On Monday in the Samson Resources Corporation Chapter 11 bankruptcy case, Delaware’s Judge Sontchi adopted Judge Walrath’s recentBaker Botts opinion in Delaware’s Boomerang Tube Chapter 11 case regarding fee-defense costs after Baker Botts. As we discussed last week, Judge Walrath’s opinion interpreted the U.S. Supreme Court’s Baker Botts, L.L.P. v. ASARCO opinion, a case that we’ve been covering since last June. Specifically, she held that neither § 328(a) of the Bankruptcy Code, nor a retention agreement provides a sufficient Baker Botts workaround. As a recap, the Supreme Court held in Baker Botts that professionals employed under § 327(a) may not be reimbursed for fees that they incur in defending their bankruptcy fee applications.
Judge Sontchi’s Letter to Counsel
Judge Sontchi voiced his agreement with Judge Walrath in a letter to counsel.
He starts out by acknowledging that, whereas Boomerang involved an application to employ counsel for the unsecured creditors committee, the Samson issue involved applications to employ counsel for the debtor, including one by Kirkland & Ellis. However, like the application in Boomerang, the Samson applications proposed, by virtue of their respective engagement letters, that the debtor reimburse counsel for their fee-defense costs.
Therefore, Judge Sontchi “agree[d] with and endorse[d] the reasoning of Judge Walrath in Boomerang Tube.” He emphasized Judge Walrath’s ruling that she would have reached “the same conclusion if the fee defense provisions were in a retention agreement filed by any professional under section 328(a)–including one retained by the debtor. Such provisions are not statutory or contractual exceptions to the American Rule and are not reasonable terms of employment of professionals.” For Judge Sontchi, Judge Walrath’s “reasoning in Boomerang Tube is equally applicable” to the Samson applications.
And with that, Judge Sontchi directed the parties “to submit a proposed order under certification of counsel incorporating this ruling.”
[We aren’t Delaware bankruptcy lawyers, so this might be a dumb question, but how does that work? Would the debtor recite in the certification that it doesn’t consent to the order so that it preserves its right to appeal the order? To be sure, as in Boomerang, Baha Mar, and New Gulf Resources, Andrew Vera, the U.S. Trustee in Delaware, was the party who objected to the reimbursement provisions.]
We aren’t surprised that Judge Sontchi adopted Judge Walrath’s opinion. As Bracewell’s Evan Flaschen put it last week in response to the Boomerang opinion, “[m]y reading . . . is that this is the rule in Delaware.” Therefore, like us, he didn’t see other bankruptcy courts “diving in to have a different result.” That’s all for now. We’ll continue to keep you posted on Baker Botts as it develops in the lower courts.
[Speaking of Evan, whose firm represented ASARCO in the Supreme Court, Reuters’ Jim Christie quoted Evan and me in his article on the Boomerang opinion. I also did a short Baker Botts Q&A with Jim back in December. Click here and here.]