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Urrgh! How Am I Going to Teach This?

posted by Bob Lawless

The United States Supreme Court today issued its decision in Travelers Casualty v. Pacific Gas & Elec. Co., and it's produced more-than-the-usual amount of head scratching. For the few of you who are not intimately familiar with this case--and by "few" I mean "those with a life"--here is the issue. You and I have a contract (and, so that we can rule out a specific exception, let's say I don't have collateral worth more than my claim against you). Like many other contracts, the contract says I can collect from you any attorneys' fees I incur in enforcing the contract. You file bankruptcy. I litigate some issue regarding the contract in your bankruptcy case. Can I now file a claim in your bankruptcy case for the attorneys' fees I ran up litigating in your bankruptcy case? The lower court said "no."

Actually, I thought that was the issue the Supreme Court also would decide. Instead, the Supreme Court merely ruled that the reason the lower court gave was not right, but the Supreme Court did not give its own answer to the issue. The U.S. Court of Appeals for the Ninth Circuit had relied on its own earlier decision where it had held there could be no claim for attorneys' fees in your bankruptcy case if the litigation involved matters solely arising under federal bankruptcy law. The Supreme Court said that was not sound reasoning, which is no surprise given that neither side defended the Ninth Circuit's reasoning. At the end of its opinion, the Supreme Court went out of its way to say it was not making any comment on the validity of other reasons to deny the claims for attorneys fees in the bankruptcy case.

What we got here is a judicial do-over. It reminds me of one my own professors who would sometimes respond to a student's flawed logic simply by saying, "No, try again." (Who says the Socratic method is out of style?) The Ninth Circuit gets another try at this, making the Supreme Court's decision a nonevent. We are no closer to an answer for the underlying issue than we were before the Supremes issued their opinion.

The stakes are raised now when the case gets back to the Ninth Circuit. Consumer credit policy wonks will want to pay attention. Let's see . . . contract creditors running up attorneys' fees in a bankruptcy case . . . holy cow, that could be every credit card company in America! One issue already has popped up on the Bankr-L list. Suppose a creditor accuses a debtor of fraud or some other conduct that would render a debt nondischargeable in bankruptcy. If the creditor can collect its attorneys' fees for litigating the issue of nondischargeability, won't creditors be more likely to bring such actions, and debtors more likely to settle them rather than incurring the risk of the attorneys' fees becoming a claim in the case and a nondischargeable claim at that?

How am I going to teach this case? Probably not at all. Let's see what happens in the lower courts.

Important Addendum from the Hall of Strange But True Facts: When one calls the highest court in the land, "the Supremes," the blog's spell-checker wants me to change it to "the Supremest." Are the Internet's tubes trying to tell me something?


I think this case will be easy to teach, as an example of how issues ripe for decision do not get decided. Unfortunately, it takes more time to read the facts than to discuss the small portion of the controversy that the Court actually resolved.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.