Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co.

PETITIONER: Travelers Casualty & Surety Company of America
RESPONDENT: Pacific Gas & Electric Company
LOCATION: United States Court of Appeals for the Ninth Circuit

DOCKET NO.: 05-1429
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 549 US 443 (2007)
GRANTED: Oct 06, 2006
ARGUED: Jan 16, 2007
DECIDED: Mar 20, 2007

ADVOCATES:
E. Joshua Rosenkranz - for the respondent
G. Eric Brunstad, Jr. - for the petitioner

Facts of the case

Prior to declaring bankruptcy, Pacific Gas & Electric company (PG & E) purchased surety bonds from Travelers Casualty and Surety Company of America (Travelers). These bonds obliged Travelers to settle debts PG & E couldn't repay. When PG & E went bankrupt, Travelers hired attorneys to protect its interests. State law mandated that PG & E cover all attorney fees incurred by Travelers during state bankruptcy proceedings. The litigation later moved to federal court. PG & E refused to pay for Travelers's expenditures in federal court, claiming responsibility only for fees incurred during state proceedings.

The Bankruptcy Court denied Travelers's request for reimbursement because the precedents of the U.S. Court of Appeals for the Ninth Circuit held that only federal laws could ensure payment for federal litigation. PG & E was only under contractual and legal obligation to pay for state-court attorney fees. The District Court and the Ninth Circuit denied Travelers's claim on the same grounds. Travelers appealed to the Supreme Court, citing inconsistent rulings among the Circuit Courts of Appeals.

Question

Can a litigant in a bankruptcy case involving federal bankruptcy law collect attorneys' fees that are granted by a contract or a state law?

Media for Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co.

Audio Transcription for Oral Argument - January 16, 2007 in Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co.

Audio Transcription for Opinion Announcement - March 20, 2007 in Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co.

John G. Roberts, Jr.:

Justice Alito has the opinion this morning in case 05-1429, Travelers Casualty & Surety versus Pacific Gas & Electric Co.

Samuel A. Alito, Jr.:

Now this case comes to us writ of certiorari to the United States Court of Appeals for the Ninth Circuit.

The question before us is whether a Federal Bankruptcy Law precludes recovery of attorney’s fees authorized by contract based solely on the fact does fees were incurred litigating issues of Bankruptcy Law.

We hope but it does not and therefore vacate and remand.

Respondent Pacific Gas and Electric Company (PG&E) filed for chapter 11 Bankruptcy in April, 2001.

Petitioner Travelers Casualty & Surety Company of America which previously issued a Surety bond to guarantee PG&E’s payment of state workers’ compensation benefits filed the claim in the bankruptcy case.

To protect itself against the possibility of default by PG&E with the Bankruptcy Courts approval PG&E eventually agreed to insert language into its reorganization plan and disclosure statement to protect Travelers in the event of such a default.

Additional litigation over the negotiated language nevertheless ensued and result ultimately resolved by a court-approved stipulation stating among other things that Travelers could assert a general unsecured claim for attorney’s fees incurred during the bankruptcy proceedings as authorized by the party’s original indemnity agreements.

Travelers then field an amended claim seeking attorney’s fees.

PG&E objected to that claim based on the Ninth Circuit’s rule originally announced in that courts decision and in In re Fobian that attorney’s fees may not be awarded in connection with the litigation of issues of Federal Bankruptcy Law.

The bankruptcy court rejected travelers claim based on the Fobian rule and the District Court and the Ninth Circuit affirmed on the same basis.

We granted certiorari to resolve the conflict in the Lower Court on this issue.

Today we conclude that the Fobian rule is unsound.

Under the American rule the prevailing litigant is normally not entitled to collect attorney’s fees from the loser that rule can however be overcome by statute.

It can also be overcome by contract even in bankruptcy proceedings.

So long as the contract is in enforceable under substantive Non-Bankruptcy Law.

A claim for fees based on an otherwise enforceable contract is allowable in bankruptcy except for bankruptcy law provides otherwise.

Section 502(b) of the Bankruptcy Code provides the Bankruptcy Court “shall allow” a creditors’ claim “except to the extent that” the claim implicates any of the nine exceptions enumerated in that Section.

None of those exceptions mandates or even supports the denial of the contract based claim for attorney’s fees based solely on the fact that the issues litigated involved issues of bankruptcy law nor does any other provision of the Bankruptcy Code support such rule.

In concluding otherwise the Court of Appeals relied exclusively on its own precedent most notably Fobian that precedent however finds no support in and affirmatively conflicts with Federal Bankruptcy Law.

PG&E raises several arguments suggesting that Travelers claim might fail even in the absences of Fobian rule.

But because those arguments are not fairly included within the question before us we will not address that.

The court’s opinion is unanimous.