Another Circuit Allows an Unsecured Claim for Contractual Attorneys’ Fees

The circuit courts are consistently allowing unsecured claims for post-petition attorneys’ fees when the creditor is entitled by contract to recover the costs of collection. In an opinion on February 8, the Fourth Circuit joined the Second, Seventh and Ninth Circuits. Before the Supreme Court’s pivotal decision in Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., 549 U.S. 443 (2007), the First and Eleventh Circuits had reached the same conclusion. Although the circuit courts agree, some lower courts have the opposite opinion. The case at bar involved a secured creditor with collateral worth about $1.7 million. The loan agreement allowed the lender to recover the costs of collection, including attorneys’ fees. The chapter 11 plan gave the creditor an allowed, secured claim for $1.7 million, an amount covering principal, interest, and some of the lender’s post-petition attorneys’ fees. The plan permitted the lender to file an unsecured claim for additional post-petition attorneys’ fees. Upheld in district court, the bankruptcy court disallowed the lender’s unsecured claim for post-petition attorneys’ fees. The lender appealed and won a reversal in an opinion written by Fourth Circuit Judge Pamela Harris.

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