Amicus Curiae Brief — Baker Botts, L.L.P. v. Asarco, L.L.C., 135 S. Ct. 697 (2014) (No. 14-103)

Court, U.S.

FILED

DEC 10 2014

OFFICE OF THE CLERK

No. 14-103

IN THE

Supreme Court of the United States

BAKER Botts L.L.P. AND JORDAN, HYDEN, WOMBLE,

CULBRETH & HOLZER, P.C..,

Petitioners,

ASARCO LLC,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

AMICUS BRIEF OF NEUTRAL FEE EXAMINERS

SUPPORTING NEITHER PARTY

Counsel for Amici:

Brady C. Williamson*

bwilliam@gklaw.com

Patricia L. Wheeler

Godfrey & Kahn, S.C.

One East Main Street, Suite 500

Madison, WI 53703

608-257-3911

Counsel of Record

TABLE OF CONTENTS

Page

pr OP Ge Mt 8 RR renee a il

INTEREST OF THE AMICI CURIAE.......00..0..00.0.... 1

SUMMARY OF ARGUMENT .......000......0......0cccccceeeeeee 5

Fy RAMEN SIS IC eee ab late Ee Pa 6

A. The Law Is Unsettled on Compensation

for Defending Fee and Cost Objections. ......... 7

B. 11 U.S.C. § 330 Provides a Statutory

Basis for Awarding, After a Heightened

Review, Limited Compensation for the

Defense of a Challenged Fee

PRR BERS ANist nd SORE, SL Pe ea eee tee 11

C. Any Award of Compensation for

Defending a Challenged Fee

Application Requires a Heightened

eh Reeth LAI OCT ILLS 13

D. The Practical Approach Developed in

the American Airlines and Genera/

Motors Proceedings Provides Context

for the Court’s Decision Here........................ 18

ee |i SPU PRA ERs Dai orcersch acta 9 een Pes aR OP 30

TABLE OF AUTHORITIES

Page

CASES

CCT Communications, No. 07-10210,

2010 WL 3386947 (Bankr. S.D.N.Y.

Maa TOR I shh eck cessed vccinicconenccsavan 19, 20

Commissioner, I_N.S. v. Jean, 496 U.S.

Be I so srsertenaicdecs cous ady aieclrverapcnecie ci eecoseclsuabiszaciewaan 25

Hensley v. Eckerhart, 461 U.S. 424

RU ica ea a sepastuleceoue 24, 25

Hewitt v. Helms, 482 U.S. 755 (1987) ..........00...0000. 24

In re Ahead Commcins Sys., Ine.,

No. 02-30574, 2006 WL 2711752

(Bankr. D. Conn. Sept. 21, 2006) ........................... )

In re ASARCO LLC, 751 F.3d 291 (5th

Cir.), cert. granted, 135 S. Ct. 44

SID duhicic ssccccns tonsetrcsddaieatn osmeicennanaiacnamtahua opel 2, passim

In re Brous, 370 B.R. 563 (Bankr.

ee We OE didi tiie ansnsds hcopseespncinsedscuisaconaveeicses 8

In re Busy Beaver Bldg. Ctrs., Inc., 19

Ir I 7

In re Engel, 124 F.3d 567 (3d Cir. 1997)................. 20

In re Lehman Bros. Holdings Inc.,

No. 13-CIV-2211, 2014 WL 3408574

Oe i: I I: ae ad 19

In re Motors Liquidation Co.,

No. 09-50026, 2010 WL 285359

(Bankr. S.D.N.Y. Nov. 23, 2010).............. 19, 20, 22

il

In re Nucorp Energy, Inc., 764 F.2d 655

as isa panepamubveneuacs 10

In re Parklex Assocs. Inc., 435 B.R. 195

CRmaiew, BUDE. Y.. BVO)... .ccccccccccccccccdcccccccoccccocccncees G

In re Riverside-Linden Inv. Co., 945

F.2d 320 (9th Cir. 1991) ooo... cece cccccccceccccceeeeee eee 8,9

In re Smith, 317 F.3d 918 (9th Cir.

el a susan sawnsbsdenaneenens 7,9, 10

In re St. Rita’s Assocs. Private

Placement, L.P., 260 B.R. 650 (Bankr.

Te MD aonb vckiceceectccnncaccussscvocacsscocesceccovecvees 8,9

In re Teraforce Tech. Corp., 347 B.R.

838 (Bankr. N.D. Tex. 2006) .......00..0000.0000..00cc ce 8,9

In re Wireless Telecomms., Inc., 449

B.R. 228 (Bankr. M.D. Pa. 2011) .000000000..0....00ccceee. “

In re Worldwide Direct, Inc., 334 B.R.

Re BIE ici sccccchcocccidnsndccocnsecnvovecesncecescccceses G

Judicial Watch, Inc. v. F_B.I., 522 F.3d

364 (D.C. Cir. 2008)...................0cccccccesesccccccsessesers 26

Nadeau v. Helgemoe, 581 F.2d 275 (ist

sc psbnbaoesaeusonsunenn 24

Painewebber Income Properties Three

Ltd. P’ship v. Mobile Oil Corp., 916

F. Supp. 1239 (M.D. Fla. 1996) .........000000..0cccccccee. 24

Texas State Teachers Ass'n v. Garland

Independent School Dist., 489 U.S.

ea eral Se RASS a ans 24

West Virginia Univ. Hosp., Inc. v.

Casey, 499 U.S. 83 (1991) 2.0.0.0... cccccc cc cccecccceeeeeeeees 23

il

Zarcon, Inc. v. N.L.R.B., 578 F.3d 892

Betta Cher. BGP asenisasiscisiciassecsennoncennaduciniaieneee maaan 26

STATUTES AND OTHER AUTHORITIES

12 U.S.C. G6 SBT BBO «..0.cenccnccnsesscvosnesnstseetenenaeneee 2

11 UG... § SBT occ <cccccesseccscccovcscrmnesstecleeeenee 2

Ris Tom f eminem 6, 11, 13, 15

11 U.G.C. § SBOGa).........-0cc0sessicecncssenssesenneuaeaneainae 5

13 UB.C. © BRQGRM ID .c0vccceesioscsdasascncsensdeshenn ae 3

11 U.S.C. § SBOE) .q...<cccccssvesrcesccssntsnsennenee 11

21 U.B.C. § SOO cncecesscrssecsceescntaeee 10, 15

12 U.B.C. § SBOGRIGD ...0cceccscsicccooossssocscntenteeesaunee 7

12 U.B.C. § SRB I) ....0ccescciccssincscesniclcieneeeeeee 11

11 U.G.C. § GOBER. .....cccccccccccesicecsesesssnniceeen ae 18

22 UGC. § O66 oocccccccenseveceveccuscecsasmeuscnts een 14

Ris Com f° ) Mamet 14

12 UBA.C. © B6B....cccccisissccesssecssnoveoeeee ae 14

15 UB.C. © GOOG csccvsccisscsonceosescesncenenan ee 26

28 U.S.C. § GOR IIOAD ecseccitnsenscsecssennnepecceeaeel 2

3 Collier on Bankruptcy (Alan N.

Resnick & Henry J. Sommer eds.,

1Gtha oll. BODE) ..ccencsavesinnvoecconerenseciscalalesenaeeeee 7

5 U.B.C. § CUB CAI oc nnsincsiccacdetscssanpntaanaiaenian 26

5 U.S.C. § GER GC icckcccessnrenonctsectetastnecibiibaiane 26

Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005,

Pub. L. No. 109-8, 119 Stat. 23 (2005)................. 15

iV

Bankruptcy Amendments and Federal

Judgeship Act of 1984, Pub. L.

No. 98-353, 98 Stat. 333 (1984)

II MN BE BEG, © BD cc cnccnencocccasecsceccscoscccere 15

Bankruptcy Reform Act of 1978, Pub. L.

No. 95—598, 92 Stat. 2549 (1978)... 15

Bankruptcy Reform Act of 1994, Pub. L.

No. 103-394, 108 Stat. 4106 (1994).........00000000..... 15

Nancy B. Rapoport, Rethinking

Professional Fees in Chapter 11

Cases, 5 J. Bus. & Tech. L. 263 (2010) ................ 18

Stephen J. Lubben, Corporate

Reorganization & Professiona/ Fees,

IE, Bade, FO QUID vnccsscnctvsvcescecsccversesses 18

RULES

a ocean bin cabiianeniannanieetonns 2

I I ST a arccsntaticnboasnasessauinastosceswenssicas 14

INTEREST OF THE AMICI CURIAE

The amici curiae are practicing lawyers and law

professors, without a financial stake in this appeal,

who share the practical experience of U-S.

Bankruptcy Court appointments to review the fees

and costs of professional firms seeking compensation

from the estate in large Chapter 11 proceedings. By

definition neutral, they have provided detailed

analysis of fee applications—and, on occasion,

objected to them—to assist bankruptcy courts in

fulfilling their responsibility under the USS.

Bankruptcy Code to review and approve professional!

compensation.

Specifically, the amici have analyzed professional

fee applications—line by line—on an interim and on

a final basis, making recommendations to the courts

that appointed them. Fee examiners have a

recognized role in the fee review process in some

cases, whether fees have gone unchallenged by

parties in interest or fees have been challenged, as

they are here, through four courts and over

52 months. The amici support neither side in this

appeal.!

! Pursuant to Rule 37.6 of the Rules of the Supreme Court, the

amici file this brief with the written consent of all parties. The

petitioners’ consent was given generally and noted on the

docket on October 8, 2014. The respondent’s consent came in a

December 3, 2014 communication from its counsel. No counsel

for a party wrote this brief in whole or in part. No person or

entity other than the amici or his/her counsel made a monetary

contribution for the submission of this brief; it has been

prepared pro bono.

By all accounts, this has been and remains an

“extraordinary” case—with the creditors paid in full,

no taxpayer funds expended, the legal services

provided “exceptional,” and the Chapter 11 outcome

a “once in a lifetime result.”2. Yet the amici and the

country’s 95 bankruptcy courts conduct themselves

daily in the more ordinary business environment

where creditors almost never are paid in full and the

outcomes are rarely so satisfying despite the usually

diligent efforts of the retained professionals. And

the decision here will affect the ordinary Chapter 11

proceedings, including those involving fee objections

and the defense of fees, no less than it will affect the

parties here.

The Bankruptcy Code requires bankruptcy courts

to review professional fees and expenses.* See

generally 11 U.S.C. §§ 327-330. Congress also has

mandated the involvement of U.S. Trustees in that

process. 28 U.S.C. § 586(a)(3)(A). The Bankruptcy

Code, the Federal Rules of Bankruptcy Procedure,

and guidelines issued by the bankruptcy courts and

the U.S. Trustees impose rigorous timekeeping and

reporting standards on professionals. F.g., Fed. R.

Bankr. P. 2016. Those standards help ensure the

integrity of the system and provide a basis for a

2 Baker Botts L.L.P. v. ASARCO LLC, 751 F.3d 291, 296-98

(5th Cir. 2014) (accepting the district court's “effusive

evaluation of the results obtained”).

3 Although this case involves two law firms, referred to

collectively in this brief as “Baker Botts,” the Bankruptcy Code

requires financial advisors, accounting firms and others to

submit their fees and expenses for court review and approval.

See 11 U.S.C. § 327(a).

court’s determination that the professional fees are

both reasonable and necessary under 11 U.S.C.

§ 330(a)(1).

Even with electronic data and filing now widely

in use, those detailed reporting requirements impose

a significant burden on the courts: daily narrative

time records for hundreds and, in some proceedings,

thousands of timekeepers fill thousands of pages and

hundreds of thousands of lines. On occasion, usually

by stipulation, the bankruptcy courts have utilized

fee auditors, fee examiners, and fee committees to

provide quantitative and qualitative analysis and

recommendations. The amici here have provided

those services in a series of Chapter9 and 11

proceedings, see Petitioners’ Brief at 48, and it is

from that perspective that they submit this brief.

Robert Keach is a partner in Bernstein Shur,

Portland, Maine, responsible for that firm’s

bankruptcy practice. On the appointment of the

U.S. Bankruptcy Court for the Southern District of

New York, he was the fee examiner in AMR, /n re

AMR Corp., U.S. Bankruptcy Court, Southern

District of New York, Case Nos. 11-15462 through

11-15481 (2011-2013), the Chapter 11 proceeding

initiated by and for American Airlines, in which the

professional fees requested totaled more than

$400 million. He is serving now as the fee examiner

in two Chapter1l cases pending in the USS.

