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, jrigoli@
furrcohen.com
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