Delaware District Court Overturns Bankruptcy Court Decision Disallowing Unsecured Claim for Post-Petition Contractual Attorneys’ Fees

4 Min Read By: Timothy Brink

It is a quirk of the Bankruptcy Code that while it expressly allows oversecured creditors’ claims for post-petition contractual attorneys’ fees, it is silent as to the treatment of claims for post-petition contractual attorneys’ fees on unsecured claims. In part because the Supreme Court in Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., 549 U.S. 443 (2007) did not directly address the question whether unsecured creditors can recover post-petition contractual attorneys’ fees as part of their claims, courts continue to reach conflicting decisions. Very recently, in connection with a dispute arising out of the Tribune Company’s 2008 bankruptcy, Delaware District Judge Richard G. Andrews reversed the decision below and interpreted Travelers to mean that unsecured claims for post-petition contractual attorneys’ fees are not barred by Section 506(b) of the Bankruptcy Code. Wilmington Trust Co. v. Tribune Media Co. (In re Tribune Media Co., et al), Case No. 15-01116 9 (RGA), 2018 WL 6167504 (D. Del. Nov. 26, 2018).

Background

Wilmington Trust Company (the “Trustee”) was the trustee under an indenture for certain unsecured notes issued by Tribune Company (“Tribune”). The indenture required Tribune to reimburse the Trustee for the reasonable attorneys’ and other professionals’ fees and expenses incurred by the Trustee as a result of Tribune’s default. The Trustee submitted a claim in the Tribune bankruptcy that included more than $30 million for attorneys’ and other professionals’ fees and expenses incurred during the bankruptcy case (the “Fee Claim”).  

After Tribune objected to the Trustee’s Fee Claim, the mediator appointed by the bankruptcy court recommended that the claim be disallowed in its entirety. The mediator concluded that because Section 506(b) of the Bankruptcy Code addresses only secured creditors’ entitlement to post-petition attorneys’ fees as part of its claim, the expressio unius est exclusio alterius principle of statutory construction applied and precluded recovery of post-petition attorneys’ fees by unsecured creditors. 

The bankruptcy court adopted the mediator’s recommendation and disallowed the Trustee’s Fee Claim. In doing so, the bankruptcy court agreed with the reasoning in the mediator’s report—in particular, “the conclusion that the plain language of §502(b) and §506(b), when read together, indicate that postpetition interest, attorneys’ fees and costs are recoverable only by oversecured creditors”—and rejected the Trustee’s Travelers-based arguments with the explanation that the Travelers Court did not consider whether Section 506(b) of the Bankruptcy Code disallows unsecured claims for post-petition contractual attorneys’ fees.

The District Court’s Ruling

In a three-page memorandum opinion, Judge Andrews briskly dispensed with Tribune’s expressio unius argument and the bankruptcy court’s conclusion that because section 506(b) of the Bankruptcy Code expressly allows the claim of an oversecured creditor for post-petition attorneys’ fees, Congress must have intended to disallow such claims to unsecured creditors. 

First, Judge Andrews characterized the Supreme Court’s Travelers opinion as having “reaffirmed a requirement that claims that are within the scope of Section 502 are allowed unless they are expressly disallowed in the Bankruptcy Code.” Next, while noting that there continue to be reasoned bankruptcy and district court decisions to the contrary, he observed that “[t]he courts of appeals that have considered this issue post-Travelers have unanimously rejected Appellee’s position and have allowed unsecured claims for contractual attorneys’ fees that accrued post-filing of the bankruptcy petition.” Finally, taking the cue from Travelers, he said “I cannot conclude that Section 506(b) ‘expressly’ disallows the claims at issue here. Thus, I agree with the position adopted by every court of appeals faced with the question; Section 506(b) does not limit the allowability of unsecured claims for contractual post-petition attorneys’ fees under Section 502.”

Observations

As Judge Andrews observed, there has never been a nationwide consensus on the allowability of an unsecured creditor’s claim for post-petition contractual attorneys’ fees.  Because Tribune appealed Judge Andrews’ decision, the Third Circuit soon may have an opportunity to decide the issue. Whether it will take that opportunity remains to be seen, however; as of this writing, it has asked the parties to file briefs addressing whether Judge Andrews’ order, which remanded the case to the bankruptcy court for further consideration, is final or otherwise appealable. Putting aside potential jurisdictional defects, it is safe to say that a decision on the merits from another court of appeals—particularly if it joined the other courts of appeals that have considered the issue post-Travelers in allowing unsecured creditors’ claims for post-petition contractual attorneys’ fees—could strongly influence future courts’ decisions on this recurring question.

ABOUT THE AUTHOR

Chicago, IL

Timothy Brink

Tim Brink is a partner in the Bankruptcy and Restructuring Practice Group at Meltzer Purtill & Stelle LLC in Chicago, Illinois.  He regularly advises clients in all aspects of chapter 11 reorganization…

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