Bankruptcy Court for Delaware, Exide Technologies,

Case No. 13-11482 (2013), and Jn re Mineral Park,

Inc., Case Nos. 14-11996 through 14-11999 (2014).

Mr. Keach co-chairs the Commission to Study the

Reform of Chapter 11, established by the American

Bankruptcy Institute.

Nancy Rapoport is the Gordon Silver Professor of

Law at the William S. Boyd School of Law at the

University of Nevada, Las Vegas, and serves as the

Senior Advisor to UNLV’s president. Her focus has

been bankruptcy ethics, law firm conduct, and ethics

in governance, writing extensively about these

issues. She has served as a fee examiner and

testifying expert in a_ series of Chapter 11

proceedings, including Jn re Station Casinos, Inc.,

U.S. Bankruptcy Court, District of Nevada, Case

Nos. BK-09-52477 through BK-11-51219 (2011); Jn

re Pilgrims Pride Corp., U.S. Bankruptcy Court,

Northern District of Texas, Case No. 08-45664

(2009-2010) (testified at hearing); and Jn re Mirant

Corp., U.S. Bankruptcy Court, Northern District of

Texas, Case No. 03-46590 (2003-2006; 2011-2012)

(testified). She also was a testifying expert in the

bankruptcy court in this matter, though that

testimony was limited to the fee enhancement

request, no longer at issue.

Brady C. Williamson is a partner at Godfrey &

Kahn, based in Milwaukee, and he also has taught

at the University of Wisconsin Law School. The firm

has served as counsel to the court-appointed Fee

Committee in the Lehman Brothers Chapter 11

proceeding, in which the professional fees totaled

more than $1.75billion, and in Energy Future

Holdings, Inc., Case No. 14-10979 (CSS), pending in

the U.S. Bankruptcy Court for Delaware. He was

the fee examiner in the General Motors Chapter 11.

In re Motors Liquidation Co., No. 09-50026, WL

285359 at*1 (Bankr. S.D.N.Y. 2010), (“Genera/

Motors’). He has submitted amicus briefs to this

Court in three other bankruptcy cases: Centra/

Virginia Community College v. Katz, 546 U.S. 356

4

(2006); 7il/ v. SCS Credit Corp., 541 U.S. 465 (2004);

and, Tennessee Student Assistance Corp. v. Hood,

541 U.S. 440 (2004).

Robert M. Fishman is a member of the Chicago

law firm of Shaw Fishman Glantz & Towbin LLC

and co-head of that firm’s bankruptcy practice. On

the appointment of Hon. Steven W. Rhodes, U.S.

Bankruptcy Court for the Eastern District of

Michigan, he serves as the fee examiner in the City

of Detroit Chapter 9 case, Jn re- City of Detroit,

Michigan, Case No. 13-53846, in which the

professional fees requested total approximately

$170 million. He is a former president of the

American Bankruptcy Institute and a Fellow of the

American College of Bankruptcy.

SUMMARY OF ARGUMENT

The U.S. Court of Appeals concluded, as a matter

of law, that the Bankruptcy Code, in section 330(a),

“does not authorize compensation for the costs

counsel or [other] professionals bear to defend their

fee applications.” Jn re ASARCO LLC, 751 F.3d 291,

302 (5th Cir.), cert. granted, 135 S. Ct. 44 (2014).

This statutory construction has established, at least

in the Fifth Circuit, a rule that a professional may

virtually never be compensated by the estate for

defending a challenge by anyone to any request for

compensation.

The law firms that have represented the Debtors

in this proceeding, disappointed in the Fifth Circuit’s

ultimate resolution of their fee applications, have a

different perspective. A bankruptcy court, they

argue, has a very “broad grant of discretion” to

award professional fees incurred in the defense of a

challenged fee application. Pet. Brief at 4. Neither

5

party’s perspective is wholly persuasive. Instead, a

more appropriate standard could permit the law

firms to be compensated—at least in part—for their

successful fee defense.

This Court should vacate the U.S. Court of

Appeals’ decision and remand the dispute. The

bankruptcy court should be able to approve

compensation for a professional firm defending a fee

application where the time and services involved in

that defense were not only “reasonable” and

“necessary” but where the professional substantially

prevailed in the defense of its application for

compensation. —

ARGUMENT

ASARCO objected to Baker’ Botts’ fee

applications—applications submitted largely using

the lodestar method under 11U.S.C. § 330.

ASARCO also objected to the firms’ request for

enhanced fees based on the extraordinary outcome of

the proceeding. And, finally, ASARCO objected to

the fees incurred by Baker Botts in defending the

applications against the objections. This appeal

solely involves the fee defense issue, asking if the

Bankruptcy Code “grants bankruptcy judges

discretion” to award compensation for defending a

fee application. Question Presented, p. (i), Pet.

Brief. Yet that is only part of the question.

At the outset, it is noteworthy that the resolution

of the other fee issues, either by the bankruptcy

court or consensually or both, is not atypical for a

Chapter 11 proceeding. The bankruptcy court must

approve all compensation requests, regardless of

whether a party in interest objects. See /n re Busy

Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 841 (3d Cir.

6

1994). Litigated fee challenges that result in a

judicial] resolution rising through the U.S. Court of

Appeals are nevertheless uncommon—even in very

significant cases.

On remand from the district court here, the

bankruptcy court concluded that the $5 million

defense fee award was for the defense of the lodestar

fee request and not for the de*-nse of the fee

enhancement. There has been no finding that any

ASARCO objections were frivolous or made in bad

faith. Indeed, tne objections themselves are not at

issue. It is the very fact of the bankruptcy court’s

defense fee award, not its precise contours or

amount, that the certiorar7 petition placed at issue.

A. The Law Is Unsettled on Compensation for

Defending Fee and Cost Objections.

The Bankruptcy Code permits a_ retained

professional to seek compensation for preparing a fee

application but only based on “the level and skil!

reasonably required to prepare thiat]) application.”

11 U.S.C. § 330(a)(6). Standing alone, however, that

provision leaves open the question of whether time

spent responding to requests for documentation or

other information about a filed fee application, or

responding to an objection, is compensable. Whether

or not there is now a circuit split, this Court has

decided to resolve the issue. See 3 Collier on

Bankruptcy 4 330.03/16]laJ[ii] (Alan N. Resnick &

Henry J. Sommer eds., 16th ed. 2014).4

‘ The petitioners maintained that there is a “stark[)” circuit

split, Pet. at 18-19, citing (among others) Jn re Smith, 317 F.3d

918, 928 (9th Cir. 2002), and the Fifth Circuit’s decision here.

