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IN THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF TEXAS

CORPUS CHRISTI DIVISION

In re:

ASARCO, LLC Bankr. Case No. 05-21207

Debtor.__________________________________/

ASARCO, LLC, et al.,

Appellants, Dist. Ct. Case Nos. 11-290, 11-299, 11-302

v.

BAKER BOTTS, LLP, et al.,

Appellees.__________________________________/

BRIEF FOR APPELLANT UNITED STATES TRUSTEE

JUDY A. ROBBINS RAMONA D. ELLIOTTUnited States Trustee Deputy Director/General Counsel

KEVIN M. EPSTEIN P. MATTHEW SUTKOTrial Attorney Associate General Counsel

NOAH M. SCHOTTENSTEINTrial Attorney

Department of Justice Department of JusticeOffice of the United States Trustee Executive Office for United States Trustees615 E. Houston St., Room 533 20 Massachusetts Avenue, NWP.O. Box 1539 Suite 8100 San Antonio, TX 78295 Washington, DC 20530(210) 472-4640 (202) 307-1399

Attorneys for Appellant

Case 2:11-cv-00290 Document 12 Filed in TXSD on 11/23/11 of 42

TABLE OF CONTENTS

TABLE OF AUTHORITIES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

STATEMENT OF APPELLATE JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF ISSUES PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

I. Statutory Framework.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

II. Statement of the Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SUMMARY OF THE ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

I. Standard of Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

II. The Perdue Standard Controls Whether Bankruptcy Courts May Enhance the Lodestar Calculation When Awarding CompensationUnder Section 330.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

A. The Fifth Circuit and Fellow Circuit Courts Apply Supreme CourtLodestar Principles in Bankruptcy Cases Just Like in Other Cases, So Perdue Should Apply to Bankruptcy Cases. . . . . . . . . . . . . . . . . 10

B. Perdue Should Be Applied When Awarding Fees Under Section 330 Because It Is an Integral Part of the Lodestar Method.. 14

C. The Perdue Standard Is Necessary to Ensure Uniformity andPredictability of Fee Awards Under Section 330.. . . . . . . . . . . . . . . 17

D. There Is no Reason to Disregard Perdue in Calculating ReasonableFees Under Section 330 Using the Lodestar. . . . . . . . . . . . . . . . . . . 19

E. The Bankruptcy Court Relied on Inapposite Cases When ItConcluded That Perdue Is Not Controlling. . . . . . . . . . . . . . . . . . . . 21


III. The Bankruptcy Court Erred When It Awarded Baker Botts Fees andExpenses for Prosecuting Its Fee Enhancement. . . . . . . . . . . . . . . . . . . . . . 22

A. The Plain Language of Section 330 of the Bankruptcy Code Precludes the Bankruptcy Court From Shifting The Costs ofProsecuting a Fee Enhancement Request to the Estate. . . . . . . . . . . 23

B. The Bankruptcy Court Lacked Authority to Award Fees on Equitable or Public Policy Grounds. . . . . . . . . . . . . . . . . . . . . . . . . . 26

C. The Policy Grounds on Which the Bankruptcy Court Relied AreInapplicable Because It Relates to a Request for a Fee Enhancement and Not an Initial Fee Application. . . . . . . . . . . . . . . 29

IV. The Bankruptcy Court Erred When It Granted Post-Judgment Interest. . . 30

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

CERTIFICATE OF SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ii


TABLE OF AUTHORITIES

CASES Page

Alberti v. Klevenhagen, 896 F.2d 927 (5th Cir.), 903 F.2d 352 (5th Cir. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Alyeska Pipeline Svc. Co. v. Wilderness Soc., 421 U.S. 240 (1975). . . . . . . . . . . . . . . . . . . . 26-29

Andrus v. Glover Constr. Co., 446 U.S. 608 (1980). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Blum v. Stenson, 465 U.S. 886 (1984). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 15, 20

Boddy v. U.S. Bankruptcy Court (In re Boddy), 950 F.2d 334 (6th Cir. 1991). . . . . . . . . 11, 12, 20

Bombardier Aerospace Emp. Welfare Benefits Plan v. Ferrer, Piorot and Wansbrough, 354 F.3d 348 (5th Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Burgess v. Kenske (In re Manoa Fin. Co.), 853 F.2d 687 (9th Cir. 1988).. . . . . . . . . 10, 12, 16, 20

Caplin & Drysdale Chartered v. Babcock & Wilcox Co. (In re Babcock & Wilcox Co.), 526 F.3d 824 (5th Cir. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12, 13, 20

Chambers v. NASCO, Inc., 501 U.S. 32 (1991).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 30

City of Burlington v. Dague, 505 U.S. 557 (1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 19, 20

Cooper v. Pentecost, 77 F.3d 829 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

FTC v. Nat’l Business Consultants, Inc., No. 08-30320, 2008 WL 5068620 (5th Cir. Dec 1, 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Galveston County Nav. Dist. No. 1 v. Hopson Towing Co., Inc., 92 F.3d 353 (5th Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Grant v. George Schumann Tire & Battery Co., 908 F.2d 874 & n.11 (11th Cir. 1990). . . . 11, 24

Graves v. Barnes 700 F.2d 220 (5th Cir. 1983).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Hensley v. Eckerhart, 461 U.S. 424 (1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Houlihan, Lokey, Howard & Zukin Capital v. Unsecured Creditors’ Liquidating Trust (In re Commercial Fin. Servs., Inc.), 427 F.3d 804 (10th Cir. 2005). . . . . . . . . . . . . . . . . . . . . . 11

iii


Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974). . . . . . . . . . . . 15, 18, 20

In re Accord UNR Indus., Inc., 986 F.2d 207 (7th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . 10, 11, 16

In re AOV Indus., Inc., 797 F.2d 1004 (D.C. Cir. 1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833 (3d Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . 11

In re Cahill, 428 F.3d 536 (5th Cir. 2005).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

In re Courson, 138 B.R. 928 (Bankr. N.D. Iowa 1992).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

In re El Comandante Mgmt. Co., LLC, 395 B.R. 807 (D.P.R. 2008). . . . . . . . . . . . . . . . . . . . . . 31

In re Farah, 141 B.R. 920 (Bankr. W.D. Tex. 1992). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

In re Frazin, 413 B.R. 378 (Bankr. N.D. Tex. 2009).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

In re Gulf Consol. Servs., Inc., 91 B.R. 414 (Bankr. S.D. Tex. 1988).. . . . . . . . . . . . . . . . . . . . . 18

In re Owners of Harvey Oil Center, 788 F.2d 275 (5th Cir. 1986). . . . . . . . . . . . . . . . . . . . . . . . 28

In re Smith, 317 F.3d 918 (9th Cir. 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

In re Spillane, 884 F.2d 642 (1st Cir. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

In re St Rita’s Assocs. Private Placement, L.P., 260 B.R. 650 (Bankr. W.D.N.Y. 2001). . . . . . . 25

In re Teraforce Tech. Corp., 347 B.R. 838 (Bankr. N.D. Tex. 2006). . . . . . . . . . . . . . . . . . . . . . 24

In re Vioxx Prods. Liab. Litig., 760 F. Supp. 2d 640 (E.D. La. 2010).. . . . . . . . . . . . . . . . . . . . . 21

In re Watervilet Paper Co., 109 B.R. 733 (Bankr. W.D. Mich. 1989). . . . . . . . . . . . . . . . . . . . . 24

