In an opinion and order issued on March 8, 2017, the Delaware
bankruptcy court presiding over the chapter 11 cases of defunct
telecommunications company Nortel Networks Inc. and its affiliates
(collectively, "Nortel") held in In re Nortel
Networks Inc., No. 09-10138 (KG) (Bankr. D. Del. Mar. 8,
2017), that a provision in a bond indenture obligating Nortel to
pay legal fees charged by the indenture trustee's attorneys for
defending their requested fees did not violate the U.S. Supreme
Court's ruling in Baker Botts L.L.P. v. ASARCO LLC,
135 S. Ct. 2158 (2015).
The court concluded that the terms of the indenture served as an
exception to the "American Rule," which requires each
litigant to pay its own attorneys' fees—win or
lose—unless a statute or contract provides
otherwise. In ASARCO, the Supreme Court ruled that
"lawyers could not recover fees for defending their fees in
[a] bankruptcy case" and that section 330 of the Bankruptcy
Code, which provides that a court may award reasonable compensation
for actual, necessary services rendered by professionals employed
in a bankruptcy case, is not an exception to the rule because it
does not mention "fees," a "prevailing party,"
and a "civil action."
The Nortel court concluded that the case before it
satisfied the ASARCO standard and was distinguishable from
In re Boomerang Tube, Inc., 548 B.R. 69 (Bankr. D. Del.
2016). In Boomerang, the official unsecured creditors'
committee sought to retain attorneys under section 328 of the
Bankruptcy Code, which authorizes a bankruptcy trustee or an
official committee to retain professionals "on any reasonable
terms and conditions." The retention agreement provided that
the bankruptcy estate would bear the cost of fees charged by the
attorneys for defending their fees. Citing ASARCO, the
court refused to approve the fee defense provision. It ruled that
section 328 "is not a 'specific and explicit' statute
that authorizes the prevailing party to recover fees in an
The Boomerang court found that "the retention
agreement was a contract, but that it was not a bilateral
agreement, and that its terms were subject to the court's
approval and modification." It accordingly held that "the
retention agreement was not 'a contract between two parties
providing that each will be responsible for the other's legal
fees if it loses a dispute between them,' " but instead,
"a contract between the creditors' committee and its
attorneys providing that the estate, a third party, would pay the
defense costs even if the estate was not the objecting
In Nortel, the court explained that, unlike in
Boomerang, the indenture "provides for payment of the
Indenture Trustees' and its attorneys' fees incurred in the
fee dispute" because it "requires the Debtors . . . to
indemnify the Indenture Trustee for 'costs and expenses of
defending itself' " and "entitles the Indenture
Trustee to exercise a charging lien against distributions to secure
payment." Accordingly, the court ruled that the indenture
"is clearly outside the circumstances of ASARCO and
Boomerang [and the] . . . Indenture Trustee and its
lawyers are therefore awarded their fees for the fee
The Nortel court also partially sustained the objection
of two investment funds holding 90 percent of the bonds to a
portion of the professional fees asserted by the indenture
trustee's attorneys. The court disallowed as
"unnecessary" approximately $914,000 of $8.1 million in
fees requested by two law firms representing the indenture
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