Creative Lawyers Thwarted in ASARCO Workaround Attempts

One of the panels at the recent Fifth Circuit Bench-Bar Conference featured Judge Craig Gargotta and Stephen Rosenblatt discussing fee issues raised by Barron & Newburger, P.C. v. Texas Skyline, Ltd. and Baker Botts v. ASARCO.  While I was personally interested in hearing the discussion about my own case, the really interesting part involved what creative lawyers are doing to try to work around the ASARCO decision.    

In the ASARCO case, the reorganized debtor caused Baker Botts to spend about $5 million in attorney time defending its fee application.  Both the Fifth Circuit and the Supreme Court ruled that these services were not compensable because the American Rule provides that parties must bear their own fees absent a statute or contract and 11 U.S.C. Sec. 330 did not allow fees for defending a fee application.    Thus, Baker Botts had to eat the cost of establishing its entitlement to fees in one of the most extraordinarily successful cases of all time.

This has left some creative lawyers wondering how they can protect themselves from the expense of a costly fee battle.    However, two recent decisions from the Bankruptcy Court for the District of Delaware have thrown cold water on these attempts.

Fifth Circuit Report: Oct.-Dec. 2015

The Fifth Circuit decided cases dealing with appellate procedure, exemptions, judicial estoppel, jurisdiction, sanctions, standing and surcharging collateral during the fourth quarter of 2015.  A common theme among the cases is parties being disappointed in a variety of contexts, including having an appeal dismissed on procedural grounds, having a lawsuit dismissed based on incomplete filings in a bankruptcy case, losing exemptions based on unfortunate timing and failure to establish damages after dismissal of an involuntary petition.  

Movie References Abound in Opinion Denying Fees to Alleged Debtor

With the Academy Awards just a week away, one Texas judge has demonstrated his love of film in an opinion chock full of movie references.    The opinion is also a helpful guide to recovery of attorneys' fees under 11 U.S.C. Sec. 303(i).   In re Clean Fuel Technologies II, LLC, No. 15-30827 (Bankr. W.D. Tex. 2/4/16), which can be found here. 

The Court set the tone for the opinion in the opening paragraphs:

This case involves an unsuccessful Involuntary Petition filed under Chapter 7 of the Bankruptcy Code against an alleged debtor. The Court previously dismissed the Involuntary Petition, finding that the petitioning creditors did not meet the eligibility requirements established by statute and recent Fifth Circuit precedent. Now, The Empire Strikes Back through a Counterclaim—the alleged debtor seeks recovery of attorney’s fees and costs against the unsuccessful petitioning creditors under § 303(i) of the Bankruptcy Code.

The Court finds that, upon dismissal of an involuntary petition, a presumption arises in favor of awarding attorneys’ fees and costs to the alleged debtor. In this case, however, the Court determines, based on the totality of the circumstances, the presumption of an award of attorneys’ fees and costs to the alleged debtor has been overcome. As a result, the petitioning creditors in this case have dodged a Bullitt and the Counterclaim filed by this alleged debtor must be denied.

Opinion, p. 1.   The helpful footnotes explain that The Empire Strikes Back was released by Lucasfilm in 1980 and earned an Academy Award for Best Sound, while Bullitt was released by Warner Brothers in 1968 and earned the Academy Award for Best Film Editing.    

Let's Be Careful Out There: The Danger of Omitting Assets

Filing bankruptcy is serious business.    The mere act of filing a petition creates an automatic stay effective against all entities.    Liens can be modified, taxes can be paid out and debts can be discharged.   The price of admission for getting all these benefits is full disclosure.   Unfortunately some debtors either don't understand these obligations or think they can selectively disclose only the assets they want to list.   The consequences for omitting assets can be severe as illustrated by two recent opinions from the Fifth Circuit and a press release from the Acting U.S. Attorney for the Southern District of Illinois.

Current Developments in Texas Homestead Law

            For this post, I attempted to find every Texas case dealing with a homestead exemption during the period between 2010 and 2015.     Many more cases interpreting the Texas constitutional and statutory laws on homesteads are decided in bankruptcy courts than in reported state court opinions.