A unanimous U.S. Supreme Court today resolved a 5-4 circuit split by invalidating a rule that barred recovery of attorneys’ fees against a debtor in bankruptcy if the fees arose from litigating issues "peculiar" to bankruptcy law. 

The petitioner in the case, Travelers Casualty & Surety Co. of America, filed papers in the bankruptcy of Pacific Gas & Electric Co. to protect Travelers’s position in case someone made a claim on surety bonds that Travelers issued pre-bankruptcy for the benefit of PG&E.  An agreement between Travelers and PG&E required the latter to indemnify the former for any losses on the bonds.  The Ninth Circuit affirmed denial of an application by Travelers for reimbursement of the fees it incurred in, among other things, objecting to features of PG&E’s reorganization plan.  The court held that the contractual right to fees didn’t trump the Fobian rule, which generally bars fees for litigating issues "peculiar" to bankruptcy law.  Travelers petitioned for certiorari, and the U.S. Supreme Court granted review and disapproved the Fobian rule without reaching other questions that may still prevent Travelers from getting its fees. Travelers Cas. & Surety Co. of Am. v. Pacific Gas & Electric Co., No. 05-1429 (U.S. Mar. 20, 2007).

For a post-argument, pre-decision analysis of the case — one that describes the possible "ramifications" as "monumental" — lookie here.

The first version of this post — before we read the dadgum opinion — indicated a broader sweep of the Supreme Court’s decision.  Blawgletter’s bad.

Barry Barnett

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