although one could argue the context
of the opinion suggests it did not
consider a contractual exception and
language purporting to foreclose such
an exception is dicta. However, the
reasoning of the majority opinion—that
Bankruptcy Courts lack the authority
to award defense fees—might be used
to limit contractual provisions that
attempt to shift the cost of fee defense
to the estate. Justices in the majority,
like the 5th Circuit before them, were
concerned about the “conspiracy of
silence” among estate professionals,
notwithstanding their duties as officers
of the court. This concern might color
a Bankruptcy Court’s consideration
of standard professional engagement
letters that shifted the burden of fee
defense back to the bankruptcy estate. 8
Others have suggested that the limited
review standard for employment under
11 USC §328 provides the answer. The
argument goes that once a Bankruptcy
Court approves recovery of such fees
under Section 328 (either outright or
in an expense provision allowing the
recovery of attorneys’ fees for defense
of a fee application), the heightened
review standard will prevent a court from
challenging the shifting of defense fees
to the estate. This argument suggests the
Bankruptcy Court will not be aware of,
or opposed to, such a provision before
approving a Section 328 employment
application, which may not be realistic.
It is unlikely Bankruptcy Courts will
simply start routinely approving Section
328 applications. Such applications
generally require special employment
circumstances, such as a contingent
fee arrangement, and more rigorous
front-end review of the application
because of the more limited back-end review of fees charged. This
workaround holds some promise,
but may not be universally useful.
Another possible workaround might
be an engagement letter that provides
one hourly rate for an uncontested fee
application and a different hourly rate
for a contested one. This scenario would
factor in the additional cost of defending
a fee application and shift back to the
estate the burden of such a defense.
Whether this shifting strategy would
pass judicial muster remains to be seen.
A court might be disinclined to approve
the higher rate in a situation in which
the fee application defense fails, even if
that court would be inclined to approve
the higher rate when the defense is
successful. Most estate professionals
probably don’t anticipate being able to
look to the estate for recompense when
a fee application defense fails, but only
when it is successful, in which case this
model might achieve its intended result.
Finally, an estate professional should
consider focusing a court’s attention on
the distinction between prosecuting a
fee application and defending one that
is subject to an objection. The majority
opinion didn’t address this distinction;
it simply ruled that Bankruptcy Courts
lack the power to award defense fees.
There is arguably, however, significant
overlap between prosecution of a fee
application (which is required by the
U.S. Bankruptcy Code, but not required
of non-bankruptcy practitioners) and
defense of a fee application (which
only occurs when an objection is
lodged). This distinction may allow
for recovery of prosecution fees, even
when defense fees are denied.
The Supreme Court has thrust
bankruptcy estate professionals into
a cold, new world to which they
must adapt. This article is intended to
provide some ideas that might make
that transition more bearable. J
1 Baker Botts LLP v. ASARCO LLC , U. S.
Supreme Court No. 14–103 (decided June 15,
2015), affirming 751 F. 3d 291 (5th Cir. 2014).
2 In this use, “bankruptcy lawyer” means any
lawyer who appears in a Bankruptcy Court.
As a young lawyer, the author had the
privilege of golfing with a bankruptcy judge
and her lawyer husband, who advised that
only debtors’ lawyers were true bankruptcy
lawyers. He contended that attorneys
who represented creditors were “creditors’
lawyers,” not bankruptcy lawyers, even if the
representation occurred in Bankruptcy Court.
3 The court did not appear to distinguish between
the defense of fees subject to objection and
the prosecution of a fee application.
4 The argument that by not allowing recovery of
defense costs from the estate that bankruptcy
lawyers are being treated differently than other
lawyers simply doesn’t hold water. The majority
argued it was restoring parity. Outside of
bankruptcy, if a client objects to a professional’s
fees, the professional isn’t compensated
for dealing with the client’s objection. Why
should bankruptcy estate professionals be
compensated by their client (the estate) for
that effort when regular litigants are not? Now
estate professionals, like all professionals, have
to factor in the cost of defending their fees from
Those who suggest the court’s analysis doesn’t
recognize the important differences between
bankruptcy practice and regular litigation fail to
recognize the differences aren’t that significant in
the context of a fee defense (although they might
be in the context a fee application prosecution).
5 Nothing in the professional compensation
statute ( 11 USC §330(a)( 1)) explicitly provides
for compensation for defense fees, and read
in conjunction with Section 327(a) there
is no explicit fee shifting provision (which
would allow compensation for a substantially
prevailing party). Section 327(a) requires that
the professional have no adverse interest
to the trustee. When defending its own
fees the professional is not providing a
service to the estate, and the professional’s
interest is then adverse to the estate’s.
6 ASARCO LLC, U.S. Supreme Court No.
14–103 (dissent) at 4 (“But the American
Rule is a default rule that applies only
where ‘a statute or contract’ does not
‘provide otherwise’ (citation omitted)”).
7 Id. at 3-4 (“We consequently will not
deviate from the American Rule ‘absent
explicit statutory authority.’”).
8 On the other hand, a provision shifting
to the estate the burden of fee application
prosecution might be defensible.
Michael M. Parker is a partner with Norton Rose
Fulbright US LLP and is certified in business and
consumer bankruptcy law by the Texas Board of
Legal Specialization. Parker was co-founder of TMA’s
Central Texas Chapter in 2000, served as its president
through 2007, and continues to be actively involved
in TMA activities. He can be reached at michael.
email@example.com or 210-270-7162.