Asarco, L.L.C. v. Jordan Hyden Womble Culbreth & Holzer, P.C. (In re Asarco, L.L.C.)

• Citation: 751 F.3d 291
• Decision Date: 30 April 2014
• Docket Number: Nos. 12–40997,13–40409.,12–40998,s. 12–40997
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Parties: In the Matter of ASARCO, L.L.C., Debtor. Asarco, L.L.C., Appellant v. Jordan Hyden Womble Culbreth & Holzer, P.C., Appellee. In the Matter of ASARCO, L.L.C., Debtor. Asarco, L.L.C., Appellant v. Baker Botts, L.L.P., Appellee.

751 F.3d 291

In the Matter of ASARCO, L.L.C., Debtor.

Asarco, L.L.C., Appellant

v.Jordan Hyden Womble Culbreth & Holzer, P.C., Appellee.

In the Matter of ASARCO, L.L.C., Debtor.

Asarco, L.L.C., Appellant

v.Baker Botts, L.L.P., Appellee.

Nos. 12–40997, 12–40998, 13–40409.

United States Court of Appeals, Fifth Circuit.

April 30, 2014.

Bryan S. Dumesnil, Bradley Jason Benoit (argued), Ralph Denneth McBride, Heath Aaron Novosad, Bracewell & Giuliani, L.L.P., Houston, TX, for Appellant.

Shelby Arthur Jordan, Nathaniel Peter Holzer, Jordan, Hyden, Womble, Culbreth & Holzer, P.C., Corpus Christi, TX, for Appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before STEWART, Chief Judge, and HIGGINBOTHAM and JONES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Baker Botts and Jordan, Hyden, Womble, Culbreth & Holzer, P.C. (“Jordan Hyden”) served as debtor's counsel to ASARCO LLC (“ASARCO”) during its Chapter 11 bankruptcy and helped ASARCO confirm a reorganization plan that paid all of its creditors in full. The firms were well compensated pursuant to 11 U.S.C. § 330(a) for their fees and expenses for representing ASARCO. What remains to be decided, however, are two fee-related issues: whether the bankruptcy court abused its discretion in authorizing a 20% premium to Baker Botts and 10% premium to Jordan Hyden for their unusually successful fraudulent transfer litigation; and whether the bankruptcy court was authorized, consistent with 11 U.S.C. § 330, to award attorneys' fees to the firms for defending their fee applications in court. We affirm the awards of fee enhancements but reverse the awards of fees for litigating the firms' fee applications.

I. Background

ASARCO is an integrated copper mining, smelting, and refining company. ¹ ASARCO entered Chapter 11 bankruptcy in 2005 facing cash flow deficiencies, various environmental liabilities, and tax and labor problems. Two years before ASARCO commenced its bankruptcy case, its Parent company directed ASARCO to transfer a controlling interest in Southern Copper Corporation (“SCC”) to the Parent despite ASARCO's financial distress.

Baker Botts and Jordan Hyden successfully prosecuted complex fraudulent transfer claims to recover ASARCO's controlling interest in SCC (the “SCC Litigation”). The judgment against ASARCO's Parent, valued at between $7 and $10 billion, was the largest fraudulent transfer judgment in Chapter 11 history. After 52 months in bankruptcy, ASARCO emerged pursuant to a plan of reorganization in late 2009 (funded by its Parent as a result of the SCC Litigation) with little debt, $1.4 billion in cash, and the successful resolution of its environmental, asbestos and toxic tort claims.

In their final fee applications, Baker Botts and Jordan Hyden sought lodestar fees, expenses, a 20% fee enhancement for the entire case, and fees and expenses for preparing and litigating their final fee applications. ASARCO, now once again controlled by its Parent, challenged the fees on a large scale (a challenge that included a discovery request covering every document Baker Botts produced during the 52–month bankruptcy, resulting in the production of 2,350 boxes of hard copy documents and 189 GB of electronic data).² None of the objections to Bakers Botts's core fees were joined by the United States Trustee.

After a six-day fee trial, the bankruptcy court rejected all of ASARCO's objections to the core fee request and awarded more than $113 million to Baker Botts and $7 million to Jordan Hyden for core fees and expenses. Approving percentage fee enhancements only for the work they performed on the SCC Litigation (rather than, as requested, on the entire case), the court awarded Baker Botts an additional $4.1 million and Jordan Hyden over $125,000. The court's calculation was based on “rare and exceptional” performance and results in the adversary proceeding and a finding that the standard rates charged by Baker Botts were approximately 20% below the appropriate market rate. Finally, the court authorized fees and expenses for the firms' litigation in defense of their attorneys' fee claims, resulting in another $5 million (plus expenses) to Baker Botts and over $15,000 to Jordan Hyden.

