Ogle v. Fidelity & Deposit Co., No. 09-0691 (2d Cir. 2009)

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09-0691-bk Ogle v. Fidelity & Deposit Co. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2009 (Argued: October 15, 2009 Decided: November 5, 2009) Docket No. 09-0691-bk - - - - - - - - - - - - - - - - - - - -x D. CLARK OGLE, Liquidating Trustee of the Agway Liquidating Trust, Appellant, - v.FIDELITY & DEPOSIT COMPANY OF MARYLAND, Appellee. - - - - - - - - - - - - - - - - - - - -x Before: JACOBS, Chief Judge, FEINBERG and KATZMANN, Circuit Judges. The United States District Court for the Northern 29 District of New York (Sharpe, J.), affirming a judgment of 30 the United States Bankruptcy Court for the Northern District 31 of New York (Gerling, C.J.), ordered the Agway Liquidating 32 Trust to pay post-petition attorneys fees on a claim that 33 stemmed from a pre-petition indemnity agreement. 34 liquidating trustee, D. Clark Ogle, appeals, arguing that 35 the federal Bankruptcy Code ( Code ) bars unsecured claims The 1 2 for post-petition attorneys fees. In United Merchants & Manufacturers, Inc. v. Equitable 3 Life Assurance Society of the United States, 674 F.2d 134 4 (2d Cir. 1982), this Court held, under the Bankruptcy Act 5 then current, that such claims are allowable. 6 Casualty & Surety Co. of America v. Pacific Gas & Electric 7 Co., 549 U.S. 443 (2007), the Supreme Court rejected a Ninth 8 Circuit rule disallowing such claims if the fees were 9 incurred litigating issues of bankruptcy law, but reserved 10 decision on the precise question presented on this appeal: 11 whether such claims are allowable categorically. 12 conclude that the holding of United Merchants has not been 13 impaired by Travelers or by statutory revisions. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 In Travelers We For the reasons that follow, we affirm the judgment of the district court. JEFFREY A. DOVE, JAMES C. THOMAN, Menter, Rudin & Trivelpiece, P.C., Syracuse, New York, for Appellant. GLENN M. FJERMEDAL, Lacy Katzen LLP, Rochester, New York; FILIBERTO AGUSTI, MARK MORAN, JOSHUA R. TAYLOR, Steptoe & Johnson LLP, Washington, D.C., for Appellee. 2 1 2 3 DENNIS JACOBS, Chief Judge: 4 et seq., does not explicitly state whether an unsecured 5 creditor can collect post-petition attorneys fees based on 6 a pre-petition indemnity agreement. 7 Manufacturers, Inc. v. Equitable Life Assurance Society of 8 the United States, 674 F.2d 134 (2d Cir. 1982), this Court 9 held, under the Bankruptcy Act then current, that such The federal Bankruptcy Code ( Code ), 11 U.S.C. §§ 101 In United Merchants & 10 claims are allowable. 11 America v. Pacific Gas & Electric Co., 549 U.S. 443 (2007), 12 the Supreme Court rejected a Ninth Circuit rule disallowing 13 such claims if the fees were incurred litigating issues of 14 bankruptcy law, but reserved decision on the precise 15 question presented on this appeal: whether such claims are 16 allowable categorically. 17 United Merchants has not been impaired by Travelers or by 18 statutory revisions. 19 In Travelers Casualty & Surety Co. of We conclude that the holding of Fidelity & Deposit Company of Maryland ( Fidelity ) 20 entered into several agreements ( the Agreements ) with 21 Agway, Inc. which required Agway to indemnify Fidelity for 22 attorneys fees that it might incur to enforce the 23 Agreements against Agway. After Agway filed for bankruptcy 3 1 under Chapter 11, Fidelity duly made payments to Agway s 2 creditors, unsuccessfully demanded indemnity under the 3 Agreements, and incurred attorneys fees in litigation to 4 collect from Agway. 5 on this appeal. 6 Liquidating Trust ( the Trust ), D. Clark Ogle ( Ogle ), 7 concedes that Fidelity has a right to the fees under state 8 contract law, but refuses to pay on the ground that the Code 9 bars such recovery. 10 Only those attorneys fees are at issue The liquidating trustee of the Agway The United States Bankruptcy Court for the Northern 11 District of New York (Gerling, C.J.) held that Fidelity can 12 collect $884,506.28 in post-petition attorneys fees. 13 United States District Court for the Northern District of 14 New York (Sharpe, J.) affirmed. 15 We affirm, concluding that the Code does not prohibit an 16 unsecured creditor from collecting post-petition attorneys 17 fees pursuant to an otherwise enforceable pre-petition 18 contract of indemnity. The Ogle appeals that decision. 19 20 21 22 I Pursuant to the Agreements, Fidelity provided surety bonds ( Bonds ) to Agway s insurers, and Agway in turn 4 1 agreed to indemnify Fidelity for any payments that it made 2 under the Bonds as well as legal fees incurred to enforce 3 the Agreements. 4 Chapter 11 bankruptcy petition. 