In re Wireless Telecomms., Inc., 449 B.R. 228 (Bankr. M.D. Pa. 2011). . . . . . . . . . . . . . . . . . . . 25

Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827 (1990). . . . . . . . . . . . . . . . . . . 32

Klein v. O’Neal, Inc., 705 F. Supp. 2d 632 (N.D. Tex. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Lawler v. Teofan (In re Lawler), 807 F.2d 1207 (5th Cir. 1987).. . . . . . . . . . . . . . . . . . . . . . . . . 12

iv


McClain v. Lufkin Indus., Inc., 649 F.3d 374 (5th Cir. 2011). . . . . . . . . . . . . . . . . . . . . . . . . 12, 13

Novelly v. Palans (In re Apex Oil Co.), 960 F.2d 728 (8th Cir. 1992). . . . . . . . . . . . . . . . . . . . . 16

Nunley v. M/V Dauntless Colocotronis, 863 F.2d 1190 (5th Cir. 1989). . . . . . . . . . . . . . . . . . . . 28

Pauley v. BethEnergy Mines, Inc., 501 U.S. 680 (1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Peele v. Cunningham (In re Texas Secs., Inc.), 218 F.3d 443 (5th Cir. 2000). . . . . . . . . . . . . . . 11

Pennsylvania v. Del. Valley Citizens’ Council for Clean Air, 478 U.S. 546 (1986). . . . . . . . 14, 16

Pennsylvania v. Del. Valley Citizens’ Council for Clean Air, 483 U.S. 711 (1987). . . . . . . . . . . 15

Perdue v. Kenny A., 130 S.Ct. 1662 (2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

Saizan v. Delta Concrete Prods. Co., 448 F.3d 795 (5th Cir. 2006). . . . . . . . . . . . . . . . . . . . 14, 16

Shepherd v. Dallas Cnty., Tex., No. 3:05-CV-1442-D, 2010 WL 2573346 at *3 (N.D. Tex. June 24, 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 22

Shipes v. Trinity Indus., 987 F.2d 311 (5th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 20

St. Paul Fire & Marine Insurance Co. v. Vaughn, 779 F.2d 1003 (4th Cir. 1985). . . . . . . . . . . . 31

Stalnaker v. DLC, Ltd., 376 F.3d 819 (8th Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Silvestri v. Barrett (In re High Sulfur Content Gasoline Prods. Liab. Litig.), 517 F.3d 220 (5th Cir. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Tarbox v. United States Trustee (In re Reed), 405 F.3d 338 (5th Cir. 2005).. . . . . . . . . . . . . . . . 31

Todd v. AIG Life Ins. Co., 47 F.2d 1448 (5th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 18

Transamerican Natural Gas Corp. v. Zapata P’ship (In re Fender, 12, F.3d 480 (5th Cir. 1994)). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 16

U.S. Dep’t of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89 (5th Cir. 2003). . . . . . . . . . . . . . . 9

U.S. ex rel. Wallace v. Flintco Inc., 143 F.3d 955 (5th Cir. 1998). . . . . . . . . . . . . . . . . . . . . . . . 28

Walker v. U.S. Dept. of Housing and Urban Dev., 99 F.3d 761 (5th Cir. 1996). . . . . . . . . . . 14, 16

v


Watkins v. Fordice, 7 F.3d 453 (5th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Zolfo, Cooper & Co. v. Sunbeam-Oster Co. (In re Zolfo, Cooper & Co.), 50 F.3d 253 (3d Cir. 1995).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

STATUTES AND RULES

11 U.S.C. § 327. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

11 U.S.C. § 328(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3

11 U.S.C. § 330. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2, 10, 11, 31

11 U.S.C. § 330(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 18, 19, 29

11 U.S.C. § 330(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 10

11 U.S.C. § 330(a)(3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 19

11 U.S.C. § 330(a)(3)(F) formerly Section 330(a)(3)(E).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

11 U.S.C. § 330(a)(4).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 25

11 U.S.C. § 330(a)(4)(A)(ii)(I). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

11 U.S.C. § 330(a)(6).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 24, 25

11 U.S.C. § 331. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

11 U.S.C. § 503(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 31

11 U.S.C. § 507(a)(2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 18

11 U.S.C. § 726(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

11 U.S.C. § 1101. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

11 U.S.C. § 1106. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

11 U.S.C. § 1107. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

11 U.S.C. § 1108. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

vi


11 U.S.C. § 1127(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

28 U.S.C. § 158(a)(1)(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

28 U.S.C. § 1961. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 9, 31, 32

42 U.S.C. § 1988. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Fed. R. Bankr. P. 8002(a).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Fed. R. Bankr. P. 9011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Miscellaneous

Bankruptcy Act of 1898. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Federal Water Pollution Control Act § 505(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

H.R. Rep. No. 95-595, at 294 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6286.. . . . . . . 10, 16

Waste Disposal Act § 7002(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

vii


STATEMENT OF APPELLATE JURISDICTION

This Court has appellate jurisdiction under 28 U.S.C. § 158(a)(1), which

confers jurisdiction on the district courts of the United States to hear appeals “from

final judgments, orders, and decrees” of bankruptcy judges. The bankruptcy court’s

final orders granting Baker Botts L.L.P.’s (“Baker Botts”) and Jordan, Hyden,

Womble, Culbreth & Holzer, P.C.’s (“Jordan Hyden”) application for a fee

enhancement under 11 U.S.C. § 330 were entered on August 18, 2011. The United

States Trustee timely filed notices of appeal from those orders under 28 U.S.C.

§ 158(c)(2) and Fed. R. Bankr. P. 8002(a) on September 14, 2011.

STATEMENT OF ISSUES PRESENTED

1. Did the Bankruptcy Court err in awarding Baker Botts a fee enhancement of $4,161,708.96 and in awarding Jordan Hyden a fee enhancement of $125,831.00?

2. Did the Bankruptcy Court err in granting a fee enhancement in light ofthe United States Supreme Court’s decision in Perdue v. Kenny A., 130S. Ct. 1662 (2010)?

3. Did the Bankruptcy Court err in allowing post-judgment interest on anyapproved fees and expenses which remain unpaid?

4. Did the Bankruptcy Court err in awarding Baker Botts fees and expensesincurred in prosecuting its request for a fee enhancement?


STATEMENT OF THE CASE

I. Statutory Framework

This case concerns the compensation of bankruptcy professionals under 11

U.S.C. § 330. When a debtor files a bankruptcy case to reorganize under chapter 11

of the Bankruptcy Code, the debtor becomes a “debtor-in-possession.” 11 U.S.C.

§ 1101. The debtor-in-possession maintains control over the debtor’s property, and

acquires certain rights, powers, and fiduciary duties. 11 U.S.C. §§ 1106, 1107, 1108.

This control includes the ability to seek court permission to retain professionals,

including attorneys, to assist the debtor-in-possession with the reorganization of the

bankruptcy estate. 11 U.S.C. §§ 327, 328, 330 (governing employment and

compensation of professional persons).

Section 330 allows a bankruptcy court to award “reasonable compensation for

actual, necessary services rendered by . . . professional[s].” 11 U.S.C. § 330(a)(1)(A).

Reasonable compensation under section 330 is based on the nature, extent, and value

of the services, taking into account the time spent by the professional on the

bankruptcy case, the professional’s skill and experience, the rates charged in the case,

and the customary amount comparably skilled professionals charge in cases other

than bankruptcy cases. 11 U.S.C. § 330(a)(3).