Like the Fifth Circuit panel here, courts that

have denied professionals any compensation for

defending fees have reasoned that defending a fee

application is a different activity within the meaning

of the Bankruptcy Code than preparing the

application. FE.g., In re Riverside-Linden Inv. Co.,

945 F.2d 320 (9th Cir. 1991) (fees denied; most

objections sustained); Jn re Wireless Telecomms.,

Inc., 449 B.R. 228, 237-38 (Bankr. M.D. Pa. 2011); Jn

re St. Rita’s Assocs. Private Placement, L.P., 260

B.R. 650, 652 (Bankr. W.D.N.Y. 2001). The courts

embracing this position, however, have generally

acknowledged that, under the right facts,

court-approved compensation may be appropriate

nonetheless. E.g., Riverside-Linden, 945 F.2d at 323

(fee litigation might be “necessary” and, therefore,

compensable under other circumstances); St. Aita’s,

260 B.R. at 652 (leaving open whether compensation

could be awarded where the objection was itself not

meritorious); Jn re Teraforce Tech. Corp., 347 B.R.

838, 867 (Bankr. N.D. Tex. 2006) (“‘normally” counsel

should not be compensated by the estate for fee

defense, disallowing fees for defending largely

meritorious objections filed in good faith).

The bankruptcy court in /n re Brous analyzed the

relatively few cases on the issue and denied the

compensation requested by a Chapter 7 trustee for

responding to a “good faith” fee objection. It noted

both the force of the black-letter American Rule

against fee awards to the prevailing party and the

fact that the objecting party had “substantially

prevailed.” 370 B.R. 563, 572 (Bankr. S.D.N_Y.

2007); accord, 530 West 28 St., L.P., No. 08-13266,

2009 WL 4893287, at *11 (Bankr. S.D.N.Y. Dec. 11,

2009). In Teraforce Tech. Corp., cited in Brous and

8

approvingly by the U.S. Court of Appeals here, the

bankruptcy court noted the division of authority,

cited St. Rita’s, and emphasized the American Rule.

The court concluded that the objections “were filed in

good faith and ultimately resulted in a partial

disallowance of the requested fees.” 347 B.R. at 866.

The Bankruptcy Code’s undoubted silence on the fee

defense issue led the court to conclude that “counsel

should not normally be able to recover fees for

defending a fee application....” /d. at 867.

Other courts have reached a facially different

conclusion, construing the Bankruptcy Code’s silence

differently. “[Rlequiring counsel who has

successfully defended a fee claim to bear the costs of

that defense is no different than cutting counsel's

rate or denying compensability on an earlier fee

application.” Jn re Worldwide Direct, Inc., 334 B.R.

108, 112 (D. Del. 2005) (emphasis added); see also In

re Ahead Commcins Sys., Inc., No. 02-30574, 2006

WL 2711752, at*4-5 (Bankr. D. Conn. Sept. 21,

2006). Again, however, those courts permitting

compensation for fee defense have often noted that a

per se rule is nonetheless inappropriate because it

could encourage meritless fee requests. E.g.,

Worldwide Direct, 334 B.R. at 112; see also Jn re

Parklex Assocs. Inc., 435 B.R. 195 (Bankr. S.D.N-Y.

2010) (no benefit to the estate but no perse rule

against fee defense compensation); Jn re Smith, 317

F.3d at928-29, supra n.4 _ (distinguishing

Riverside-Linden on the basis of the merits of the

objection, found “frivolous” in Smith, and granting

fees based in part on concern about fee dilution).

The Bankruptcy Code’s silence on the availability

of estate compensation for defending a _ fee

9

application led Judge Cudahy (a senior 7th Circuit

judge sitting in the 9th Circuit) in Jn re Smith to

reach a conclusion different from that reached by the

Fifth Circuit and several bankruptcy courts. Relying

on section 330(a)(3)(F), the court said that denying

compensation for defending contested fee awards

would “reduce the _ effective compensation of

bankruptcy attorneys to levels below’ the

compensation available to attorneys generally.” 317

F.3d at 928. The Court of Appeals there emphasized

as well that the objections had been found “frivolous”

and that counsel had successfully defended its fee

award. /d. at 929, citing Jn re Nucorp Energy, Inc.,

764 F.2d 655 (9th Cir. 1985).

An alternative approach is less categorical,

suggested by the focus of some cases on the merits of

an objection and shifting that focus from the scope of

the statutory “preparation” clause to the statutory

“reasonableness” standard. That standard,

heightened by analogy to fee-shifting statutes, could

be applied to disallow compensation for defending a

fee request that in some significant part failed to

acknowledge or comply with established points of

law and practice. See infra at Parts C., D.

Virtually all of the relevant decisions—regardless

of the result, regardless of the jurisdiction—share a

common trait: they shy away from a per se rule.

Those decisions finding statutory authority to award

fees for defending a challenge to compensation

recognize that fee defense is not always

compensable. Analogously, those decisions denying

any authority to award fees for defending a

challenge to compensation nonetheless recognize

that fee defense may sometimes be compensable—if

10

only under the American Rule’s exceptions and even

though the Bankruptcy Code itself is not explicit on

the issue. See ASARCO, 751 F.3d at 301. This

amicus brief advances a middle ground that avoids a

per se rule.

B. 11 U.S.C. § 330 Provides a Statutory Basis for

Awarding, After a Heightened Review,

Limited Compensation for the Defense of a

Challenged Fee Application.

The Bankruptcy Code prohibits compensation for

professional “services that were not reasonably likely

to benefit the debtor’s estate or; ... necessary to the

administration of the case.” 11 U.S.C. § 330(a)(3)(C),

(a)(4)(A)5. ASARCO argues that the fees at issue

here cannot conceivably benefit the estate because

they will benefit only the law firms receiving them.

The argument suggests a very narrow view of the

term “benefit,” limiting it to a quantifiable benefit

attributable directly to the challenged services.

However, estates and their administrators benefit

from the professionals for the estates and for those

who represent or advise committees. Their services,

provided with zeal and competence, should not be

subject to undue concern that the fees for them will

be effectively reduced by unsuccessful challenges.