5 not defaulted on any payment obligation to its insurers; 6 Fidelity s claim in bankruptcy therefore asserted no more 7 than a contingent right to payment under the Agreements. On October 1, 2002, Agway filed a voluntary Up until then, Agway had 8 When Agway thereafter defaulted on payments to its 9 insurers, the insurers in turn sought payment from Fidelity, 10 and Fidelity tendered payment consistent with its 11 obligations under the Bonds. 12 costs, including legal fees, enforcing its indemnity rights 13 against Agway in prolonged litigation. 14 the Bankruptcy Court concluded (as relevant here) that Agway 15 was liable for Fidelity s post-petition attorneys fees. 16 Fidelity incurred additional On July 18, 2008, The parties thereafter settled all of the issues 17 between them except the order requiring payment of post- 18 petition attorneys fees. 19 bankruptcy court s order to the district court pursuant to 20 28 U.S.C. § 158(a), and the district court affirmed the 21 bankruptcy court s order. 22 Ogle appealed that part of the Ogle now appeals to this Court. The sole question on appeal is one of law: Under the 5 1 Bankruptcy Code, is an unsecured creditor entitled to 2 recover post-petition attorneys fees that were authorized 3 by a pre-petition contract but were contingent on post- 4 petition events? 5 Where, as here, a district court affirms a bankruptcy 6 court s decision, we independently review the decision of 7 the bankruptcy court. 8 Abnos, 482 F.3d 602, 607 (2d Cir. 2007). 9 legal conclusions is de novo. Adelphia Bus. Solutions, Inc. v. Our review of Id. 10 11 12 II Courts are closely divided on the question presented. 13 One line of cases holds that an unsecured claim for post- 14 petition attorneys fees asserted on the basis of a pre- 15 petition contract is allowable. 16 Corp., 571 F.3d 826, 839-45 (9th Cir. 2009) ( SNTL ); Martin 17 v. Bank of Germantown, 761 F.2d 1163, 1168 (6th Cir. 1985). 18 Another line of cases holds that such a claim is disallowed. 19 See, e.g., Adams v. Zimmerman, 73 F.3d 1164, 1177 (1st Cir. 20 1996); Waterman v. Ditto, 248 B.R. 567, 573 (B.A.P. 8th Cir. 21 2000). 22 See, e.g., In re SNTL This Court allowed such claims in a case that was 6 1 decided under the former Bankruptcy Act, but that commented 2 on section 506(b) of the Code. 3 v. Equitable Life Assurance Soc y of the U.S., 674 F.2d 134, 4 137-39 (2d Cir. 1982). 5 United Merchants survives statutory revisions and the 6 Supreme Court s decision in Travelers Casualty & Surety Co. 7 of America v. Pacific Gas & Electric Co., 549 U.S. 443 8 (2007). 9 and hold that the Bankruptcy Code does not bar an unsecured 10 claim for post-petition attorneys fees authorized by a pre- 11 petition contract valid under state law. United Merchs. & Mfrs., Inc. This opinion considers whether We join the Ninth Circuit s recent decision in SNTL 12 13 14 III Two Code provisions bear upon the disputed question: 15 section 502(b) and section 506(b). 16 first, and United Merchants the second. 17 18 Travelers addresses the A Section 502(b) of the Code provides (with inapplicable 19 exceptions) that a court, after notice and a hearing, shall 20 determine the amount of [a] claim in lawful currency of the 21 United States as of the date of the filing of the petition, 22 and shall allow such claim in such amount. 7 11 U.S.C. 1 § 502(b) (emphases added). 2 payment, whether or not such right is reduced to judgment, 3 liquidated, unliquidated, fixed, contingent, matured, 4 unmatured, disputed, undisputed, legal, equitable, secured, 5 or unsecured. 6 right to payment . . . usually refer[s] to a right to 7 payment recognized under state law. 8 451 (internal quotation marks and citation omitted). A claim, in turn, is a right to 11 U.S.C. § 101(5)(A) (emphases added). A Travelers, 549 U.S. at 9 A contingent claim under the Code refers to 10 obligations that will become due upon the happening of a 11 future event that was within the actual or presumed 12 contemplation of the parties at the time the original 13 relationship between the parties was created. 14 Manville Forest Prods. Corp., 209 F.3d 125, 128-29 (2d Cir. 15 2000) (internal quotation marks omitted). 16 deemed to have arisen pre-petition if the relationship 17 between the debtor and the creditor contained all of the 18 elements necessary to give rise to a legal obligation--a 19 right to payment--under the relevant non-bankruptcy law. 20 Id. at 129 (internal quotation marks omitted); see also SNTL 21 571 F.3d at 843-44. 22 based on a written indemnification contract arises at the In re A claim will be Under contract law, a right to payment 8 1 time the indemnification agreement is executed. 2 209 F.3d at 129. 3 Manville, Manville therefore makes clear that Fidelity possessed 4 a contingent right to post-petition attorneys fees, and 5 that its right arose pre-petition. 