2


Section 328(a) allows a debtor to propose an alternate basis for payment. 11

U.S.C. § 328(a). Section 328(a) allows, but does not require, bankruptcy courts to

approve payment terms proposed by the trustee or debtor-in-possession if they are

“reasonable.” If the bankruptcy court chooses to approve specific section 328(a)

payment terms, however, those terms must be followed, and cannot be changed by the

bankruptcy court unless they “prove to have been improvident in light of

developments not capable of being anticipated at the time.” 11 U.S.C. § 328(a). The

court did not approve the appellees’ payment terms under section 328(a) in this case,

so their compensation is governed by section 330(a).

The Bankruptcy Code permits a professional to apply for and receive interim

fees while the case is pending, subject to final approval by the court. 11 U.S.C.

§ 331. And it accords priority to the payment of professionals’ fees. 11 U.S.C.

§§ 503(b), 507(a)(2).

II. Statement of the Facts

ASARCO, LLC, is a mining and smelting company. It was acquired in a

leveraged buyout in 1999, and the combination of (1) a tumultuous relationship with

its new corporate parent; (2) plummeting copper prices; (3) contingent liabilities for

environmental, asbestos, and toxic-tort claims; and (4) a labor strike in July 2005

3


drove ASARCO to the brink of collapse. Doc. No. 20 at 3. For those reasons, it filed

a petition for chapter 11 bankruptcy relief on August 9, 2005. Id.

The appellees, the law firms Baker Botts and Jordan Hyden, applied to serve

as co-counsel to ASARCO. Doc No. 19 (Jordan Hyden); Doc. No. 20 (Baker Botts).

The appellees had previously advised ASARCO on restructuring and bankruptcy-

related issues, including bankruptcy cases for ASARCO’s subsidiaries. Doc. No. 19

at 3; Doc. No. 20 at 4-5. In both employment applications, the appellees admitted

that their standard hourly rates of compensation — subject to periodic adjustments

not at issue here — were reasonable and would result in fair compensation for their

services. Doc No. 19 at 4; Doc. No. 20 at 6-7. Neither requested nor received a

contingency fee, success fee, or other form of bonus payment as a term of their

employment. Id.; Doc No. 55 (order authorizing Jordan Hyden’s employment); Doc.

No. 57 (order authorizing Baker Botts’s employment).

The appellees performed their duties with diligence throughout what was a

challenging and complex case. And those efforts were integral to ASARCO’s

successful reorganization. Accordingly, they received quarterly interim compensation

awards for their fees and expenses throughout the case. Doc. No. 13915 at 52 (Baker

Botts); Doc. No. 13917 at 3-4 (Jordan Hyden).

4


In the appellees’ final fee applications, they requested compensation beyond

their stated hourly rates and the number of hours worked. They argued that they

should receive an additional 20% bonus on top of their lodestar rate because of the

exceptional results in the case. Doc. No. 13915 at 59 (Baker Botts); Doc. No. 13917

at 18-19 (Jordan Hyden). They never alleged that their lodestar-based compensation

was unreasonable. Doc. No. 13915 at 1 (requesting $113.3 million in total lodestar

compensation and a $22.6 million fee enhancement for Baker Botts); Doc. No. 13917

at 2 (requesting $7 million in total lodestar compensation and a $1.4 million fee

enhancement for Jordan Hyden). In addition, Baker Botts sought additional fees for

prosecuting its request for a fee enhancement. Doc. No. 13915 at 56 (Baker Botts);

Doc. No. 15168 (Baker Botts’ supplemental brief).

The United States Trustee and ASARCO objected. Doc. No. 14119

(ASARCO’s objection to Baker Botts’ request for a fee enhancement); Doc. No.

14121 (ASARCO’s objection to Jordan Hyden’s request for a fee enhancement); Doc.

No. 14134 (United States Trustee’s objection to Jordan Hyden’s request for a fee

enhancement); Doc. No. 14137 (United States Trustee’s objection to Baker Botts’

request for a fee enhancement). Both the United States Trustee and ASARCO argued

that the appellees’ lodestar compensation was reasonable and thus a fee enhancement

was not appropriate. Id. That was because the skill of the professional and the

5


quality of the results were already anticipated by the appellees’ hourly rates: there

were no circumstances that rendered the default lodestar calculation unreasonable,

such as (1) unique or unforseen obstacles that could not be accounted for when the

hourly rates were agreed upon or (2) substantial delays in payment or a risk of non-

payment. Id.

The bankruptcy court disagreed. The court held that under Fifth Circuit law,1

a bankruptcy court has the discretion to award a fee enhancement “where counsel

succeeded in accomplishing a substantial recovery for their clients.” Doc. No. 16249

at 64. The court also considered the impact of Perdue v. Kenny A., 130 S. Ct. 1662

(2010). In Perdue, the Supreme Court held that fee enhancements for superior

performance were available only in rare and exceptional circumstances, such as when

the lodestar does not take attorney skill into consideration, and that an applicant must

offer specific evidence that the lodestar fee alone would not have been adequate to

attract counsel capable of achieving those results. Perdue, 130 S. Ct. at 1674.

The bankruptcy court held that “[w]hile Perdue is not binding, it does establish

principles which must be followed in any request for an enhancement.” Doc. No.

The bankruptcy court conducted its analysis of the relevant legal issues in1

its opinion on Baker Botts’ request for a fee enhancement. See Doc. No. 16249 at63. The court then incorporated that analysis into its opinion on Jordan Hyden’srequest for a fee enhancement. See Doc. No. 16250 at 28.

6


16249 at 65. The court also found that “much of the work in this case, although

outstanding, is the type of professional legal work expected of a national law firm

such as Baker Botts.” Id. Despite this, the court found that a fee enhancement was

appropriate for the appellees’ work on a key fraudulent conveyance action because

it “resulted in the recovery of a substantial asset for the estate.” Id at 67.

Accordingly, the court granted Baker Botts an enhancement based on an 20%

increase in its hourly rates for the fraudulent conveyance litigation, id., and granted

Jordan Hyden a 10% increase because of the lesser role the firm played in that

litigation. Doc. No. 16250 at 27.

The bankruptcy court also granted Baker Botts’ request to receive fees for

prosecuting its fee enhancement, Doc. No. 16249 at 67, and, for both parties, the

court sua sponte awarded interest on the unpaid portion of the fee awards under 28

U.S.C. § 1961 (allowing for interest on any money judgment in a civil case recovered

in a district court). Doc. No. 16334 at 3-4. This appeal followed.

SUMMARY OF THE ARGUMENT

The Fifth Circuit consistently directs bankruptcy courts to apply the lodestar

method to determine reasonable compensation for bankruptcy professionals under

section 330. Other circuits also use the lodestar. Under the lodestar method, a court

calculates fees by multiplying the number of hours a professional reasonably worked

7


by a reasonable hourly rate and making necessary adjustments, if any. Perdue is a

lodestar case, something the Supreme Court noted 38 times in its decision. Indeed,

the issue the Court said it was deciding was whether the calculation of a reasonable

attorney’s fee based on the lodestar could be increased due to superior performance

and results. Because the Supreme Court ruled on a critical part of the lodestar method

in Perdue, the bankruptcy court logically should have applied Perdue.

Perdue provides an objective, readily-administrable standard for determining

when a fee award may deviate from the original lodestar calculation and the amount

by which the lodestar may be increased to produce a reasonable fee. Application of

Perdue will better enable bankruptcy courts to award uniform and predictable fees

that are consistent with the statute’s dual purpose to neither underpay, nor overpay

bankruptcy professionals.