ASARCO’s argument begs the question of the

acknowledged and extraordinary benefit to the

estate provided by the firms here through their

representation in the Chapter11 proceeding for

5 The Bankruptcy Code has other fee provisions not applicable

here. E.g., 11 U.S.C. § 362(k)(1) (costs and fees available for

response to willful violation of the automatic stay).

1]

more than four years. Reasonable professional

services are a necessary predicate to a Chapter 11

proceeding, extraordinarily successful or not.

Putting ASARCO’s benefit argument aside,

however, the fee defense is, as a matter of fact and

law, “necessary to the administration of the case.”

Indeed, it is inseparable from the _ case's

administration because the statutes require U.S.

Trustee review of professional fee applications and

court approval on notice and a hearing. In this

regard, the Fifth Circuit’s analysis is at odds with

itself.

“(T]he 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.” 751 F.3d at 300. The two are

“clearly different,” to be sure, but one inexorably

follows the other. The fact that the Bankruptcy

Code does not provide “explicit statutory authority”

for awarding fees for the defense of a challenged

application does not preclude such an award. For,

just as certainly, the statute does not explicitly

prohibit the award of those fees. Rather, it prohibits

duplicative fees, unnecessary fees, or fees not

“reasonably likely to benefit” the estate. 11 U.S.C.

§ 330(a)(4)(A).

In the absence of “explicit” language, either

affirmatively or negatively resolving the question,

the issue devolves to the circumstances under which

defense fees can be awarded. ASARCO concedes

that, under the American Rule, a bankruptcy court

can award defense fees in the face of a frivolous or

vexatious challenge. The prohibition, then, is not

absolute but necessarily case-by-case. If the

12

statutory silence actually had the preemptive effect

advanced by ASARCO, even the American Rule

exceptions should be unavailable. But the silence

does not occur in a vacuum. The Bankruptcy Code

itself provides context, in section 330, that helps

eliminate the silence.

C. Any Award of Compensation for Defending a

Challenged Fee Application Requires a

Heightened Standard of Review.

ASARCO agrees that, under “a settled exception

to the American Rule,” professional fees are

compensable for a response to “frivolous or bad faith

objections.” Br. for the Resp't in Opp’n, at 2. Baker

Botts’ position lies at the other end of the

spectrum—a bankruptcy court has _ virtually

unfettered discretion to award defense fees. This

Court should accept neither position. The first

requires too much; the second too little.

The “American Rule” generally places the

financial burdens of costs and counsel on each party,

regardless of outcome. Its simplicity, history, and

rare (though recognized) exceptions commend it. Yet

that rule should not be applied by rote in Chapter 11

proceedings because of the Bankruptcy Code’s

specific requirements for professionals and the

specific mandate for judicial review for al]

professional fees. Moreover, a Chapter 11

reorganization proceeding is not inherently or

pervasively adversarial, making a civil litigation

analogue imperfect.

In fact, the American Rule is inapposite to the

issue of estate-paid fees in bankruptcy cases because

that rule reflects the presumptive division of legal

costs in an adversarial situation—each side bears its

13

own costs, subject to exceptions. In bankruptcy

cases, though, the courts exercise two very different

functions. One is adjudicative—determining specific

rights through motions, objections, and adversary

proceedings.® The other is administrative—ensuring

that the progression of the case, from its filing to its

ultimate disposition, follows the Bankruptcy Code.

In particular, authorizing and compensating

estate-paid professionals is codified in Chapter 3 of

the Bankruptcy Code, “Case Administration,” rather

than in the sections of the Code dealing with specific

parties’ rights. Unlike a traditional fee-shifting or

class action case, where the award of fees is part of

the litigation itself, all estate-paid fees in

bankruptcy cases require court review—whether or

not those fees are associated with particular

litigation and whether or not any party in interest

has objected to those fees. Associating estate-paid

fees with a “winning side,” therefore, does not

capture the nature of case administration in

bankruptcy.

Moreover, in non-bankruptcy matters, the extent

to which fees are scrutinized (if at all) is often very

different. A lawyer defending or prosecuting a

breach of contract case need not submit her fees for

court approval nor need that lawyer record the time

she has spent each day and the tasks she has

performed—indeed, to the tenth of an hour. Not so

in bankruptcy cases. “The equities” in specific fee

6 See, eg. 11 U.S.C. §§ 547 (preferences), 548 (fraudulent

transfers), 544 (trustee as successor to certain creditors and

purchasers); Bankruptcy Rules Part VII (adversary

proceedings); Fed. R. Bankr. P. 9014 (contested matters).

14

shifting statutes, the Court of Appeals concluded,

“are quite different” from those “in bankruptcy.” 751

F.3d at 300. Perhaps. But so are the demands

placed by Congress on professionals applying for

compensation and, in turn, on the U.S. Trustee

system and the bankruptcy courts.

When Congress enacted the Bankruptcy Code in

1978,’ it rejected the old “economy of administration”

standard, which had systematically

undercompensated bankruptcy professionals.

Instead, Congress specifically provided, pursuant to

11 U.S.C. § 330(a)(3)(F), that the compensation of

bankruptcy professionals should be commensurate

with the reasonable compensation available to

counsel! in non-bankruptcy cases,’ including

consideration of the actual value of their services.

This presumption of fair and comparable

compensation has continued through amendments to

section 330, but the presumption itself has left these

parties divided.®

This is Baker Botts’ argument: If bankruptcy

professionals are to be compensated fairly, based on

the reasonableness of their work and charges, then

they should be entitled to all of their reasonable fees

defending that compensation. I]]-founded attacks on

? Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92

Stat. 2549 (1978).

* See Bankruptcy Amendments and Federal Judgeship Act of

1984, Pub. L. No. 98-353, § 433, 98 Stat. 333, 370 (1984)

(codified at 11 U.S.C. § 330); Bankruptcy Reform Act of 1994,

Pub. L. No. 103-394, 108 Stat. 4106 (1994) (same); Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005, Pub.

L. No. 109-8, 119 Stat. 23 (2005) (same).

15

reasonable fees chip away at those fees by causing

the professionals to incur unnecessary defense costs.

Should those unnecessary costs go uncompensated,

then the effective recoverable fees are diminished—

that is, diluted—sometimes significantly so.