6 amount of Fidelity s contingent right was not a sum certain 7 on the day the bankruptcy petition was filed. 8 Travelers to mean that this does not matter. 9 However, the dollar We read The Supreme Court framed the Travelers issue as 10 follows: We are asked to consider whether federal 11 bankruptcy law precludes an unsecured creditor from 12 recovering attorney s fees authorized by a prepetition 13 contract and incurred in postpetition litigation. 14 at 445. 15 post-petition costs related solely to litigating issues of 16 bankruptcy law (which Ogle contends is a decisive limiting 17 principle); but the Court s analysis and rationale would 18 seem equally applicable to post-petition costs arising out 19 of pre-petition contracts more generally. 20 way the issue is framed at the outset, see id. (as quoted 21 above), defines the scope of the opinion broadly. 22 549 U.S. True, the facts in Travelers were such that the Furthermore, the This is important because, under Travelers, section 9 1 502(b) interposes no bar to an unsecured creditor s ability 2 to recover post-petition attorneys fees. 3 from the premise that an otherwise enforceable contract 4 allocating attorney s fees (i.e., one that is enforceable 5 under substantive, nonbankruptcy law) is allowable in 6 bankruptcy except where the Bankruptcy Code provides 7 otherwise. 8 because--as in the present case--none of the section 502(b) 9 exceptions (enumerated (2)-(9)) applied, Travelers s claim Id. at 448. Travelers starts The Court went on to explain that, 10 for post-petition fees must be allowed under § 502(b) 11 unless it is unenforceable within the meaning of 12 § 502(b)(1). 13 Id. at 449-50. Section 502(b)(1) in turn bars any claim that is 14 unenforceable against the debtor and property of the debtor, 15 under any agreement or applicable law for a reason other 16 than because such claim is contingent or unmatured. 17 U.S.C. § 502(b)(1). 18 mean that any defense to a claim that is available outside 19 of the bankruptcy context is also available in bankruptcy. 20 549 U.S. at 450. 21 state law or one of the section 502(b)(2)-(9) exceptions 22 applies, courts must presume that the claim will be 11 Travelers construed this wording to Unless a claim is unenforceable under 10 1 allowed in bankruptcy unless [it is] expressly disallowed. 2 Id. at 452. 3 All of the fees at issue in Travelers were incurred 4 post-petition; so the amount was necessarily unknown when 5 the bankruptcy petition was filed. 6 unsecured claim for post-petition fees was for that reason 7 unrecoverable, the Travelers Court could have disposed of 8 the claim on that simple, available ground alone. 9 Travelers, therefore, proceeds along lines that, reasonably 10 extended, would suggest (notwithstanding the Court s express 11 disclaimer) that section 502(b) s requirement--that the 12 court shall determine the amount of such claim . . . as of 13 the date of the filing of the petition --does not bar 14 recovery of post-petition attorneys fees. 15 It follows that if an In the present appeal, as in Travelers: The underlying 16 contract is valid as a matter of state substantive law; none 17 of the section 502(b)(2)-(9) exceptions apply; and the Code 18 is silent as to the particular question presented--in 19 Travelers, whether the Code allows unsecured claims for 20 contractual attorney s fees incurred while litigating issues 21 of bankruptcy law, 549 U.S. at 453; and here, whether the 22 Code allows unsecured claims for fees incurred while 11 1 litigating issues of contract law more generally. 2 Accordingly, we hold that an unsecured claim for post- 3 petition fees, authorized by a valid pre-petition contract, 4 is allowable under section 502(b) and is deemed to have 5 arisen pre-petition. 6 reject the position . . . that section 502(b) precludes such 7 fees. ). Accord SNTL, 571 F.3d at 844 ( [W]e 8 9 10 B [C]laims enforceable under applicable state law will 11 be allowed in bankruptcy unless they are expressly 12 disallowed. 13 is raised by Ogle as to whether section 506(b) of the Code 14 amounts to an express disallowance of Fidelity s claim by 15 negative inference or otherwise. 16 relevant part that interest on [a] claim, and any 17 reasonable fees, costs, or charges provided for under the 18 agreement or State statute under which such claim arose can 19 be recovered if the creditor is oversecured. 20 § 506(b) (emphasis added). 21 or imply about a similar claim that is unsecured? 22 Travelers, 549 U.S. at 452. A fair question Section 506(b) provides in 11 U.S.C. So what does section 506(b) say In United Merchants, we observed: Neither [section 12 1 506(b)] nor its legislative history sheds any light on the 2 status of an unsecured creditor s contractual claims for 3 attorney s fees. 4 therefore dispositive if it survives Travelers. 