On appeal to the district court, ASARCO abandoned its objections to the Baker Botts core fee award. The same judge who had presided over the SCC Litigation heard the appeal. The district court affirmed the fee enhancements, stating that “there is an abundance of evidence which supports [the bankruptcy] court's enhancement award.... A seven billion dollar judgment, which is recoverable, which saves a company, and funds a 100% recovery for all concerned is a once in a lifetime result.” The district court agreed that Baker Botts's and Jordan Hyden's fees to defend their core fees were compensable, and it did not disturb the bankruptcy court's authorization to seek an award of appellate fees for the same purpose. Because the court also held that attorneys' fees were improperly awarded for Baker Botts's pursuit of its fee enhancement, ³ it remanded to the bankruptcy court to determine whether any of the firm's $5 million defense-fee award related to the enhancement.

On remand, the bankruptcy court concluded that all of the defense-fee award compensated Baker Botts for defending core fees incurred in connection with the case. On appeal, the district court affirmed the final award. The district court also held that the firms' appellate fees was permissible but premature. ASARCO has appealed.

II. Standard of Review

A bankruptcy court has “broad discretion” to determine reasonable attorneys' fees, as the “bankruptcy court is more familiar with the actual services performed and has a far better means of knowing what is just and reasonable than an appellate court can have.” In re Lawler, 807 F.2d 1207, 1211 (5th Cir.1987) (internal quotation marks and citation omitted). Accordingly, we disturb a fee award only if the bankruptcy court abused its discretion. Id. “An abuse of discretion occurs where the bankruptcy court (1) applies an improper legal standard or follows improper procedures in calculating the fee award, or (2) rests its decision on findings of fact that are clearly erroneous.” In re Cahill, 428 F.3d 536, 539 (5th Cir.2005) (citation omitted). Under the clear error standard, we disturb factual findings only if “left with a firm and definite conviction that the bankruptcy court made a mistake.” Id. at 542 (internal quotation marks and citation omitted).

We review a “district court's decision by applying the same standard of review to the bankruptcy court's conclusions of law and findings of fact that the district court applied.” Id. at 539 (citation omitted).

III. Discussion

A. Fee Enhancement

Section 330(a)(3) of the Bankruptcy Code provides a non-exclusive list of factors that bear on a court's determination of the reasonable compensation for actual, necessary services and expenses rendered by attorneys and other court-supervised bankruptcy professionals. See11 U.S.C. § 330(a)(1)(A). Thus,

[T]he court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including—

(A) the time spent on such services;

(B) the rates charged for such services;

(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;

(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;

(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and

(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.

11 U.S.C. § 330(a)(3).

Elaborating on this provision, bankruptcy courts use the lodestar method, multiplying the number of hours of work performed by attorneys and paraprofessionals by the hourly rates of each. The total yields a lodestar amount. In re Pilgrim's Pride Corp., 690 F.3d 650, 654–55 (5th Cir.2012) (citing Lawler, 807 F.2d at 1211). “[A]fter calculating the lodestar, bankruptcy courts retain[ ] the discretion to adjust the lodestar upwards or downwards to reflect their consideration of the Johnson factors.” Id.; Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir.1974). See also11 U.S.C. § 330(a)(2). The twelve Johnson factors are:

(1) The time and labor required; (2) The novelty and difficulty of the questions; (3) The skill requisite to perform the legal service properly; (4) The preclusion of other employment by the attorney due to acceptance of the case; (5) The customary fee; (6) Whether the fee is fixed or contingent; (7) Time limitations imposed by the client or other circumstances; (8) The amount involved and the results obtained; (9) The experience, reputation, and ability of the attorneys; (10) The “undesirability” of the case; (11) The nature and length of the professional relationship with the client; (12) Awards in similar cases.

Pilgrim's Pride, 690 F.3d at 654 (citations omitted) (emphasis added).

This court has clarified that Section 330(a), the lodestar method, and the Johnson factors work in conjunction with each other to guide the court's discretion. Id. at 656 (citing Cahill, 428 F.3d at 539–40). Because the four Johnson factors related to attorney skill and legal complexity are presumably fully reflected in the lodestar, those four factors can only form the basis for a fee enhancement in “rare and exceptional circumstances.” Id. (citations omitted).

Although these general, well understood standards cover nearly all bankruptcyfee applications, the bankruptcy court here broke out of the usual lodestar mode by authorizing fee...