This is ASARCO’s argument: Agreeing that the

1978 Code sought to make professional fees in

bankruptcy commensurate with compensation

outside bankruptcy, the American Rule should apply

in bankruptcy. In any case, after all, every effort to

obtain professional compensation from the “other”

side entails the expenditure of time and money and,

necessarily, dilutes the ultimate award.

If this Court were to take ASARCO’s perspective

to its logical limit, however, there would be no check,

other than Bankruptcy Rule 9011, on any parties in

interest who wished to file unfair or tactical

objections to fee applications. Every objection

requires the professional whose fees are being

questioned to respond in some manner—to suggest a

proposed compromise or to file a formal response to

the objection—and every such response costs time

and, therefore, money. Aggressive parties in interest

could create disincentives for bankruptcy

professionals—in a sense, suggesting’ that

bankruptcy professionals either fulfill their fiduciary

duties without charge or pull their punches to avoid

triggering tactical fee objections.

A rule permitting “fees on fees” when the

professional substantially prevails in a_ fee

application dispute would forestall gamesmanship.

For legitimate and well-grounded objections, each

party would bear its own costs of litigating the

objection. For objections in which the bankruptcy

16

professional wins some of the arguments but loses a

number of the others, each party would bear its own

fees. Only in the situation in which most of the

objections were not well-taken would the bankruptcy

professional be entitled to fees on fees.

The law firms here argue, with a basis in lower

court decisions, see supra at PartA., that a

“successful” fee defense should always be

compensable and, by implication, that even an

unsuccessful but grounded defense might be

compensable at the court’s discretion. Part of the

difficulty with that argument lies in the definition of

“success.”

Fee challenges involve a variety of issues and

categories, either in individual, in serial, or in final

fee applications. Indeed, the challenges here

involved a range of professional services, billing

practices and issues. According to Baker Botts,

ASARCO “launched an all-out assault...attackling]

everything—time-entry descriptions, task codes in

invoices, staffing choices, and the necessity and

quality of various legal services.” Pet. Brief at 11.

That range of potential challenges is not unfamiliar

in the bankruptcy courts, and it should inform the

Court’s decision here. Fee challenges are rarely

wholesale—all or nothing—as they can be portrayed

at this stage of this litigation and in most civil

litigation. The range of fee objections and the

process for resolving them in Chapter 11 are too

nuanced and incremental for that.

17

D. The Practical Approach Developed in the

American Airlines and General Motors

Proceedings Provides Context for the Court’s

Decision Here.

To state the obvious, Chapter 11 proceedings that

involve large companies correlate—though not

invariably—with significant professional fees. The

amount of the fees requested correlates in turn with

the complexity of the case and the number of

professionals involved in it—that is, those

professionals retained by the debtor, by the creditors’

committees, and occasionally by ad hoc committees

seeking compensation under section 503(b).

ASARCO notes that 191 timekeepers, including

150 attorneys, worked on the defense of the law

firms’ compensation request. For comparative

purposes, it is a matter of public record that the

professional applications in the Lehman Brothers

proceeding reflected the work of 5,300 timekeepers

altogether and, in AMR, the work of about 2,200

timekeepers, though in each instance those totals

encompassed the entire proceeding, not just

professional compensation issues. The question

presented here does not directly involve the size or

length of the proceeding, or the amount of

compensation requested from the _ estates—

$120 million altogether—or the number and billing

®* Eg. Stephen J. Lubben, Corporate Reorganization &

Professional Fees, 82 Am. Bankr. L.J. 77 (2008); Nancy B.

Rapoport, Rethinking Professional Fees in Chapter 11 Cases, 5

J. Bus. & Tech. L. 263 (2010).

18

rates of timekeepers for the Baker’ Botts

petitioners. !°

Ideally, and most often in practice, professional

compensation issues—including disagreements over

“fees for fees”—-are resolved consensually. In the

Lehman proceedings, the bankruptcy court, with one

exception, had no need to resolve contested fee

disagreements during the four years of the

proceeding. See Jn re Lehman Bros. Holdings Inc.,

No. 13-CIV-2211, 2014 WL 3408574 (S.D.NLY.

June 26, 2014). So, too, in the AMR case. In another

noteworthy Chapter 11 proceeding, however, the

bankruptcy court did address contested

compensation for the defense of professional fees.

In General Motors, the bankruptcy court

established a practical standard that integrated the

American Rule with the unique requirements of the

Bankruptcy Code:

While the reasonable costs of [preparing]

required fee applications are compensable,

that doesn’t mean that the costs of defending

objections to those fee applications are

necessarily compensable as well—since as

Chief Judge Bernstein of this Court observed

in CCT Communications, (No. 07-10210, 2010

WL 3386947, at*8-9 (Bankr. S.D.N.Y.

Aug. 24, 2010),] there’s no parallel statutory

requirement to defend against an objection to

a fee application, or to receive compensation

10 The Debtors’ principal law firm in AMR filed applications

totaling about $80 million, and the principal law firm in

Lehman requested $442 million in compensation.

19

for the legal fees incurred in that defense.

Rather, as a general matter, fee litigants, like

other litigants, must generally bear their own

legal expenses under the “American Rule.”

But I also agree with Judge Bernstein that

professionals shouldn’t be penalized by the

cost of defending meritless objections. Failing

to allow professionals the costs of defending

meritless objections would dilute fee awards,

and encourage parties to file frivolous

objections.

Thus, where the outcome is a split decision, or

the fee applicant otherwise fails’ to

substantially prevail, I believe that the

applicant should indeed bear its own legal

expenses for addressing the objection to its

fees, under the American Rule. But as in

CCT, I believe that I should authorize

payment of the costs of defending against the

objection if the fee applicant substantially

prevails.

In re Motors Liquidation Co., No. 09-50026, 2010 WL

285359, at*l1 (Bankr. S.D.N.Y. Nov. 23, 2010)

[Docket No. 7896].

This standard modifies the American Rule to fit

the unique requirements of the Bankruptcy Code

and, indirectly, the law involving fee-shifting

statutes. Referring to a “split decision,” the

standard articulated by the bankruptcy court in

Genera/] Motors also recognized that the burden of

proof always rests with the applicant. See Jn re

Engel, 124 F.3d 567, 573 (3d Cir. 1997).

