## Facts

- Hungry Horse, LLC filed a Chapter 11 case in 2016 and later replaced its bankruptcy counsel.
- The debtor sought approval to employ new counsel under 11 U.S.C. § 328(a) on specified terms and conditions.
- The proposed engagement included a fee-defense provision requiring the debtor to pay the firm’s reasonable fees incurred in obtaining approval of, and responding to objections to, the firm’s fee applications.
- The Official Unsecured Creditors’ Committee objected, arguing the provision was barred by Baker Botts L.L.P. v. ASARCO LLC, which held that § 330(a) does not authorize compensation for defending fee applications.
- The Committee relied on In re Boomerang Tube, Inc., which read ASARCO to preclude approving fee-defense provisions even through § 328(a).

## Issues

1. Whether § 328(a) permits a Chapter 11 debtor to employ counsel on terms that include a fee-defense provision obligating estate payment of reasonable fees incurred to obtain and defend fee applications.
2. Whether ASARCO’s limitation on fee-defense compensation under § 330(a) bars approval of such a provision when presented as a contractual term of employment under § 328(a).

## Decision

- The court overruled the Committee’s objection.
- The court approved the debtor’s application to employ counsel under § 328(a), including the fee-defense provision.
- The court held that ASARCO addressed compensation under § 330(a) and did not foreclose court-approved contractual fee shifting under § 328(a).
- The court rejected Boomerang Tube’s view that § 328(a) cannot validate fee-defense provisions after ASARCO.

## Legal Principles

- Section 328(a) allows employment of professionals “on any reasonable terms and conditions,” subject to bankruptcy court approval.
- ASARCO bars compensation for fee-defense work under § 330(a) because defending a fee application is not a compensable “service” to the estate under that statute.
- The American Rule permits fee shifting when authorized by statute or contract; a disclosed and court-approved § 328(a) retention agreement may function as a contractual basis for fee shifting.
- A term may be “reasonable” under § 328(a) even if it primarily protects the professional rather than directly benefiting the estate; reasonableness is assessed in the overall retention context.
- Bankruptcy court oversight at the retention stage remains a safeguard against abusive or overbroad fee-defense provisions; the specific clause must be limited and reasonable on its face.

## Conclusion

The court held that a fee-defense clause may be approved as a reasonable term of counsel’s employment under § 328(a), distinguishing ASARCO as a § 330(a) decision and allowing estate-paid defense fees when authorized by a disclosed, court-approved retention agreement.


In re Hungry Horse, LLC, 574 B.R. 740 (Bankr. D.N.M. 2017)