UK: It Should Be Settled Law – Unsecured Attorney's Fees Claims Are Permissible

Last Updated: 25 July 2019
Article by Jeffrey Rothleder

In Travelers Cas. & Sur. Co. of Am. v. PG&E, 549 U.S. 443 (2007), the Supreme Court held that bankruptcy law does not disallow a post-petition unsecured claim for attorney's fees to the extent such claim is authorized by a pre-petition contract and not otherwise expressly disallowed. That pronouncement should have stopped all future litigation over the issue. That has not been the case.

Recently, the Fourth Circuit confronted this very issue in SummitBridge Nat'l Invs. III, LLC v. Faison, 915 F.3d 288 (2019). The facts of SummitBridge are straightforward. The debtor, Faison, executed three promissory notes to his lender, which notes were secured by deeds of trust on the debtor's real property. Faison commenced a bankruptcy case and the lender filed proofs of claim. The lender subsequently sold its interest in the promissory notes and claims to SummitBridge National Investments III, LLC. The debtor then proposed a plan which provided that SummitBridge's claims would be allowed as secured claims in the amount of principal, interest, pre-petition attorney's fees and a certain portion of the post-petition interest and attorney's fees. The plan, however, precluded SummitBridge from recovering any post-petition attorney's fees after it had received the value of the underlying collateral. Regardless, SummitBridge filed and pursued unsecured claims for post-petition attorney's fees. The debtor's objection to these claims was sustained by the bankruptcy court. The district court affirmed and SummitBridge appealed to the Fourth Circuit.

The Fourth Circuit acknowledged that courts have struggled with the allowance or disallowance of post-petition attorney's fees and costs. But, the court said that the guidance provided by the Supreme Court in Travelers had gone a long way towards resolving the issue, and it reversed the district court.

Applying Travelers, the Fourth Circuit began with the presumption that "claims enforceable under state law will be allowed in bankruptcy unless they are expressly disallowed." The debtor argued that, unlike in Travelers, sections 502(b) and 506(b) of the Bankruptcy Code expressly disallow post-petition unsecured attorney's fees claims. The Fourth Circuit was unpersuaded by those arguments. With respect to section 502(b), the court looked to the section's text and found that post-petition attorney's fees were not expressly disallowed. Instead, the court stated that if SummitBridge had a claim for post-petition attorney's fees as of the petition date (and provided that claim did not fall within the enumerated exceptions set forth in section 502(b)), the attorney's fee claim would be allowed. The Fourth Circuit held that, contrary to the debtor's argument that a claim for post-petition fees could not have existed on the petition date, the claim in fact existed on the petition date since (a) the Bankruptcy Code permits the allowance of contingent, unliquidated claims, and (b) the promissory notes giving rise to the claim were executed pre-petition and, because the debtor's obligation to pay potential attorney's fees arose pre-petition, the claims asserted by SummitBridge were pre-petition claims under section 502(b).

The Fourth Circuit dismissed the debtor's section 506(b) argument by noting that such section has nothing to do with the allowance or disallowance of claims. Rather, that section address the classification of a claim as secured or unsecured. Therefore, since the Bankruptcy Code does not expressly disallow an unsecured claim for post-petition attorney's fees and costs, such claims are allowable.

The Fourth Circuit is not the only Circuit to reach this conclusion. See, e.g., SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Corp.), 571 F.3d 926 (2d Cir. 2009) and Ogle v. Fid. & Dep. Co., 586 F.3d 143 (9th Cir. 2019). And, the Third Circuit may confront the issue in a matter arising from the Tribune bankruptcy. In that case, Wilmington Trust Co., as indenture trustee, filed an unsecured claim for more than $30 million in post-petition attorney's fees. The bankruptcy court disallowed the claim because it read sections 502(b) and 506(b) together to provide that "postpetition interest, attorney's fees and costs are recoverable only by oversecured creditors." In re Tribune Media Co., 2015 Bankr. LEXIS 3973, at *11 (Bankr. D. Del. Nov. 19, 2015). The district court reversed and ruled that section 506(b) does not limit the allowability of unsecured claims for contractual post-petition attorney's fees. Wilmington Trust Co. v. Tribune Media Co. (In re Tribune Media Co.), 2018 U.S. Dist. LEXIS 199137, at *7 (D. Del. Nov. 26, 2018). The case is currently on appeal to the Third Circuit.

Despite the fact that parties continue to litigate the issue of the allowance of post-petition attorney's fees claims, such issue has essentially been decided by the Supreme Court. Travelers clearly provides that, unless there is an express prohibition on allowance of a claim in the Bankruptcy Code, the claim is allowable if permitted under state law. With respect to unsecured claims for attorney's fees and costs arising out of pre-petition contracts, there can be little question that such claims are allowable in or out of bankruptcy.

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.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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.

Disclaimer

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.

General

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