BANKRUPTCY CODE

Baker Botts v. ASARCO

Issues

Can bankruptcy lawyers recover compensation for fees incurred through defending a fee application against a bankruptcy client’s objections?

This case presents the Supreme Court with the opportunity to decide whether courts have the authority to grant defense-fee awards when a law firm defends itself against its bankruptcy client’s objections to legal fees. Brief for Petitioner Baker Botts at (i). ASARCO argues that § 330 of the Bankruptcy Code (“the Code”) does not permit awards for compensation to bankruptcy practitioners for successfully defending fee applications. Brief for Respondent at 16. In opposition, Baker Botts contends that § 330 gives courts broad discretion to award compensation for services that are necessary to the administration of bankruptcy cases, including successfully defending fee applications. Brief for Petitioners at 23. The Supreme Court’s decision in this case will impact the compensation of bankruptcy lawyers and the rights of bankruptcy clients. See Brief of Amicus Curiae the Committee On Bankruptcy and Corporate Reorganization of the Association of the Bar of the City of New York, The Business Law Section of the Florida Bar, et al. (“New York City and Florida Bar Associations”), in Support of Petitioners at 9; Brief of Amicus Curiae Bankruptcy Law Scholars, in Support of Petitioners at 25; Brief for Petitioners at 23 (quoting § 330(a)(C)).

Questions as Framed for the Court by the Parties

Section 330(a) of the Bankruptcy Code grants discretion to bankruptcy judges to award "reasonable compensation for actual, necessary services rendered by" an attorney or other professional employed by the estate. 11 U.S.C. §330(a)(1). Before any compensation may be awarded, the Code requires professionals to complete a detailed fee application, to which any party in interest may object. It is undisputed that the preparation of such a fee application is compensable. But the circuits have now divided over whether defending it is likewise compensable. The Ninth Circuit, like the vast majority of lower courts, has held that bankruptcy judges may award compensation for the defense of a fee application, at least when the defense is meritorious and successful. It so held in part because categorically denying compensation would undermine the statutory requirement that bankruptcy professionals' compensation not be diluted compared to that of non-bankruptcy practitioners. But the Fifth Circuit, in the judgment below, held that such compensation is never authorized by §330(a). 

The question presented is whether Section 330(a) of the Bankruptcy Code grants bankruptcy judges discretion to award compensation for the defense of a fee application.

In 2005, Respondent ASARCO, a copper mining company, filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code (the “Code”) due to mounting cash-flow and litigation problems. In re ASARCO, 751 F.3d 291, 293 (5th Cir. 2014).

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bankruptcy

Midland Funding v. Johnson

Issues

Is it unlawful for a creditor to file an accurate proof of claim for a time-barred debt in a bankruptcy proceeding?

This case provides the Supreme Court with the opportunity to resolve a conflict over the interplay between the Fair Debt Collection Practices Act (“FDCPA”) and the Bankruptcy Code. The parties disagree over whether a creditor may file an accurate proof of claim for a time-barred debt in a bankruptcy proceeding. Petitioner, Midland Funding, LLC (“Midland Funding”) argues that the Bankruptcy Code creates a right to file time-barred claims and that filing such claims does not violate the FDCPA. Midland Funding asserts that filing claims for time-barred debts helps to fulfill the objectives of the Bankruptcy Code, such as collectively addressing all claims against the bankruptcy estate. Respondent, Aleida Johnson, argues alternatively that filing time-barred claims is an unfair, misleading practice that violates the FDCPA and does nothing to further the goals of the bankruptcy process. Johnson contends that creditors file stale claims solely in hopes of taking advantage of malfunctions in the legal process and that these claims waste judicial resources.

Questions as Framed for the Court by the Parties

  1. Whether the filing of an accurate proof of claim for an unextinguished time-barred debt in a bankruptcy proceeding violates the Fair Debt Collection Practices Act.
  2. Whether the Bankruptcy Code, which governs the filing of proofs of claim in bankruptcy, precludes the application of the Fair Debt Collection Practices Act to the filing of an accurate proof of claim for an unextinguished time-barred debt.

In 2014 Respondent, Aleida Johnson, filed for bankruptcy under Chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Alabama. See Johnson v. Midland Funding, 823 F.3d 1334, 1335 (2016). Petitioner, Midland Funding, LLC, had previously purchased Johnson’s $1,879.71 defaulted credit card debt.

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