Section 330, however, does not affect just attorney’s fees; it will determine the

standard for awarding bonuses to other professionals in every bankruptcy case within

this circuit. Those bonuses may add up to hundreds of millions of dollars in large

chapter 11 cases. And creditors primarily will bear the burden of those bonuses

because creditors’ claims are paid from the estate assets that remain after

professionals’ fees have been paid. The government sees no reason to discard well-

defined lodestar principles adopted by the Supreme Court and the Fifth Circuit.

8


In addition, the bankruptcy court lacked authority to (1) award Baker Botts fees

and expenses for prosecuting its request for a fee enhancement and (2) provide both

Baker Botts and Jordan Hyden with interest on their fee awards. On the former, there

was no authority to award “fees on fees” under section 330 because the request for

a fee enhancement was not a service beneficial to the estate and there is no applicable

exception to that rule in statute or Fifth Circuit law. On the latter, a fee award is not

a “money judgment” under 28 U.S.C. § 1961. And even if it was, interest may not be

awarded here because, under the terms of the confirmed reorganization plan, fees are

not final and payable until all appeals have been exhausted.

ARGUMENT

I. Standard of Review

This appeal presents only questions of law. This Court reviews these purely

legal issues de novo. U.S. Dep’t of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89,

91 (5th Cir. 2003).

II. The Perdue Standard Controls Whether Bankruptcy Courts May Enhancethe Lodestar Calculation When Awarding Compensation Under Section330.

The bankruptcy court’s decision should be reversed because it ignored the

standard for granting fee enhancements articulated in Perdue, and as a result, it

awarded the appellees more than the reasonable compensation to which the appellees

9


were entitled. That was error for three reasons. First, the Fifth Circuit applies the

lodestar method to determine reasonable compensation for bankruptcy professionals

under section 330(a), and Perdue clarifies how to apply the lodestar method. Second,

the Perdue enhancement standard is an integral part of a lodestar framework that

logically cannot be ignored. Third, if Perdue does not apply, bankruptcy courts will

have unfettered discretion to award performance bonuses on a largely subjective basis

that cannot be effectively reviewed.

A. The Fifth Circuit and Fellow Circuit Courts Apply Supreme CourtLodestar Principles in Bankruptcy Cases Just Like in Other Cases,So Perdue Should Apply to Bankruptcy Cases.

Bankruptcy professionals may be paid “reasonable compensation” for their

actual and necessary services under 11 U.S.C. § 330(a). 11 U.S.C. § 330(a)(1)(A).

Reasonable compensation under section 330 is the amount necessary to induce a

professional to take a bankruptcy case. See In re UNR Indus., Inc., 986 F.2d 207, 210

(7th Cir. 1993) (statute’s aim is to reasonably compensate attorneys so future

attorneys are not deterred from taking bankruptcy cases); Burgess v. Kenske (In re

Manoa Fin. Co.), 853 F.2d 687, 691 (9th Cir. 1988) (section 330 “is intended to

attract competent counsel by awarding reasonable compensation for services

rendered”). See H.R. Rep. No. 95-595, at 294 (1977), reprinted in 1978

10


U.S.C.C.A.N. 5963, 6286 (expressing intent to pay attorneys enough that they will

not leave the bankruptcy field).

A reasonable fee under federal fee-shifting statutes serves the same purpose of

inducing attorneys to take cases, see Perdue, 130 S. Ct. at 1672, and the Fifth Circuit

has adopted the lodestar method developed in the context of those federal statutes to

calculate reasonable compensation under 11 U.S.C. § 330. Caplin & Drysdale

Chartered v. Babcock & Wilcox Co. (In re Babcock & Wilcox Co.), 526 F.3d 824, 828

(5th Cir. 2008); In re Cahill, 428 F.3d 536, 539-40 (5th Cir. 2005) (per curiam)

(citing Transamerican Natural Gas Corp. v. Zapata P’ship (In re Fender), 12 F.3d

480, 487 (5th Cir. 1994)). See Peele v. Cunningham (In re Texas Secs., Inc.), 218

F.3d 443, 446 (5th Cir. 2000) (referring to “lodestar formula of § 330(a)(1)”).

Fifth Circuit law is consistent with the law of the First, Third, Sixth, Seventh,

Eighth, Ninth, Tenth, and Eleventh circuits, all of which also have used the lodestar

to determine reasonable compensation under section 330. See Houlihan, Lokey,

Howard & Zukin Capital v. Unsecured Creditors’ Liquidating Trust (In re

Commercial Fin. Servs., Inc.), 427 F.3d 804, 811 (10th Cir. 2005); Stalnaker v. DLC,

Ltd., 376 F.3d 819, 825 (8th Cir. 2004); In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d

833, 849-50 (3d Cir. 1994); UNR Indus., Inc., 986 F.2d at 209-10 (7th Cir.); Boddy

v. U.S. Bankruptcy Court (In re Boddy), 950 F.2d 334, 337 (6th Cir. 1991); Grant v.

11


George Schumann Tire & Battery Co., 908 F.2d 874, 879 & n.11 (11th Cir. 1990);

In re Spillane, 884 F.2d 642, 647-48 (1st Cir. 1989); Manoa Fin. Co., 853 F.2d at

690-92 (9th Cir.). See also In re AOV Indus., Inc., 797 F.2d 1004, 1014 (D.C. Cir.

1986) (inviting district court on remand to consider affect of recent Supreme Court

decisions clarifying lodestar method on bankruptcy court’s lodestar calculation).

There is nothing surprising about the fact that federal courts apply the lodestar

in determining fees under section 330(a). Congress intended that attorneys in

bankruptcy cases would be awarded fees comparable to fees earned in other types of

cases. 11 U.S.C. § 330(a)(3)(F); Boddy, 950 F.2d at 337. See Babcock & Wilcox Co.,

526 F.3d at 828 (finding Voting Rights Act case persuasive on issue of fees under

section 330, given statutory language of section 330(a)(3)(F) (formerly

section 330(a)(3)(E)). And the Fifth Circuit has approved use of the lodestar across

a broad spectrum of cases involving fees awarded under federal statutes. See, e.g.,2

McClain v. Lufkin Indus., Inc., 649 F.3d 374 (5th Cir. 2011) (applying lodestar in

class action employment discrimination case); FTC v. Nat’l Bus. Consultants, Inc.,

No. 08-30320, 2008 WL 5068620 (5th Cir. Dec. 1, 2008) (per curiam) (applying

The Fifth Circuit also used the same lodestar method of calculating2

attorney’s fees employed in other federal statutes to calculate attorney’s fees in acase under the Bankruptcy Act of 1898. Lawler v. Teofan (In re Lawler), 807 F.2d1207, 1210-11 (5th Cir. 1987) (citing Graves v. Barnes, 700 F.2d 220, 222 (5thCir. 1983) (reviewing fee award in voting rights case)).

12


lodestar in connection with award of reasonable attorneys fees to special counsel to

receiver); Silvestri v. Barrett (In re High Sulfur Content Gasoline Prods. Liab. Litig.),

517 F.3d 220, 228 (5th Cir. 2008) (applying lodestar to attorneys’ fees in class action

suits); Todd v. AIG Life Ins. Co., 47 F.3d 1448, 1459 (5th Cir. 1995) (applying

lodestar to fee award under ERISA); Cahill, 428 F.3d at 539-40 (applying lodestar

to section 330 fee award); Shipes v. Trinity Indus., 987 F.2d 311, 319 (5th Cir. 1993)

(reversing fee awarded in class action employment discrimination action).

