This will be a placeholder post for the Baker Botts, L.L.P. v. ASARCO, LLC timeline. On March 17, Delaware’s Judge Shannon formally adopted in his New Gulf Resources Chapter 11 case Judge Walrath’s Baker Botts opinion in Delaware’s Boomerang Tube Chapter 11 case. We’ve been covering Baker Botts and the fee-defense cost issue since June 2015 when the U.S. Supreme Court held that bankruptcy professionals may not recover fee-defense costs incurred in “defending” their fee applications. And as we discussed back in February, Judge Walrath was the first of the Delaware bankruptcy judges to weigh-in on Baker Botts. Specifically, she held that neither § 328(a) of the Bankruptcy Code, nor a retention agreement provides a sufficient Baker Botts workaround.
In New Gulf, the debtors moved to employ Baker Botts as counsel under § 327(a). Unlike the Boomerang Tube application, the New Gulf application is rather exotic. Pointing out that it was charging hourly rates that were 10-15% lower than usual, Baker Botts proposed that it be paid a “Fee Premium” to account for bankruptcy payment risk equal to 10% of its billings during the case, with two conditions: (i) the fee would accrue during the case, but not be payable until the court approved the final fee application and (ii) the court must determine that Baker Botts incurred “material” fee-defense costs. However, if the court determined that Baker Botts incurred material fee-defense costs, then Baker Botts would earn the Fee Premium “regardless of the outcome of the objection.”
On February 1, Judge Shannon entered an initial opinion letter suggesting that he was inclined to reject the Fee Premium. However, he permitted Baker Botts to file another brief on March 2, 2016. In its brief, Baker Botts insisted that it was not seeking compensation for fee-defense. Rather, it was merely seeking a payment risk premium. Although it suggested that the premium merely brought its hourly rates in line with the market, Baker Botts conditioned the premium on the incurrence of material fee-defense costs. As the U.S. Trustee had put it, the premium is a “direct attack on ASARCO, repackaged.”
In his March 17 final opinion letter, Judge Shannon explained that “I stand by my earlier determination” that Baker Botts’ proposal “runs afoul of the holdings in Asarco and Boomerang Tube.” It was a “creative approach,” but there was no “meaningful distinction” between the New Gulf and Boomerang.
Therefore, we now have 3 cases rejecting attempted Baker Botts workarounds:
Rather than adding more commentary of our own, we’ll conclude by pointing you to the excellent Basis Points blog. Specifically, Evan Flaschen and Chelsea Dal Corso address the March 17 letter, and are somewhat colorful in their growing impatience with these failed attempts to avoid Baker Botts. Here’s their blog entry from March 18: Enough With the Fees-on-Fees Already: ASARCO Really Means What It Says.