which include many hospitals and other health care providers. For example: (i) section 303(a) prohibits the filing of an involuntary bankruptcy case against "a corporation that is not a moneyed business, or commercial corporation," which has been construed to include nonprofit entities; (ii) section 1112(c) of the Bankruptcy Code prohibits the conversion of a chapter 11 case to a chapter 7 liquidation if the debtor "is not a moneyed, business, or commercial corporation"; and (iii) section 363(d)(1) of the Bankruptcy Code provides that, "in the case of a debtor that is a corporation or trust that is not a moneyed business, commercial corporation, or trust," a trustee or chapter 11 debtor-in-possession may use, sell, or lease estate property "only in accordance with nonbankruptcy law applicable to t

The United States Supreme Court ruled that 11 U.S.C. § 330(a)(1) does not authorize compensation to debtors’ attorneys from estate funds. Lamie v. U.S. Trustee, 540 U.S. 1023 (2004).

Section 330 retention, on the other hand, approves reasonableness, "to some extent (...) after-the-fact" and enables the court to review "all ‘relevant’ factors, including time spent, rates charged, whether services were necessary or beneficial at the time such services were rendered, whether the services were performed in a reasonable amount of time, and whether the compensation is reasonable based on a customary compensation charged by comparably skilled practitioners in nonbankruptcy cases. 11 U.S.C. § 330(a)(3)(A-F)." Id.

Section 330 retention, on the other hand, approves reasonableness, "to some extent (...) after-the-fact" and enables the court to review "all ‘relevant’ factors, including time spent, rates charged, whether services were necessary or beneficial at the time such services were rendered, whether the services were performed in a reasonable amount of time, and whether the compensation is reasonable based on a customary compensation charged by comparably skilled practitioners in nonbankruptcy cases. 11 U.S.C. § 330(a)(3)(A-F)." Id.