USLegal Reporter

The U.S. Supreme Court ruled on Tuesday that a party can recover attorneys’ fees in a federal bankruptcy case as federal bankruptcy law does not prohibit contract-based claims for attorneys’ fees solely because those fees were incurred litigating bankruptcy law issues.

The dispute between Travelers Casualty & Surety Co. of America (Travelers) and Pacific Gas & Electric Co. (PG&E) involved Travelers’ issuing a 100 million dollar surety bond to guarantee PG&E’s payment of workers’ compensation benefits to its injured employees. When PG&E filed for bankruptcy to reorganize its debts, Travelers sought to protect itself from any default by asserting a bankruptcy claim that the reorganization plan did not adequately address workers’ compensation claims. PG&E agreed to include language to protect Travelers in its plan and disclosure statement. Additional litigation between the parties resulted in a stipulation that Travelers could assert a general unsecured claim for attorneys’ fees.

PG&E, however, objected to and the 9th Circuit U.S. Court of Appeals refused Travelers’ claim for such attorneys’ fees on the basis that where the litigated issues do not involve basic contract enforcement questions but are peculiar to federal bankruptcy law, attorneys’ fees will not be awarded. The U.S. Supreme Court found that the previous ruling was not supported by the Bankruptcy Code.

The case is Travelers v. PG&E, 05-1429. Decided March 20, 2007.

See http://www.supremecourtus.gov/opinions/06pdf/05-1429.pdf