(CN) - Attorneys who won a $7 billion judgment for bankrupt copper-mining firm Asarco, achieving "probably the most successful Chapter 11" restructuring in history, are entitled to a 20 percent fee enhancement, the 5th Circuit ruled.
Facing cash-flow and tax problems, as well as environmental liabilities, copper-mining and smelting firm Asarco declared Chapter 11 bankruptcy in 2005.
With help from its lawyers at Baker Botts and Jordan, Hyden, Womble, Culbreth & Holzer, Asarco emerged from bankruptcy four years later with $1.4 billion in cash, and the successful resolution of its environmental liabilities.
Despite Asarco's financial difficulties, its parent company, Grupo Mexico, had Asarco transfer to it its interest in Southern Copper Co. Asarco's attorneys used that factor to win a judgment against Grupo Mexico valued at between $7 billion and $10 billion.
This award was the largest fraudulent-transfer judgment in Chapter 11 history.
Given their extremely successful work, Baker Botts and Jordan Hyden sought a 20 percent fee enhancement for the entire case, as well as fees for preparing and litigating their final-fee applications.
After a six-day trial, the court rejected Asarco's objections, and awarded Baker Botts $113 million and Jordan Hyden $7 million for fees and expenses.
It approved a fee enhancement for the work performed on the Southern Copper Co. litigation, but not for the firm's entire work for Asarco. This enhancement amounted to an addition $4.1 million for Baker Botts and $125,000 for Jordan Hyden.
A federal judge in Dallas who affirmed noted: "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 5th Circuit on Wednesday affirmed the fee enhancements but said the attorneys cannot recover fee awards for litigation over their fee applications.
"The [bankruptcy] court singled out the firms' prosecution of the SCC Litigation for fee enhancement precisely because it ascribed success to their efforts alone," Judge Edith Jones wrote for a three-judge panel, abbreviating Southern Copper Co. "The court described the SCC Litigation as Asarco's 'crown jewel.'"
Quoting the bankruptcy court's ruling, the New Orleans-based panel noted that the attorneys' extraordinary results brought Asarco back from the brink of financial ruin, and transforming it into a competitive company in "probably the most successful Chapter 11 of any magnitude in the history of the [bankruptcy] code."
"The bankruptcy court could hardly have been more specific and detailed as to Baker Botts's 'rare and exceptional' performance than it was while placing this description in the context of its 85-page opinion on fees," Jones wrote.
Baker Botts cannot, however, recover the $5 million it spent fighting in court for its fee award, according to the 19-page opinion.
"In the absence of explicit statutory guidance, requiring professionals to defend their fee applications as a cost of doing business is consistent with the reality of the bankruptcy process," Jones wrote. "The perverse incentives that could arise from paying the bankruptcy professionals to engage in satellite fee litigation are easy to conceive."
Jones acknowledged that this precedent could encourage unscrupulous firms to object to attorneys' fee requests, which would require the attorneys to defend themselves, amounting to a fee reduction.
"This opinion should not be read as encouraging tactical or ill-supported objections to fee applications," Jones said. "We are confident that bankruptcy courts, practicing vigilance and sound case management, can thwart punitive or excessively costly attacks on professional fee applications."