PBCBA BAR BULLETINS pbcba_bulletin_February 2019 - Page 9

BANKRUPTCY C o r n e r Unsecured Creditors May be Entitled to Attorney’s Fees and Costs Incurred Post-Petition on Its Prepetition Claim JASON S. RIGOLI I recently had the following issue arise in a case: whether an unsecured creditor seeking to enforce its prepetition contractual rights in a bankruptcy case is entitled to an award of its post-petition attorney’s fees and costs for enforcement. My position, after researching the issue, was yes, an unsecured creditor is entitled to its attorney’s fees and costs. The District Court of Delaware recently issued an opinion agreeing with this position and interpreting Sections 502 and 506 of the Bankruptcy Code post Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co. , 549 U.S. 443 (2007). See Wilmington Trust Co. v. Tribune Media Co. (In re Tribune Media Co.) (“Tribune”), Case No. 1:15-cv-01116-RGA, 2018 WL 6167504 (D.Del. Nov. 26, 2018). First and foremost, the creditor must have a state law right to attorney’s fees. The allowability of a claim for the post-petition attorney’s fees and costs in a bankruptcy case, as Judge Andrews stated, “[t]he answer to that question hinges on the interpretation of two provisions of the Bankruptcy Code, Section 502 and Section 506(b).” Tribune, at *1. Judge Andrews first addresses the pertinent provision of section 502, stating: Bankruptcy Code Section 502(a) provides, “A claim or interest ... is deemed allowed, unless a party in interest ... objects.” 11 U.S.C. § 502(a). When an interested party objects, Section 502(b) instructs the bankruptcy court to “determine the amount of such claim ... and ... allow such claim in such amount” subject to certain enumerated exceptions. The exception most relevant to this appeal is Section 502(b)(1) which disallows claims that are “unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” The “applicable law” includes the Bankruptcy Code itself. See Travelers , 549 U.S. at 451. Tribune, at *1. Section 506 addresses which claims are allowed as secured. Providing that, “when there is a lien on property, claims are secured to the extent of the value of the interest in the property and unsecured “to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim.” § 506(a). When a claim is oversecured (i.e., the value of the collateral exceeds the amount of the underlying claim), Section 506(b) allows a secured claim for “any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.” Tribune, at *1 (quotations in original). The appellees in Tribune argued that Section 506(b) limits the claims allowable under section 502. Id. Judge Andrews disagreed. Noting that circuit court opinions on this issue, post¬- Travelers , are unanimous, Judge Andrews reversed and remanded stating that section 506(b) of the Bankruptcy Code does not “expressly” disallow the unsecured claims nor does it limit the allowability of unsecured claims under section 502. Tribune at *2. While Judge Andrews does not elaborate further, because, as he put it, “I do not have anything new to add to this debate,[,]” the rationale behind the post-Travelers opinions for allowing the post-petition attorney’s fee claims is simply that the contractual attorneys’ fees and costs are “contingent, unliquidated pre-petition claims” and the mere fact that the contingency giving rise to the attorneys’ fees and costs occurs post- petition does not transmute the claim to a post-petition claim. See Ogle v. Fidelity & Deposit Company of Maryland , 586 F3d 143 (2d Cir. 2009); In re SNTL Corp. , 571 F.3d 826 (9th Cir. 2009); In re Residential Capital, LLC , 558 B.R. 77 (S.D.N.Y. 2016); and Nukote International, Inc. v. Office Depot, Inc. , 2011 WL 2784565 (S.D.Fla. July 14, 2011). And, as the Supreme Court of the United States held in Travelers , an unsecured creditor is entitled to its contractual prevailing party fees, even if the issues litigated are federal bankruptcy issues, specifically overruling the Fobian rule, stating the “Fobian rule finds no support in the Bankruptcy Code.” Travelers. at 449-450. This article is submitted by Jason S. Rigoli, Esq., Furr Cohen, 2255 Glades Road, Suite 301E, Boca Raton, FL 33431, [email protected] furrcohen.com JOIN US FOR OUR NEXT SEMINAR