The Fifth Circuit has applied the lodestar method consistently in these different

types of cases, and it has relied on authority concerning fees awarded under one

federal statute to guide its determination of fees under a different federal statute. See

McClain, 649 F.3d at 382-83 (reviewing fee award under 42 U.S.C. § 1988) (citing

Zolfo, Cooper & Co. v. Sunbeam-Oster Co. (In re Zolfo, Cooper & Co.), 50 F.3d 253

(3d Cir. 1995)) (concerning section 330 fee award); Babcock & Wilcox Co., 526 F.3d

at 827-28 (reviewing section 330 fee award) (citing Watkins v. Fordice, 7 F.3d 453,

459 (5th Cir. 1993) (Voting Rights Act case)); Cahill, 428 F.3d at 540 (addressing

fees under section 330) (citing Shipes, 987 F.2d at 319) (reviewing fees awarded in

Civil Rights Act case)).

Given all this, there is no reason that Perdue applies any less to bankruptcy

cases than to other lodestar cases.

13


B. Perdue Should Be Applied When Awarding Fees Under Section 330Because It Is an Integral Part of the Lodestar Method.

The Perdue enhancement standard is an indispensable component of the

lodestar framework adopted by the Fifth Circuit to determine reasonable professional

compensation in federal cases including bankruptcy cases. The lodestar method relies

on two basic premises: (1) a reasonable fee is one that will induce a professional to

take the job, but not provide a windfall, and (2) the lodestar yields a fee that

presumptively is sufficient to do that. Perdue, 130 S. Ct. at 1672-73 (citing

Pennsylvania v. Del. Valley Citizens’ Council for Clean Air, 478 U.S. 546, 564-65

(1986)); City of Burlington v. Dague, 505 U.S. 557, 562 (1992); Blum v. Stenson, 465

U.S. 886, 897 (1984)); Saizan v. Delta Concrete Prods. Co., 448 F.3d 795, 800 (5th

Cir. 2006).

Courts compute the lodestar by multiplying the amount of time an attorney

would reasonably spend for the same type of work by a reasonable hourly rate. Blum,

465 U.S. at 888; Cahill, 428 F.3d at 540. That amount may be adjusted based on

relevant factors not already considered in the lodestar, but most, if not all, of the

relevant factors are rolled into the determination of time reasonably spent and the

14


reasonable hourly rate. See Walker v. U.S. Dept. of Housing and Urban Dev., 993

F.3d 761, 771-72 & n.12 (5th Cir. 1996) (citing Del. Valley, 478 U.S. at 565).

Before Perdue, the Supreme Court had developed four fundamental rules

concerning enhancements to the lodestar calculation: (1) enhancements may be

awarded only “in rare and exceptional circumstances”; (2) an enhancement may not

be awarded based on a factor that is subsumed in the lodestar calculation, and the

quality of an attorney’s performance normally is reflected in the lodestar calculation

in the reasonable hourly rate; (3) the fee applicant bears the burden of proving the4

enhancement is necessary to yield a reasonable fee; and (4) the applicant must

produce specific evidence that supports the enhanced award. See Perdue, 130 S. Ct.

at 1673 (citing Del. Valley, 478 U.S. at 565-66; Blum, 465 U.S. at 897-99, 901-02;

Dague, 505 U.S. at 561-63; Hensley v. Eckerhart, 461 U.S. 424, 435 (1983);

Pennsylvania v. Del. Valley Citizens’ Council for Clean Air, 483 U.S. 711, 726-27

(1987)).

A court adjusts the lodestar amount upward or downward based on the3

factors contained in section 330 and the twelve factors articulated in Johnson v.Georgia Highway Express, Inc., 488 F.2d 714, 717-719 (5th Cir. 1974); Cahill,428 F.3d at 540.

A professional “obligates himself to perform to the best of his ability and4

to produce the best possible results commensurate with his skill and his client’sinterests” when he accepts the case. Del. Valley, 478 U.S. at 565.

15


The Fifth Circuit and other circuits consistently use these enhancement rules

too. See, e.g., Saizan, 448 F.3d at 800 (5th Cir.); Walker, 99 F.3d at 771 (5th Cir.);

Cooper v. Pentecost, 77 F.3d 829, 833 (5th Cir. 1996); Fender, 12 F.3d at 487-88 (5th

Cir.). Accord UNR Indus., 986 F.2d at 211 (7th Cir.); Novelly v. Palans (In re Apex

Oil Co.), 960 F.2d 728, 731-32 (8th Cir. 1992); Manoa Fin. Co., 853 F.2d at 687,

691-92 (9th Cir.).

These four rules led inexorably to the Supreme Court’s holding in Perdue that

performance-based enhancements require specific evidence that the lodestar fee

would not have been adequate to attract competent counsel. 130 S. Ct. at 1674. That5

is because a lodestar fee that is sufficient to induce a professional to take the job, by

definition, is reasonable compensation. See Del. Valley, 478 U.S. at 564-65; UNR

Indus., Inc., 986 F.2d at 208-09; Manoa Fin. Co., 853 F.2d at 691; H.R. Rep. No. 95-

595, at 294 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6286. Section 330 does

not authorize the bankruptcy court to award more. 11 U.S.C. § 330(a).

The Supreme Court suggested three sets of circumstances under which a5

professional might be able to prove his entitlement to a fee enhancement based onsuperior performance or the results obtained: (1) “where the method used indetermining the hourly rate used in the lodestar calculation does not adequatelymeasure the [professional’s] true market value”; (2) “if the [professional’s]performance includes an extraordinary outlay of expenses and the litigation isexceptionally protracted”; and (3) if the professional’s “performance involvesexceptional delay in the payment of fees.” Perdue, 130 S. Ct. at 1674-75.

16


When a court ignores Perdue, bankruptcy professionals may be awarded more

than section 330 allows. In this case, for instance, the bankruptcy court awarded

Baker Botts over $113 million in fees and awarded Jordan Hyden over $7 million in

fees. Neither of them disputed that those fees were reasonable. Nevertheless, Baker

Botts received an extra $4 million and Jordan Hyden received an extra $125,831 not

because the lodestar fee was unreasonably low, but because the case turned out well.

There is no basis for that enhancement under section 330.

The bankruptcy court held that “[w]hile Perdue is not binding, it does establish

principles which must be followed in any request for an enhancement.” Doc. No.

16249 at 65. Despite this, the court found that a fee enhancement was appropriate

because the bankruptcy case was “rare and exceptional” and the return to creditors

was “far more than expected.” Id. That was error because the bankruptcy court

applied the wrong legal standard in its order granting enhanced fees.6

C. The Perdue Standard Is Necessary to Ensure Uniformity andPredictability of Fee Awards Under Section 330.

The lodestar method including the Perdue standard is easily administered and

provides an objective means both for awarding enhancements and calculating the

Even if this Court were to find that Perdue is not controlling on the6

question of bankruptcy professionals’ compensation, its reasoning is persuasiveand should be applied in bankruptcy cases unless there is a good reason not to.

17


appropriate amount. See Todd, 47 F.3d at 1459. So it cabins the discretion of trial7

judges, prevents arbitrary fee awards based on subjective factors, leads to more

uniform and predictable results, and offers a basis for meaningful, appellate review.

See Perdue, 130 S. Ct. at 1674-75.

If Perdue does not apply, it is not clear how bankruptcy courts should address

requests for enhanced fees. The statute does not authorize any additional amount

above reasonable compensation. 11 U.S.C. § 330(a). Congress did not want to

overpay professionals because that money comes out of the creditors’ pockets in

many instances. See In re Gulf Consol. Servs., Inc., 91 B.R. 414, 418 (Bankr. S.D.

Tex. 1988) (In establishing that bankruptcy professionals should receive “reasonable

compensation,” Congress was concerned not only with not paying too little but also

with not paying too much.). Bankruptcy professionals are paid before general

unsecured creditors under the Bankruptcy Code’s priority scheme, so only the amount

remaining after the professionals are paid is available to pay the creditors’ claims.

See 11 U.S.C. §§ 503, 507.

In contrast to the largely results-based Johnson standard, section 330 directs

the court to award reasonable compensation based primarily on time spent and the

Perdue describes how enhancements should be calculated under each of7

the three circumstances. 130 S. Ct. at 1674-75.

18


professional’s market rate for cases other than bankruptcy cases. See 11 U.S.C.

§ 330(a) & (a)(3). Enhanced rewards for performance are conspicuously absent from

the express statutory criteria to be considered in awarding reasonable compensation.

Without Perdue’s lodestar, there is no objective method to determine the

appropriate amount of any enhancement. Cf. In re Farah, 141 B.R. 920, 926 (Bankr.

W.D. Tex. 1992) (“Unfortunately, there is no uniform standard by which to arrive at

a fee enhancement figure.”). In that circumstance, bankruptcy courts would have

virtually unlimited discretion to award bankruptcy professionals performance bonuses

of arbitrary amounts irrespective of the market.

D. There Is No Reason to Disregard Perdue in Calculating ReasonableFees Under Section 330 Using the Lodestar.

In addition, nothing in Perdue expressly limits its holding to fee-shifting cases.

Given that Perdue was a fee-shifting case, it is not surprising that the opinion

references federal fee-shifting statutes. Indeed, similar “restrictive” language may be

found in prior Supreme Court cases announcing fee-shifting principles that this Court

and others have routinely applied. See, e.g., Dague, 505 U.S. at 559 (“This case

presents the question whether a court, in determining an award of reasonable

attorney’s fee under section 7002(e) of the solid Waste Disposal Act . . . or section

505(d) of the Federal Water Pollution control Act . . . may enhance the fee award

19


above the ‘lodestar’ amount”); Blum, 465 U.S. at 889 (stating the issue of the case as

“whether, and under what circumstances, an upward adjustment of an award based

on prevailing market rates is appropriate under section 1988”); Cahill, 428 F.3d at

540 (citing Shipes, 987 F.2d 311) (Shipes relies on Dague and Alberti v.

Klevenhagen, 896 F.2d 927 (5th Cir.), vacated in part on reh’g, 903 F.2d 352 (5th

Cir. 1990)(per curiam), and Alberti cites Blum); Boddy, 950 F.2d at 337 (citing Blum);

Manoa Fin. Co., 853 F.2d at 691 (same).

Further, in its decision, although the bankruptcy court found Perdue to be

instructive, it rejected Perdue as limiting the Fifth Circuit’s Johnson factors. It

reasoned that the jurisprudence on fees in bankruptcy cases was “unique.” Doc. No.

16249 at 65. Instead, the Fifth Circuit’s section 330 jurisprudence suggests that

Perdue should apply with greater force in bankruptcy cases than fee-shifting cases.

See Babcock & Wilcox Co., 526 F.3d at 827-28 (holding that a fee-shifting case was

“quite persuasive” based on (1) the substantial similarities between the fee-shifting

statute and section 330 and (2) section 330’s reference to non-bankruptcy

compensation).

20


E. The Bankruptcy Court Relied on Inapposite Cases When ItConcluded That Perdue Is Not Controlling.

The bankruptcy court cited three cases in support of its conclusion that Perdue

does not apply in bankruptcy cases: Klein v. O’Neal, Inc., 705 F. Supp. 2d 632 (N.D.

Tex. 2010); Shepherd v. Dallas Cnty., Tex., No. 3:05-CV-1442-D, 2010 WL 2573346

(N.D. Tex. June 24, 2010); In re Vioxx Prods. Liab. Litig., 760 F. Supp. 2d 640 (E.D.

La. 2010).

Two of those cases involved an unrelated issue, attorney’s fees awards paid out

of common funds, and the courts in those cases did not apply a pure lodestar

approach. See Klein, 705 F. Supp. 2d at 675, 681; Vioxx Prods. Liab., 760 F. Supp.8

2d at 652. Those cases therefore, have no bearing on the proper application of the

lodestar in bankruptcy cases where professionals are paid on an hourly basis out of

estate funds.

The common fund doctrine is an equitable exception to the American8

Rule that each litigant pays his own attorney’s fees. The doctrine provides that “alitigant or lawyer who recovers a common fund for the benefit of persons otherthan himself or his client is entitled to a reasonable attorney’s fee from the fund asa whole,” thereby preventing those who obtain the benefit of a lawsuit withoutcontributing to its costs from being unjustly enriched. Bombardier AerospaceEmp. Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348, 360(5th Cir. 2003). Attorney’s fees under the common fund doctrine are oftenawarded as a percentage of the fund. See, e.g., Klein, 705 F. Supp. 2d at 681; In reVioxx Prods. Liab., 760 F. Supp. 2d at 652, 662.

21


In the third case, Sheperd, a civil rights case, the court declined to enhance the

lodestar amount, citing Perdue. Sheperd, 2010 WL 2573346 at *3. Not one of the

cited cases held that Perdue should not govern the standard for enhancing a lodestar

determination of reasonable fees under section 330(a).

III. The Bankruptcy Court Erred When It Awarded Baker Botts Fees andExpenses for Prosecuting Its Fee Enhancement.

In addition to awarding fee enhancements, the bankruptcy court ordered the

estate to compensate Baker Botts for the fees and expenses it incurred while

prosecuting its request for a fee enhancement, including fees for its time spent on the

present appeal. The bankruptcy court lacked authority to enter such an award, for at

least three reasons.

First, courts are split on whether a professional can even recover fees and

expenses for prosecuting a fee application. But the better-reasoned view is that such

an award is generally precluded by the plain text of the Bankruptcy Code, which

(subject to exceptions not relevant here) prohibits professionals from receiving

compensation from the estate for work that is adverse to the interests of the estate.

Second, the bankruptcy court’s order is contrary to precedent from both the

Supreme Court and the Fifth Circuit, which have prohibited courts from entering

22


equitable fee-shifting awards in the absence of bad faith or specific statutory

authority.

Third, even if this court were to adopt the holdings of other courts that have

permitted law firms to recover “fees on fees” in certain circumstances, the bankruptcy

court’s order was erroneous because the rationale of those decisions is inapplicable

when the law firm is seeking fees for prosecuting a fee enhancement request.

A. The Plain Language of Section 330 of the Bankruptcy CodePrecludes the Bankruptcy Court From Shifting The Costs ofProsecuting a Fee Enhancement Request to the Estate.

A bankruptcy court is prohibited from awarding the professionals

compensation that is not “reasonably likely to benefit the estate.” 11 U.S.C.

§ 330(a)(4)(A)(ii)(I). In addition, although section 330(a)(6) provides that

professionals may receive compensation for the “preparation of a fee application,”

any fees awarded under that section must be limited to an amount “based on the level

and skill reasonably required to prepare the application.” 11 U.S.C. § 330(a)(6).