5 that it does. 6 674 F.2d at 138. United Merchants is We conclude As Travelers makes clear, the question is whether the 7 Code disallows post-petition attorneys fees, and does so 8 expressly. 9 Code says nothing about unsecured claims for contractual It was therefore decisive in Travelers that the 10 attorney s fees incurred while litigating issues of 11 bankruptcy law. 12 And while Travelers declined to address section 506(b) 13 (because the parties had not raised the issue below), see 14 id. at 454-56, it is decisive here that the Code says 15 nothing about such fees incurred litigating things other 16 than issues of bankruptcy law. 17 therefore fully consonant with our decision in United 18 Merchants. 19 459 U.S. at 453 (emphasis in original). The teaching of Travelers is Accordingly, we hold that section 506(b) does not 20 implicate unsecured claims for post-petition attorneys 21 fees, and it therefore interposes no bar to recovery. 22 13 1 2 IV Ogle adduces three additional reasons for construing 3 the Code to disallow unsecured claims for post-petition 4 attorneys fees. 5 [1] Ogle relies on wording in United Savings 6 Association of Texas v. Timbers of Inwood Forest Associates, 7 Ltd., 484 U.S. 365 (1988), which explained that section 8 506(b) allows an oversecured creditor to receive post- 9 petition interest only out of the security cushion, but 10 that an undersecured creditor--who lacks any such cushion-- 11 falls within the general rule disallowing postpetition 12 interest. 13 italicized phrase Ogle would deduce a general rule favoring 14 his position. 15 502(b)(2) of the Code, which expressly disallows a claim for 16 interest that is unmatured. 17 § 502(b)(2). 18 exception--for oversecured creditors--from the general rule 19 in section 502(b)(2) that disallows a claim for unmatured 20 interest. 21 502(b)(2) bars claims for unmatured interest, it does not 22 similarly bar (or even reference) claims for post-petition Id. at 372-73 (emphasis added). From the However, the wording references section See id.; see also 11 U.S.C. In this way, section 506(b) creates a limited Timbers, 484 U.S. at 372-73. But while section 14 1 2 attorneys fees. [2] See SNTL, 571 F.3d at 844-45. Ogle argues that an unsecured claim for post- 3 petition attorneys fees is barred by section 502(e)(2), 4 which provides that a claim for reimbursement or 5 contribution . . . that becomes fixed after the commencement 6 of the case . . . shall be allowed . . . the same as if such 7 claim had become fixed before the date of the filing of the 8 petition. 9 on expressio unius: Because section 502(e)(2) provides an 11 U.S.C. § 502(e)(2). Ogle s argument relies 10 exception to section 502(b) for reimbursement and 11 contribution, it thereby forecloses an exception for post- 12 petition attorneys fees. 13 presume that claims enforceable under applicable state law 14 will be allowed in bankruptcy unless they are expressly 15 disallowed. 16 wishes, draw from section 502(e)(2) an inference by silence 17 or omission. 18 [3] However, Travelers requires us to 549 U.S. at 452. We cannot, then, as Ogle Ogle argues from policy that allowing an unsecured 19 creditor to collect post-petition attorneys fees based on a 20 pre-petition contract would unfairly disadvantage other 21 creditors (such as tort claimants and trade creditors) whose 22 distributions would be reduced pro tanto. 15 In United 1 Merchants, however, we rejected the idea that the policy of 2 equitable distribution defeats an unsecured creditor s 3 otherwise valid contractual claim for collection costs 4 . . . . : 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 674 F.2d at 137. 22 the predecessor to the current Bankruptcy Code, see id. at 23 136 n.1, its analysis is equally applicable to the Code 24 today. When equally sophisticated parties negotiate a loan agreement that provides for recovery of collection costs upon default, courts should presume, absent a clear showing to the contrary, that the creditor gave value, in the form of a contract term favorable to the debtor or otherwise, in exchange for the collection costs provision. Such a creditor should recover more in the division of the debtor s estate because it gave more to the debtor at the time it made the loan. Rather than providing an undeserved bonus for one creditor at the expense of others, allowing a claim under a collection costs provision merely effectuates the bargained-for terms of the loan contract. Although United Merchants was construing 25 26 27 28 CONCLUSION For the foregoing reasons, we affirm the judgment of the district court. 16

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