20

The fee examination process in AMF and £xide

followed a similar approach. The fee examiner, an

amicus here, collected the relevant cases and

developed a protocol that recognized the generally

consensual nuture of the review process, through

negotiation, when that process involves a_ fee

examiner or a fee review committee.

The Fee Examiner will generally recommend

that time be treated as compensable when

spent (a) preparing an initial response to the

Preliminary Report...[that is, the

preliminarily analysis of the fee application by

the fee examiner]; (b) in an initial meeting or

teleconference with the Fee Examiner as to a

Preliminary Report: and/or (c) considering a

single revised resolution proposal or response

by the Fee Examiner....Continued

negotiations after that time will likely be

treated as solely for the benefit of the

Retained Professional and as not

compensable. The Fee Examiner, however,

reserves the right to challenge any time

spent...if the Fee Application is materially

deficient and such deficiencies precipitated

any inquiries or objections...or where the Fee

Examiner determines that all or part of any

such response is not in good faith and/or not

supported by a reasonable interpretation of

prevailing law or guidelines.

In re Exide Technologies, supra at 3 (emphasis in

original), Fee Examiner’s Consolidated Final Report

Pertaining to the Interim Fee Applications of

Certain Retained Professionals for the Period from

June 10, 2013 through August 31, 2013 and the

21

Period from September 1, 2013 through

November 30, 2013 at 53 [Docket No. 1921]; accord,

In re AMR Corp., supra at 3 [Docket No. 8270].

The AMR and Exide fee examiner recognized

every professional’s right to seek even contested fees

and expenses—not only as a matter of due process

but because the bankruptcy court has the final and

statutory responsibility to review and approve all

compensation requests. That recognition came with

the caveat reflected in that case and in this brief:

the defense of “any actual objections preserved in a

Final Report of the Fee Examiner will be treated as

not compensable unless the Retained Professional

substantially prevails in such defense, as determined

by the Court.” Jd.

In both AMR and General Motors, the court

applied the “substantially prevailed” standard in the

context of interim compensation applications,

usually filed every four months and involving, at

times, a series of discrete disagreements over fees for

time spent on discrete projects. The time spent (and

the associated fees) on a summary judgment motion,

for example, might be challenged on the ground that

the motion was improvident in light of

obviously-contested material facts. In response, the

court might find that some of the time spent was

warranted but not time spent beyond the initial

research and evaluation. Some of the professional

fees, in that event, might be compensable as both

necessary and reasonable, but the fees charged for

seeking compensation would not because _ the

professional would not have “substantially

prevailed” on the fee defense issue.

22

The standard advanced here does not depend on

a quantitative determination—though that is a

factor. If 100 hours were expended on the project, a

determination that 51 of those hours were necessary

and reasonable would not yield an award of all of the

fees for the entire project, nor would it yield an

award of even 51 percent of the time spent defending

the fee application. Similarly, in an application for

interim compensation, if the fees for five discrete

projects were subject to challenge and_ the

professional prevailed on three of them, that too

would not necessarily satisfy the “substantially

prevailed” standard for an award of defense fees.

A departure from the American Rule for

“substantially prevailing” or “prevailing” parties has

obvious precedent. Fee shifting is most prominent in

actions to enforce federal civil rights laws, including

the Civil Rights Act of 1964 and the Individuals with

Disabilities Education Act. Congress has extended

fee shifting provisions through “[a]t least 34 statutes

in 10 different titles of the U. S. Code....”. West

Virginia Univ. Hosp., Inc. v. Casey, 499 U.S. 83,

88-89 (1991) (superseded by statute on other

grounds). “These statutes encompass diverse

categories of legislation, including tax,

administrative procedure, environmental protection,

consumer protection, admiralty and navigation,

utilities regulation, and, significantly, civil rights....”

Id.

Although the rationale underlying fee shifting—

providing an impetus for private litigants to enforce

Congressional policies—is distinct from that

proposed here, both the concept of allowing courts to

shift fees and the definition of “success” are familiar.

23

For example, a prevailing party for purposes of

fee-shifting under section 1988 is one that has

“succeed[ed] on any significant issue in litigation

which achieves some of the benefit the parties

sought in bringing suit.” Hensley v. Eckerhart, 461

U.S. 424, 433 (1983) (citing Nadeau v. Helgemoe,

581 F.2d 275, 278-79 (1st Cir. 1978)). “Accordingly,

the outer boundary of the term ‘prevailing or

substantially prevailing party’ is that a party must

receive at least some relief on the merits of its claim

before being considered a prevailing or substantially

prevailing party.” Painewebber Income Properties

Three Ltd. P’ship v. Mobile Oil Corp., 916 F. Supp.

1239, 1242 (M.D. Fla. 1996) (citing Hewitt v. Helms,

482 U.S. 755, 759-60 (1987)).

In Texas State Teachers Ass'n v. Garland

Independent School Dist., this Court explained that

“Congress clearly contemplated that interim fee

awards would be available ‘where a party has

prevailed on an important matter in the course of

litigation, even when he ultimately does not prevail

on all issues.” 489 U.S. 782, 790 (citing S. Rep.,

No. 94-1011, at 5 (1976)). The “door” through which

a “plaintiff has crossed the threshold to a fee award

of some kind” is that “a plaintiff receive at least

some relief on the merits of his claim before he can

be said to prevail.” Jd. at 791-92 (citing Hewitt, 482

U.S. at 760).

However, while success on a significant issue

“brings the plaintiff {) across the statutory threshold

... it remains for the district court to determine what

fee is ‘reasonable.” Hensley, 461 U.S. at 433. In

addition to an analysis of whether the fees requested

were “reasonably expended” and at a “reasonable

24

rate,” the Court emphasized that the “results

obtained” are critical to the analysis. Jd. at 434.

This factor is particularly crucial where a

plaintiff is deemed “prevailing” even though

he succeeded on only some of his claims for

relief.... In these circumstances the fee award

should not be reduced simply because the

plaintiff failed to prevail on every contention

raised in the lawsuit....

If, on the other hand, a plaintiff has

achieved only partial or limited success, the

product of hours reasonably expended on the

litigation as a whole times a reasonable hourly

rate may be an excessive amount....

Id. at 435-36.

