Unsecured Creditor Not Entitled to Postpetition Attorney’s Fees Provided For Under Enforceable Prepetition Contract

In re Tribune Media Co., No. 08-13141 (KJC), 2015 WL 7307305 (Bankr. D. Del. Nov. 19, 2015)

This Memorandum from the Honorable Kevin J. Carey of the Delaware Bankruptcy Court arose from a dispute over a $30 million unsecured claim for postpetition attorney’s fees and costs (the “Fee Claim”) submitted by an indenture trustee (the “Indenture Trustee”) for certain unsecured subordinated securities issued prepetition by debtor Tribune Company.  According to the Indenture Trustee, its Fee Claim should be allowed under the express terms of the governing indenture as well as the United States Supreme Court decision Travelers Casualty & Surety Company of America v. Pacific Gas & Electric Company, 549 U.S. 443, 452 (2007) (holding that “claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed”).  In tackling whether the Fee Claim should be allowed, the Bankruptcy Court acknowledged that the issue presented remains undecided by the Third Circuit Court of Appeals and is one over which courts “have long been divided”.  Op. at *5.

Despite the split in case law and lack of precedential authority, the Court disallowed the Fee Claim without much discussion.  Rather, it relied heavily on the four bases set forth in 2005 by the Bankruptcy Court for the Western District of Pennsylvania in Global Industrial Technologies Services Company v. Tanglewood Investments, Inc., 327 B.R. 230 (Bankr. W.D. Pa. 2005) to support disallowance of postpetition attorney’s fees claimed by an unsecured creditor.  More specifically, the court in Global Industries noted that (1) only section 506(b) of the Bankruptcy Code addresses the recoverability of postpetition attorney’s fees and such provision entitles only oversecured creditors to such a recovery; (2) courts have interpreted section 506(b) to restrict the allowance of postpetition fees only to oversecured creditors; (3) section 502(b) requires a claim to be determined as of the petition date and if section 506(b) permits additional recovery for postpetition fees, they then may be added to the claim; and (4) allowing only some unsecured creditors to recover postpetition attorney’s fees would be inequitable as it would reduce a distributable asset pool earmarked for all similarly situated unsecured creditors on a pro rata basis.  The Court was not swayed by the Indenture Trustee’s reliance on Travelers, noting that the decision did not consider whether section 506(b) applies to disallow postpetition attorney’s fees claimed by an unsecured creditor and that decisions cited by the Indenture Trustee from this district to support its position were inapplicable to the matter at hand because they all involved oversecured creditor claims for fees.