Notably, neither subsection (a)(6) nor any other provision of the Bankruptcy Code

expressly authorizes professionals to charge the estate fees for prosecuting a request

for a fee enhancement.

Although the Fifth Circuit has not yet ruled on the matter, other courts,

including two bankruptcy courts in the Fifth Circuit, have concluded that the plain

23


language of section 330 does not permit “fees on fees” for prosecuting fee

applications in general because such activities do not benefit the estate. See Grant

v. George Schumann Tire & Battery Co., 908 F.2d 874, 882-83 (11th Cir. 1990)

(section 330 did not permit attorney to be compensated from estate for defending

appeal from his own fee application, since that appeal “brought absolutely no benefit

to the estate, the creditors, or the debtor”); In re Frazin, 413 B.R. 378, 402 (Bankr.

N.D. Tex. 2009) (section 330 did not entitle attorney to compensation from estate for

successfully defending fee objection); In re Teraforce Tech. Corp., 347 B.R. 838, 867

(Bankr. N.D. Tex. 2006) (denying portion of law firm’s fees attributable to time spent

defending its own fee application); see also In re Watervilet Paper Co., 109 B.R. 733,

735 (Bankr. W.D. Mich. 1989) (holding that attorney’s appeal of order requiring him

to waive prepetition fees as condition to retention was non-compensable under

section 330(a), because appeal sought relief detrimental to the estate); but see In re

Smith, 317 F.3d 918 (9th Cir. 2002) (approving attorney’s application for fees

incurred in successful prosecution of own fee application).

Congress’s decision to enact section 330(a)(6) further supports the conclusion

that section 330(a)(4) precludes compensation for the prosecution of a fee

enhancement. Prior to 1994, several courts held the professionals could not be paid

from the estate for their costs of preparing, as well as prosecuting, basic fee

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applications. See, e.g., In re Courson, 138 B.R. 928 (Bankr. N.D. Iowa 1992)

(expenses relating to fee application were non-compensable “part of the attorney’s

cost of doing business”). By enacting section 330(a)(6) in 1994, Congress

legislatively reversed Courson and similar decisions on preparing fee applications,

but chose not to extend the same exception to fee litigation in general. See In re St.

Rita’s Assocs. Private Placement, L.P., 260 B.R. 650, 652 (Bankr. W.D.N.Y. 2001)

(noting that under section 330, “litigation of a fee dispute is an exercise to be

distinguished from preparation of the underlying fee application”); In re Wireless

Telecomms., Inc., 449 B.R. 228, 236 (Bankr. M.D. Pa. 2011) (noting that Congress

“provided for compensation for the preparation of the application, but not the

prosecution for such”).

It is a fundamental canon of statutory construction that “[w]here Congress

explicitly enumerates certain exceptions to a general prohibition, additional

exceptions are not to be implied, in the absence of evidence of a contrary legislative

intent.” Andrus v. Glover Constr. Co., 446 U.S. 608, 616–617 (1980); see also

Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 719 (1991) (describing canon of

inclusio unius, exclusio alterius as a “strong indication” of legislative intent). As a

result, by creating an additional exception to section 330(a)(4) for fee litigation in

general, the bankruptcy court distorted the legislative scheme of section 330.

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B. The Bankruptcy Court Lacked Authority to Award Fees onEquitable or Public Policy Grounds.

Despite Congress’s enactment of specific provisions about what fees may and

may not be paid, the bankruptcy court ignored both section 330(a)(4) and (a)(6) in its

analysis. Instead, the bankruptcy court based its decision on two policy arguments:

First, the bankruptcy court reasoned that forcing Baker Botts to bear the costs of its

own litigation against the estate would create “unfair dilution of professionals’ fees.”

Doc. No. 16249 at 69. Second, the bankruptcy court reasoned that a failure to award

fees “would provide an incentive for parties in interest to mount objections to extract

a fee reduction.” Id.

Even if these policy-based arguments had merit, which they do not, the

bankruptcy court’s ruling was erroneous because it lacks authority to award fees on

a fee enhancement on equitable or public policy grounds. Unlike the other parts of

its fee application, those fees do not represent work that the appellees performed for

the estate, but rather represent fees incurred while successfully litigating against the

estate. As a result, the bankruptcy court’s order is in the nature of a fee-shifting

award, under which the losing party in a litigation is obliged to reimburse the legal

expenses of the prevailing party. See generally Alyeska Pipeline Svc. Co. v.

Wilderness Soc., 421 U.S. 240 (1975) (surveying history of fee shifting under

26


American law). Such awards are an exception to the “American Rule” generally

followed in courts of the United States, in which each litigant is required to bear its

own legal expenses. See Alyeska, 421 U.S. at 247 (“In the United States, the

prevailing litigant is ordinarily not entitled to collect a reasonable attorneys’ fee from

the loser”).

In Alyeska, the Supreme Court faced the issue of whether courts may depart

from the American Rule based on equitable or public policy concerns. After a

pending environmental lawsuit against an oil pipeline was mooted by legislative

action, the court of appeals entered a fee shifting award in favor of environmental

plaintiffs, despite its conceded lack of any statutory authorization to do so, based on

its view that the plaintiffs “had acted to vindicate important statutory rights of all

citizens,” and that fee shifting was necessary “lest the great cost of litigation of this

kind, particularly against well-financed defendants such as Alyeska, deter private

parties desiring to see the laws protecting the environment enforced.” Id. at 245-46

(internal citation omitted). The Supreme Court reversed, concluding that fee shifting

is a matter reserved to Congress, not the courts, and that the courts lack authority to

“invade the legislature’s province by redistributing litigation costs.” Id. at 270.

The Fifth Circuit has strictly followed the rule stated in Alyeska and has

consistently rejected attempts to shift fees based on equity or public policy grounds.

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See U.S. ex rel. Wallace v. Flintco Inc., 143 F.3d 955, 972 (5th Cir. 1998) (holding

that the trial court lacked authority to shift expert witness fees beyond amount

provided by statute); Galveston County Nav. Dist. No. 1 v. Hopson Towing Co., Inc.,

92 F.3d 353, 356 (5th Cir. 1996) (holding that the trial court’s determination that

defendants had not acted “in an equitable manner” did not authorize a fee-shifting

award, where there was no evidence that defendants’ conduct rose to bad faith);

Nunley v. M/V Dauntless Colocotronis, 863 F.2d 1190, 1200 (5th Cir. 1989) (holding

that courts lack equitable authority to shift attorney fees among joint tortfeasors); In

re Owners of Harvey Oil Center, 788 F.2d 275, 279 (5th Cir. 1986) (holding that the

trial court lacked authority to impose fee-shifting award against defendant that

prosecuted an unsuccessful, though non-frivolous, appeal of adverse ruling).9

In this case, the bankruptcy court’s fee-shifting award is precluded by Alyeska.

In order to depart from the American Rule by ordering the estate to pay the legal fees

Significantly, in the absence of a specific statutory fee-shifting provision,9

the Fifth Circuit has recognized only a single, narrow exception to the rule statedin Alyeska: if a party commences litigation vexatiously, or in bad faith, the trialcourt may award the prevailing party its attorney fees pursuant to its inherentpowers to punish bad faith conduct. Galveston County Nav. Dist., 92 F.3d at 356(citing Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991). Because thebankruptcy court did not base its decision on Chambers, and because nothing inthe record indicates that the objectors to the appellees’ fees acted in bad faith, thatexception is inapplicable here.