Petitioners cite Commissioner, I.N.S. v. Jean, 496

U.S. 154 (1990), in support of their position that the

bankruptcy court has broad discretion to award

defense fees. The holding in Jean is not inconsistent

with the standard proposed here. There, this Court

held that once a litigant had met the threshold for

eligibility as a prevailing party under the Equal

Access to Justice Act, after a finding that the

government’s position was not “substantially

justified,” the district court then properly applied a

reasonableness determination without yet another

“substantially justified” test for the fee issue. /d.

at 160-163. The standard suggested here is that the

professional defending a fee application must

“substantially prevail” in the defense of its

application to meet the eligibility threshold for

compensation for that defense. Once met, the

bankruptcy court would then determine a fee award,

25

applying the reasonable and necessary standards in

the Bankruptcy Code.

Of course, unlike the Equa! Access to Justice Act

or the Civil Rights Act or other statutes, the

Bankruptcy Code contains no express fee-shifting

provision.'! In the absence of any such provision,

the standard for achieving the “threshold”—to be

even eligible to recover defense fees—is necessarily

more stringent, consistent with both the bankruptcy

court’s statutory obligations and its discretion.

Rather than merely prevailing on “any significant

issue in litigation,” the standard advanced here

would require that a professional “substantially

prevail” on the compensation issues in order to be

eligible to be paid by the estate for that fee defense.

Only with success on a significant range of issues

would a court then turn to the second step of the

analysis: whether the fees requested are reasonable.

Here, without examining the professionals’ time

records, it is not possible to apply a heightened

11 Federal antitrust law, 15 U.S.C. § 4304, provides that courts

shall award fees to a “substantially prevailing claimant” in a

claim based on the conduct of a joint venture. So, too, the

Freedom of Information Act provides that a district court “may

assess against the United States reasonable attorney fees and

other litigation costs reasonably incurred in any [FOIA] case ...

in which the complainant has substantially prevailed.”

5 U.S.C. § 552(a)(4)(E)G). “For purposes of [FOIA], a

complainant has substantially prevailed if the complainant has

obtained relief through ... a voluntary or unilateral change in

position by the agency, if the complainant's claim is not

insubstantial.” 5 U.S.C. § 552(a)(4)(E)Gii); see Zarcon, Inc. v.

N.L.R.B., 578 F.3d 892, 894 (8th Cir. 2009); Judicial Watch,

Inc. v. F_B.I., 522 F.3d 364, 370 (D.C. Cir. 2008).

26

standard. Yet the bankruptcy court, on remand, did

reduce the amount awarded for defending the fee

objection to the core fees (not the enhancement) to

$5 million. On a_ subsequent remand, the

bankruptcy court will have the opportunity to

reconsider its evaluation, looking at discrete

objections to discrete blocks of time, under the new

standard—f it has not already done so.

There is wide room for bankruptcy court

discretion, as there is for every evaluation of

professional fees, but it cannot be the unfettered

discretion advocated by the law firms here.

Consistent with the standards in_ statutory

fee-shifting cases, integrating the demands of the

Bankruptcy Code and the American Rule, the

bankruptcy courts should be permitted to award fees

for the defense of fee applications for those

professionals that substantially prevail on that

defense.

A flexible rule also encourages professionals to

provide information to the bankruptcy court, to the

U.S. Trustee, and to interested parties and to work

toward a consensual resolution of fee issues, secure

in the knowledge that such compensation will not be

automatically diluted (by automatically denying

compensation). Denying al/ defense compensation

necessarily does result in a dilution of an otherwise

allowed award of reasonable and necessary fees.

And the virtually automatic denial of defense fees

contravenes a precept of the Bankruptcy Code: that

bankruptcy professionals be compensated at the

same level and on the same terms. as

non-bankruptcy professionals. Sometimes, defense

27

fees, in whole or in part, are warranted; sometimes

not.

This Court’s decision here should avoid any per

se rule—either generally permitting or generally

prohibiting—the compensability of defense fees.

Implicitly or explicitly, moreover, the Court should

note the practical dimension of the _ review,

resolution, and approval process for professional fees

in Chapter 11 proceedings. The facts of this case

are, in so many ways, exceptional. With or without a

fee committee or a fee examiner, the consensual

resolution of fee disagreements is the norm. Any

perse rule would discourage that resolution. A

system without restraint on the award of defense

fees could encourage meritless fee requests and a

license to defend them beyond reason or necessity. A

system that made defense (fees virtually

unobtainable could encourage meritless objections.

Baker Botts concludes its brief by stating that the

Court “need not further define the circumstances

when defense fees may or may not be awarded.” Pet.

Brief at 57. As much as the amici may agree with

other dimensions of the petitioners’ argument, they

disagree with this suggestion. Like Baker Botts, the

amici contend that the bankruptcy courts do have

the authority to award professional compensation for

defending fee applications, but the amici contend as

well that the bankruptcy courts’ discretion requires

some boundary. The “substantially prevailed”

standard provides that boundary.

The “broad grant” of discretion to the bankruptcy

court sought here—to award compensation for

defending fee applications—is not inherently limited

to the successful defense of all or even a significant

28

part of a fee application. To be sure, Baker Botts

argues that the “ldjiscretion to compensate

successful fee-application defenses properly aligns

the incentives of both fee applicants and potential

objectors.” Pet. Brief at 51 (emphasis added). In the

context of fee applications generally and the fee

review process in bankruptcy in particular, however,

“success” and “successful” are relative and often

serial or piecemeal concepts.

Here, Baker Botts may well have prevailed on

every itemized challenge brought by ASARCO, and

that would make a determination on remand under

a new standard both brief and relatively painless. It

then would be readily apparent that Baker Botts

“substantially prevailed.” However, for those myriad

bankruptcy proceedings yet to be filed and for the fee

applications yet to be reviewed, a decision by this

Court only affirming—or, for that matter, only

reversing—the Court of Appeals’ decision without a

remand and an articulated standard will provide

insufficient guidance.

29

CONCLUSION

For the reasons stated above, the Court should

vacate the opinion of the U.S. Court of Appeals for

the Fifth Circuit, recognizing the compensability of

defense fees under limited circumstances and

remanding the fee dispute for reconsideration and

resolution consistent with this Court’s opinion.

Respectfully submitted,

Counsel for Amici:

Brady C. Williamson*

bwilham@gklaw.com

Patricia L. Wheeler

Godfrey & Kahn, S.C.

One East Main Street, Suite 500

Madison, WI 53703

608-257-3911

Dated: December 10, 2014

*Counsel of Record

30