Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co., 549 U.S. 443 (2007)
Primary Holding
Federal bankruptcy law does not categorically preclude an unsecured creditor from recovering attorney’s fees authorized by a prepetition contract and incurred in postpetition litigation, even when the litigation involves issues of federal bankruptcy law.
In the case of Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., the Supreme Court decided that a company owed money (an unsecured creditor) can still recover attorney's fees from a contract, even if the legal issues are related to bankruptcy. This is important because it means that if a business goes bankrupt but has a contract that allows for attorney's fees, the creditor can still pursue those fees in court, which helps protect their financial interests. For consumers, this ruling reinforces the idea that contracts matter, and if you have a written agreement that includes the right to recover costs like attorney's fees, you can still enforce that right even in bankruptcy situations. This case is relevant if you are a creditor dealing with a business that has declared bankruptcy and you have a contract that specifies you can recover legal fees.
AI-generated plain-language summary to help you understand this case
In the case of *Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co.*, the underlying dispute arose after Pacific Gas and Electric Company (PG&E) filed for voluntary Chapter 11 bankruptcy in April 2001. Prior to the bankruptcy, Travelers Casualty & Surety Company (Travelers) had issued a $100 million surety bond on behalf of PG&E to guarantee payment of state workers’ compensation benefits. As part of this arrangement, PG&E executed indemnity agreements with Travelers, which stipulated that PG&E would cover any losses incurred by Travelers, including attorney’s fees related to the bonds. Although PG&E had not defaulted on its obligations, Travelers filed a claim in the bankruptcy proceedings to safeguard its interests in case PG&E failed to meet its workers’ compensation obligations in the future. PG&E, with the Bankruptcy Court's approval, agreed to include protective language in its reorganization plan for Travelers, but later altered this language, leading to additional litigation between the parties. The procedural history of the case began when Travelers sought to recover attorney’s fees incurred during the bankruptcy proceedings, which PG&E contested on the grounds that such fees could not be recovered if they were related to issues of federal bankruptcy law. The Bankruptcy Court sided with PG&E, rejecting Travelers' claim for attorney’s fees. Travelers subsequently appealed this decision to the District Court, which upheld the Bankruptcy Court's ruling, referencing a prior Ninth Circuit case that established a precedent against recovering attorney’s fees in similar circumstances. The relevant background context includes the legal framework of federal bankruptcy law, which governs the treatment of claims and fees in bankruptcy proceedings. The Ninth Circuit had previously established a rule that prohibited unsecured creditors from recovering attorney’s fees incurred in postpetition litigation when the issues involved federal bankruptcy law, regardless of the enforceability of such fees under nonbankruptcy law. This case ultimately reached the Supreme Court, which was tasked with determining whether the Ninth Circuit's rule was consistent with the Bankruptcy Code.
Whether federal bankruptcy law precludes an unsecured creditor from recovering attorney’s fees authorized by a prepetition contract and incurred in postpetition litigation.
The judgment is reversed.
- Court
- Supreme Court
- Decision Date
- January 16, 2007
- Jurisdiction
- federal
- Case Type
- landmark
- Majority Author
- Alito
- Damages Awarded
- N/A
- Data Quality
- high
Central Va. Community College v. Katz, 546 U.S. 356 (2006)
Consumer WonCongress has the authority to abrogate state sovereign immunity in bankruptcy proceedings, allowing a bankruptcy trustee to pursue actions against state agencies to recover preferential transfers made by a debtor.
Commissioner v. Banks, 543 U.S. 426 (2005)
Consumer LostWhen a litigant's recovery constitutes income, the portion of that recovery paid to the attorney as a contingent fee is included in the litigant's gross income under the Internal Revenue Code.
Sprint Communications Co. v. APCC Services, Inc., 554 U.S. 269 (2008)
Consumer WonAn assignee of a legal claim for money owed has standing to pursue that claim in federal court, even when the assignee has promised to remit the proceeds of the litigation to the assignor.
Richlin Security Service Co. v. Chertoff, 553 U.S. 571 (2008)
Consumer WonThe Equal Access to Justice Act (EAJA) allows a prevailing party in a case against the government to recover attorney's fees, including paralegal services, at the prevailing market rate, rather than limiting recovery to the cost incurred by the attorney's firm.