28


of adverse party, the bankruptcy court was required to find specific statutory

authorization for doing so. No such authorization exists under section 330, and the

bankruptcy court did not identify any other statutory basis for its ruling. Accordingly,

by basing its fee-shifting award on perceived public policy and not on the specific

language of the statute, the bankruptcy court engaged in the very same “inva[sion] of

the legislature’s province” that Alyeska forbids.

C. The Policy Grounds on Which the Bankruptcy Court Relied AreInapplicable Because It Relates to a Request for a Fee Enhancement andNot an Initial Fee Application.

Finally, the bankruptcy court’s decision was erroneous because the case law

its relies upon do not involve prosecuting fee enhancements. Relying primarily on

Smith, the bankruptcy court held that it would shift fees based on what it viewed as

the “unambiguous policy inspiring 330(a)” — that bankruptcy attorneys “should earn

the same income as their non-bankruptcy counterparts.” Doc. No. 16249 at 69. Even

assuming that the bankruptcy court was correct in looking to the perceived policy,

and not the actual text, of section 330, its reasoning has no relevance to the facts of

this case.

Here, the issue in dispute relates to Baker Botts’ request for fees and expenses

for prosecuting a fee enhancement. Neither Baker Botts nor the bankruptcy court

have identified any authority suggesting that, outside of a bankruptcy, a law firm

29


would be able to sue its client for a fee in excess of the amount contractually agreed

upon, much less demand a fee-shifting award for pursuing those excess fees. In short,

the bankruptcy court’s invocation of the policy of parity between bankruptcy and

non-bankruptcy professionals cannot justify awarding Baker Botts with fees and

expenses they never would have been entitled to receive outside of bankruptcy.

The bankruptcy court’s second policy rationale, that refusal to pay fees on fees

would lead to opportunistic fee objections, is equally misplaced. Doc. No. 16249 at

69. Baker Botts’ decision to seek a fee enhancement is purely voluntary, and the

results of the fee-enhancement litigation do not affect its right to its bargained-upon,

non-enhanced fees. Moreover, the policy concern articulated by the bankruptcy court

cuts both ways: while a refusal to shift fees might lead professionals to agree to

unwarranted fee reductions, a rule broadly authorizing fees on fees might deter

debtors from pursuing meritorious objections because of a fear that they will multiply

the estate’s liabilities to the professionals. In any event, to the extent parties file

strategic objections to professional fees, a remedy already exists in the form of

sanctions under Fed. R. Bankr. P. 9011 or Chambers.

IV. The Bankruptcy Court Erred When It Granted Post-Judgment Interest.

In addition, the bankruptcy court’s award of post-judgment interest was

erroneous because neither the Plan nor the Bankruptcy Code provide any

30


authorization for such an award. Instead, the court appears to have granted interest

based solely on 28 U.S.C. § 1961, which provides for interest “on . . . [a] money

judgment in a civil case.” But, as the majority of courts to have directly considered

the matter have agreed, that provision is inapplicable to an award of professional fees

by a bankruptcy court because professional fees awarded by a court are not a “money

judgment.” St. Paul Fire & Marine Insurance Co. v. Vaughn, 779 F.2d 1003, 1010

(4th Cir. 1985); In re El Comandante Mgmt. Co., LLC, 395 B.R. 807, 818 (D.P.R.

2008).

The bankruptcy court’s decision to apply section 1961 to a fee award is also

irreconcilable with Fifth Circuit authority. Although the Fifth Circuit has not directly

addressed the question of whether 28 U.S.C. § 1961 interest is available to

bankruptcy professionals in a chapter 11 case, it has addressed a similar issue in

chapter 7, concluding that neither section 330, nor section 503, nor section 726(a) of

the Bankruptcy Code authorize a trustee to receive interest on his fees in a solvent

chapter 7 case. See Tarbox v. United States Trustee (In re Reed), 405 F.3d 338, 343-

44 (5th Cir. 2005).

Although Tarbox does not mention 28 U.S.C. § 1961, had that section been

applicable, it would have provided a more direct mechanism for the payment of

interest to the chapter 7 professionals, and the court’s analysis of the other sections

31


would have been unnecessary. Thus, Tarbox implicitly precludes the bankruptcy

court’s ruling that bankruptcy professional fees are a “money judgment” subject to

28 U.S.C. § 1961.

Even if 28 U.S.C. § 1961 did apply to bankruptcy fees, moreover, it would not

have been triggered here because post-judgment interest does not begin to accrue

under that statute until the court has entered a final judgment. Kaiser Aluminum &

Chemical Corp. v. Bonjorno, 494 U.S. 827, 835 (1990) (holding that the plain

language of 28 U.S.C. § 1961 dictates that the obligation to pay interest is triggered

by entry of final order, not verdict). In this case, as provided by the Plan, the award

of professional fees to the appellees does not become final, for purposes of payment,

until all appeals have been exhausted. Plan § 2.1, Doc. No. 12728. The effect of this

provision is that the professionals, and not the estate, should bear the expense

associated with any appeals of a fee award. Because that provision forms part of a

confirmed plan, it was subject to modification only if the conditions described in

section 1127(b) were met. They were not. As a result, the bankruptcy court lacked 10

Under section 1127 of the Bankruptcy Code, a plan may be modified10

after confirmation only if the modification is sought by the debtor or planproponent, the modification occurs before substantial consummation, and noticeand a hearing is provided. 11 U.S.C. § 1127(b). None of these requirements weremet here.

32


authority to enter a compensation order that awarded interest in a manner inconsistent

with the terms of the Plan.

CONCLUSION

For these reasons, the United States Trustee respectfully asks this Court to

reverse the orders below and to remand for further proceedings.

Dated: November 23, 2011 Respectfully submitted,

JUDY A. ROBBINSUNITED STATES TRUSTEEREGION 7

By: /s/ Kevin M. EpsteinRAMONA D. ELLIOTT KEVIN M. EPSTEINDeputy Director/General Counsel Trial AttorneyP. MATTHEW SUTKO Department of JusticeAssociate General Counsel Attorney-in-ChargeNOAH M. SCHOTTENSTEIN Texas Bar No. 00790647Trial Attorney Southern District No. 437129Executive Office for U.S. Trustees Office of the U.S. TrusteeDepartment of Justice 615 E. Houston St., Room 53320 Massachusetts Avenue, N.W. P.O. Box 1539Suite 8000 San Antonio, Texas 78295-1539Washington, D.C. 20530 (210) 472-4640(202) 307-1399 (210) 472-4649 Fax

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CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing BRIEF OF THEAPPELLANT UNITED STATES TRUSTEE was served upon the parties listedbelow through either the Notice of Electronic Filing from the Court’s ElectronicFiling System or by United States Mail, first class, postage prepaid on this the 23rdday of November, 2011.

/s/ Kevin M. Epstein KEVIN M. EPSTEIN Trial Attorney

Bryan S DumesnilHeath Aaron NovosadBradley Jason BenoitRalph D McBrideBracewell Giuliani LLP 711 Louisiana Ste 2300 Houston, TX 77002

Jack L KinzieEric A SoderlundJames Kemp SawersOmar Jesus AlanizBaker Botts LLP 2001 Ross Ave Ste 800 Dallas, TX 75201

George Irvin Terrell Baker Botts LLP 910 Louisiana St Houston, TX 77002-4995

Shelby A Jordan Nathaniel Peter Holzer Jordan, Hyden, Womble, Culbreth &Holzer500 N Shoreline, Ste 900 Corpus Christi, TX 78471

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