Can (and Should) a Creditor Receive an Unsecured Claim for Post-petition Contractual Attorneys' Fees?
Yes (maybe). As a rule, attorneys’ fee claims in bankruptcy are covered by two provisions of the Bankruptcy Code, 11 U.S.C. §§502 (“allowance of claims or interests”) and 506 (“determination of secured status”). Section 502(a) provides that a timely filed claim is deemed allowed unless there is an objection. Section 502(b) provides that “the court, after notice and a hearing, shall determine the amount of such claim…as of the date of the filing of the petition, and shall allow such claim in such amount” unless one of the nine enumerated exceptions applies. Section 506(b) provides: “To the extent that an allowed secured claim is secured by property the value of which…is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which the claim arose.”
In SummitBridge Nat’l Invs. III LLC v. Faison, 9 F.3d 288 (4th Cir. 2019), represents yet another Court allowing post-petition attorneys’ fees provided for in a pre-petition contract. The rationale for allowing such fees as part of a claim under section 506(b) is, in part, the fact that creditors should be entitled to the benefit of their bargain. The argument against allowance appears to focus on the fact that other unsecured claims are diluted when such claims are allowed.
Prior to the SCOTUS decision in Travelers Cas. & Sur. Co. of Am. V. Pac. Gas and Elec. Co., 549 U.S. 443 (2007), most courts stressed the limiting language of section 506(b) itself which provides for allowance of “fees” when the creditors’ claim is over-secured. See also United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assoc., 484 U.S. 365 (1988).
In SummitBridge, the secured creditor was under-secured. The Fourth Circuit, in holding that attorneys’ fees would be allowed, started with the proposition that claims are allowed unless there is an objection or they are otherwise not allowed. Section 502(b) does not preclude a claim for attorneys’ fees are a “claim,” as defined in section 101(5)(a) of the Bankruptcy Code, and do not fall into one of the nine exceptions. Applying section 506(b) the Court, applying the doctrine of expressio unis est exclusion alterius (see below), held that that section does not explicitly disallow such claims and, therefore, there is a strong presumption in favor of allowance.
The moral of the story, as illustrated by the line of cases adopted by SummitBridge is that contractual attorneys’ fee provisions are important. Claims for post-petition attorneys’ fees based on pre-petition contracts should be pursued, at least until the SCOTUS (or Congress) has the final say.
Authored by: Bruce W. Akerly, Partner