United States: Delaware Bankruptcy Court Rejects Attempt To Indemnify Committee Counsel For Costs Of Defending Fees

In In re Boomerang Tube, Inc.,1 the United States Bankruptcy Court for the District of Delaware refused to approve a proposed retention application that would have required the bankruptcy estate to reimburse counsel for the committee of unsecured creditors for fees and expenses the counsel incurred in any successful defense of their fees in the case.  The Bankruptcy Court ruled that such an arrangement was impermissible under the Bankruptcy Code and in contravention of the Supreme Court's 2015 ruling in Baker Botts L.L.P. v. ASARCO LLC.2  The Bankruptcy Court's decision poses implications for professionals faced with the prospect of defending their fees in bankruptcy cases, who may now be compelled to shoulder the expenses of a potential fee defense even if they have negotiated contractual provisions for the reimbursement of such fees.

In Boomerang Tube, the Official Committee of Unsecured Creditors (the "Committee") retained counsel ("Committee Counsel") pursuant to a retention agreement, which provided that Committee Counsel would be indemnified for any fees and expenses incurred while successfully defending potential challenges to their fees.  The Committee sought approval of the retention agreement pursuant to section 328(a) of the Bankruptcy Code.

The U.S. Trustee (the "UST") objected to the fee defense provisions on three principal grounds.  First, the UST argued that the provisions were barred by the ruling in ASARCO, in which the Supreme Court held that a law firm cannot recover fees from a bankruptcy estate for its defense against an objection to its fees.  Second, the UST argued that section 328(a) of the Bankruptcy Code did not create an exception to the "American Rule" that requires each litigant to pay its own attorney's fees.  Third, the UST contended that the proposed fee defense provisions were impermissible under section 328(a) because they were unreasonable and sought to compensate Committee Counsel for work outside the scope of their employment.

In response, the Committee first argued that ASARCO was distinguishable because it held only that section 330(a) of the Bankruptcy Code did not contain an express exception to the American Rule, whereas the Committee sought approval of the proposed fee defense provisions pursuant to section 328(a).  Second, the Committee asserted that the Supreme Court's ruling in ASARCO did not preclude a contractual exception to the American Rule.  Third, the Committee contended that the proposed fee defense provisions were permissible under section 328(a), citing numerous bankruptcy cases in which indemnification provisions for successfully defending fees were approved.

The Bankruptcy Court rejected each of the Committee's arguments and denied the Committee's request for approval of the fee defense provisions in Committee Counsel's retention agreement.  First, the Bankruptcy Court found that although section 328(a) of the Bankruptcy Code provided an exception to section 330, it did not authorize the fee defense provisions at issue because section 328(a) did not contain the "specific and explicit" statutory exception to the American Rule required under the ASARCO ruling.

Second, the Bankruptcy Court acknowledged the possibility of a contractual exception to the American Rule, but concluded that the proposed fee defense provisions were nonetheless impermissible because they were inconsistent with the Bankruptcy Code.  The Bankruptcy Court observed that the retention agreement was a contract between the Committee and Committee Counsel that called for a third party—the bankruptcy estate—to pay the Committee Counsel's defense costs.  Because the retention agreement could not bind a non-party to the agreement, the Bankruptcy Court held the proposed fee defense provisions to be unenforceable.  The Bankruptcy Court also noted that retention agreements in bankruptcy proceedings are not simply contractual matters, but are also subject to objections by other parties and ultimately require court approval in accordance with the provisions of the Bankruptcy Code, regardless of the terms of the agreement.

Third, the Bankruptcy Court considered whether, even if ASARCO did not preclude the proposed fee defense provisions, they could be approved under section 328(a).  The Court agreed with the UST that the provisions did not constitute "reasonable terms and conditions of employment" for Committee Counsel under section 328(a), because defending their own fees would be a service performed by Committee Counsel only for their own interests, not for the Committee itself.  The Bankruptcy Court was also unpersuaded by the Committee's reference to similar indemnification provisions that were approved in other cases.  The cases the Committee relied upon predated the ASARCO decision, which expressly rejected the consideration of such market factors in determining whether defense fees can be recovered.

Boomerang Tube presents a warning for all professionals involved in bankruptcy cases—not solely committee counsel—in drafting fee defense provisions in a retention agreement.  The Bankruptcy Court noted that it would deny approval of a retention agreement "filed by any professional under section 328(a)—including one retained by the debtor" that shifted fees incurred by the professional in defending fee objections.3  Other courts may follow this reasoning, and bankruptcy professionals may attempt other methods of circumventing ASARCO's restrictions; the HHR Bankruptcy Report will continue to provide updates on further developments in this regard.


1 In re Boomerang Tube, Inc., No. 15-11247, 2016 WL 385933 (Bankr. D. Del. Jan. 29, 2016).

2 Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (2015).

3 In re Boomerang Tube, 2016 WL 385933 at *8 n.6.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions