Attorney Fee Challenges

The bankruptcy litigators at Mark Anchor Albert and Associates know how to successfully handle attorney fee challenges in the bankruptcy context.

Section 506(b) of the Bankruptcy Court permits a secured creditor to recover its fees and costs provided four elements are met: (1) the claim is an allowed claim, (2) the value of the collateral is adequate to cover the claim, (3) the contract provides for the fees and costs, and (4) the fees and costs are reasonable. In re Kord Enterprises II (9th Cir. 1998) 139 F.3d 684 (section 506(b) preempts state law with respect to the right of a secured creditor to recover its attorneys’ fees and costs in a bankruptcy case).

Attorneys’ fees incurred post-petition may be claimed by unsecured creditors when they are based on a pre-petition contract with the debtor. See SNTL Corporation, et al. v. Centre Insurance Company (9th Cir. 2009) 571 F.3d 826. The majority rule now appears to be that Section 506(b) is not a bar to recovery of unsecured claims for post-petition attorneys’ fees and such claims are allowable under section 502(b) so long as they are valid claims under state law. See Ogle v. Fidelity & Deposit Company of Maryland (2d Cir. 2009) 586 F.3d 143 (stating rule). Thus, the Ninth and Second Circuits Courts of Appeal have departed from cases such as In re Electric Machinery Enter. Inc. (Bankr. M.D. Fla. 2007) 371 B.R. 549, 551 and Pride Cos. LP v. Johnson (Bankr. N.D. Tex. 2002) 285 B.R. 366 and their progeny that have denied the payment of post-petition fees to unsecured creditors under section 506(b) of the Bankruptcy Code on the ground that an unsecured claim is not “oversecured” and therefore is not permitted to include post-petition fees under section 506(b).

Even if post-petition unsecured fees are permitted under section 506(b), in bankruptcy litigation occurring in the Ninth Circuit (which obviously includes bankruptcy cases pending in the Central District of California), there still may be a basis to challenge the award of such fees on various other grounds, including whether such fees are appropriate under a valid pre-petition contract and whether such fees are excessive, unwarranted, or otherwise unreasonable.

Attorney fees requested by counsel for the debtor or the trustee also may present bankruptcy litigation issues. Bankruptcy Code section 328(a) provides, in pertinent part, that the debtors may employee attorneys “on any reasonable terms and conditions of employment, including ... on a contingent fee basis.” 11 U.S.C. § 328(a). Bankruptcy Code section 330 provides that “the court may award to ... a professional person employed under section 327 ... (A) reasonable compensation for actual, necessary services ... and (B) reimbursement for actual, necessary expenses.”

Bankruptcy Code section 327 authorizes a trustee, with the court’s approval, to employ professionals to represent the trustee. 11 U.S.C. § 327. Section 327(e) provides, in particular: “The trustee, with the court’s approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate, and if such attorney does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed.” 11 U.S.C. § 327(e). Section 330 provides that “the court may award to ... a professional person employed under section 327 ... (A) reasonable compensation for actual, necessary services ... and (B) reimbursement for actual, necessary expenses.”

Creditors of a debtor may have good cause to challenge fee requests made by attorneys retained by the debtor, the trustee, or the debtor-in-possession if excessive, bloated, or otherwise an unreasonable fee. Fees and cost requests are submitted for approval by the Bankruptcy Court.