Thursday, March 22, 2007

US Supreme Court overrules Ninth Circuit decision that restricted creditors' attorney fee claims in Bankruptcy Court.TRAVELERS CASUALTY & SURETY CO. v. PACIFIC GAS AND ELECTRIC CO.No. 05-1429. SCOTUS slaps the Ninth Circuit again like a red headed step child. Chapter 11 debtor Pacific Gas & Electric insured itself for California worker compensation claims and acquired a bond through Travelers to make sure Pacific could cover worker compensation claims. When Pacific Gas filed chapter 11 Travelers requested additional security and sought provisions for additional attorney fees through the claim proceedings. The federal district court and the Ninth Circuit agreed that the attorney fees provision was not allowed citing Ninth Circuit precedent In re Fobian, 951 F. 2d 1149 (CA9 1991) Supreme court reverses, finding that the bankruptcy code does not prohibit categorically attorney fees that arise solely from bankruptcy issues. The Fobian rule finds no support in the Bankruptcy Code, either in §502 or elsewhere. In Fobian, the court did not identify any provision of the Bankruptcy Code as providing support for the new rule. Congress, of course, has the power to amend the Bankruptcy Code by adding a provision expressly disallowing claims for attorney’s fees incurred by creditors in the litigation of bankruptcy issues. But because no such provision exists, the Bankruptcy Code provides no basis for disallowing Travelers’ claim on the grounds stated by the Ninth Circuit. Justice Alito declined to consider Travelers' belated argument that 506 which considers secured claims somehow limits unsecured attorney fee claims.

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