Summary of a Recent
Judicial Development in
Bankruptcy

Unsecured Creditors are Entitled to Reasonable Post-Petition Attorneys Fees

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Smith, No. 06-60768, 2008 Bankr. LEXIS 183 (Bankr. W.D. Mo. Jan. 19, 2008), the United States Bankruptcy Court for the Western District of Missouri held that unsecured creditors could recover reasonable post-petition attorney fees, and determined that the amount of an oversecured creditor's requested attorney fees was reasonable.

Background

Debtor filed for Chapter 12 bankruptcy in August 2006. Id. at *2. Two creditors, Louisiana Ag Credit and Leonard Martin, sought to recover attorney fees from the Debtor's estate, and the amount of reasonable attorney fees owed was disputed. Id.

Arguments

Louisiana Ag Credit argued that because it was an oversecured creditor, it was entitled to postpetition attorneys fees under § 506(b). Id. at *4.

Leonard Martin argued that he was entitled to reasonable attorney fees as an unsecured creditor under § 502. Id. at *15.

Debtor disputed the reasonableness of the fees requested by Louisiana Ag Credit, and argued that Martin, as an unsecured creditor, was not entitled to post-petition attorneys fees. Id. at *8, *20.

Analysis and Holdings

Oversecured creditor's attorney fees
The court explained that § 506(b) expressly entitles an oversecured creditor to include in its secured claim any reasonable fees, costs, and charges provided for in the underlying agreement with a debtor. Id. at *7. To recover attorney fees under § 506(b), a creditor must establish: "(1) that it is oversecured in excess of the fees requested; (2) that the fees are reasonable; and (3) that the agreement giving rise to the claim provides for attorney fees." Id. at *7-8. To determine the reasonableness of attorney fees, courts consider whether the actions of the creditor were reasonable and prudent, and if so, it must then consider whether the itemized fees were reasonable. Id. at *9. In making that determination, the court considers:

(1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the "undesirability" of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.
Id. at *10 (quoting In re Cushard, 235 B.R. 902, 906 (Bankr. W.D. Mo. 1999)).

Applying that test to this case, the court here determined that Louisiana Ag Credit's actions taken to protect its interests were reasonable and prudent under the circumstances, and then after considering the twelve factors listed above, determined a reasonable amount of attorney fees for the services provided. Id. at *15.

Unsecured creditor's attorney fees
The court noted that § 502(b) does not contain an express exception for post-petition attorney fees. Id. at *16. The U.S. Supreme Court has stated that "claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed." Id. at *17 (quoting Travelers Casualty & Surety Co. of Am. v. Pacific Gas & Electric Co., 127 S. Ct. 1199, 1206 (2007)). Therefore the court determined that Leonard Martin, as an unsecured creditor, was entitled to reasonable post-petition attorney fees. Id.

The case was decided on January 19, 2008.