915 F.3d 288
4th Cir.2019Background
- Faison borrowed $2.1M from BB&T via three promissory notes secured by North Carolina farmland; each note contained a contractual attorneys’ fees provision for collection costs.
- Faison filed Chapter 11 on January 3, 2014; BB&T filed three secured proofs of claim for principal and pre-petition interest and later assigned the claims to SummitBridge.
- SummitBridge defended the claims in the bankruptcy and incurred post-petition attorneys’ fees; the confirmed plan treated the three claims as a single secured claim limited to the farmland value and allowed SummitBridge to file an unsecured claim for any excess post-petition fees.
- SummitBridge filed an unsecured claim for the remainder of post-petition attorneys’ fees; Faison objected, arguing (1) state-law notice defects and (2) that the Bankruptcy Code disallows unsecured claims for post-petition attorneys’ fees arising from pre-petition contracts.
- Bankruptcy court and district court held the Code bars such unsecured post-petition fee claims; the Fourth Circuit reversed, holding the Code does not expressly disallow them and remanded.
Issues
| Issue | Faison's Argument | SummitBridge's Argument | Held |
|---|---|---|---|
| Whether the Bankruptcy Code bars unsecured claims for post-petition attorneys’ fees that arise from pre-petition contracts | Such fees were not "claims" as of the petition date under §502(b) and thus cannot be allowed; §506(b) implies only over‑secured creditors may recover fees | The Code defines "claim" to include contingent rights; contingent pre‑petition fee rights can be allowed as unsecured claims under §502 and §506(b) does not disallow unsecured claims | The Code does not expressly disallow unsecured post‑petition attorney‑fee claims arising from pre‑petition contracts; reverse and remand |
| Whether §502(b) requires disallowance because amount wasn’t determinable on petition date | §502(b)’s ‘‘determine the amount . . . as of the date of filing’’ requires disallowance or valuation at zero | §502’s definition of claim includes contingent rights and §502(c) permits estimation of contingent/unliquidated claims | §502(b) does not preclude contingent pre‑petition fee rights from being claims; estimation mechanisms exist |
| Whether §506(b) (allowing fees to over‑secured creditors) implies unsecured creditors are barred from fee claims | §506(b)’s allowance for over‑secured creditors shows Congress excluded unsecured/under‑secured creditors | §506(b) addresses secured status, not baseline allowability; silence is not an express disallowance | §506(b) is not an express disallowance of unsecured post‑petition fee claims; negative inference fails under Travelers |
| Whether policy or equity requires disallowing these claims to protect unsecured creditors | Allowing such claims lets (under‑)secured creditors diminish the pool for unsecured creditors, undermining creditor parity | Congressional text controls; state‑law contract rights should be enforceable absent express Code disallowance; secured priority remains intact | Policy concerns cannot override the Code’s text; courts must defer to Congress |
Key Cases Cited
- Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443 (Sup. Ct. 2007) (presumes state-law enforceable claims are allowed in bankruptcy unless expressly disallowed)
- Ogle v. Fid. & Deposit Co. of Md., 586 F.3d 143 (2d Cir. 2009) (post-petition fees from pre-petition contracts are not disallowed by the Code)
- SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Corp.), 571 F.3d 826 (9th Cir. 2009) (§502 and §506 do not bar unsecured post-petition contractual fee claims)
- Welzel v. Advocate Realty Invs., LLC (In re Welzel), 275 F.3d 1308 (11th Cir. 2001) (distinguishes allowance of claims from secured-status determinations)
- Official Comm. of Unsecured Creditors v. Dow Corning Corp. (In re Dow Corning Corp.), 456 F.3d 668 (6th Cir. 2006) (permitted unsecured claims for post-petition attorneys’ fees in some contexts)
- United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (Sup. Ct. 1988) (addresses post-petition interest treatment under §502/§506; not dispositive for attorney‑fees issue)