In Travelers Cas. & Surety Co. v. Pacific Gas & Elec. Co., 127 S.Ct. 1199 (2007), the court analyzed whether the "Fobian Rule," which has governed bankruptcy law for the past 15 years, is properly grounded in the text of the Bankruptcy Code.

The Fobian Rule stems from In re Fobian, 951 F.2d 1149 (9th Cir. 1991), in which the U.S. Court of Appeals for the Ninth Circuit held that parties may not recover attorneys’ fees for litigation involving issues that are peculiar to federal bankruptcy law, even in instances in which the contract at issue has provided for the recovery of attorneys’ fees.

However, in Travelers, the Court concluded that the rule had no specific basis in the language of the Bankruptcy Code, and held that there is no blanket prohibition on the inclusion of attorneys’ fees in a claim asserted in a bankruptcy case simply because the fees were incurred in connection with various bankruptcy proceedings.

Although the Court held that the Fobian Rule has no basis in the express language of the Bankruptcy Code, the Court did not determine that attorneys’ fees are generally recoverable. The Court merely held that the Fobian Rule, in itself, cannot justify the disallowance of a claim including attorney’s fees. The Court remanded the case to the lower court to assess whether the claims should be otherwise allowable (or disallowable) based on the clear language of the Bankruptcy Code.

This case (decided in the same term as Marrama v. Citizens Bank of Massachusetts, No. 127 S.Ct. 1105 (2007)) (see related story, page 2), leaves practitioners with a further question on how the court intends to proceed on bankruptcy matters. While this case, like other recent Supreme Court jurisprudence, is grounded in the "plain language of the Bankruptcy Code," it is at odds with its sister case decided in this term which seems to go beyond the plain language.

This article is presented for informational purposes only and is not intended to constitute legal advice.