Under the Bankruptcy Code, bankruptcy judges are generally given the power to limit claims for attorneys’ fees to a “reasonable” amount. If an attorney for the debtor or an attorney for a creditor’s committee tries to collect unreasonable fees from the debtor’s estate, the judge can disallow them, preserving the valuable and finite resources of the estate. Yet, the Code does not extend the judge’s power to limit claims for attorneys’ fees made by creditors. Generally speaking, creditors are not able to collect their attorneys’ fees from the debtor’s estate. However, in Pacific Gas and Electric’s (PG&E) 2019 bankruptcy case, an unusual combination of facts required the debtor to pay the attorneys’ fees of many of their creditors. If a creditor submitted a claim for unreasonable attorneys’ fees, judges would not have the power to disallow these fees. These attorneys could therefore collect exorbitant fees at the expense of other creditors, and judges would have no mechanism to control this behavior. This Comment advocates for an amendment to the Code that gives judges the power to restrict all unreasonable claims for attorneys’ fees. This amendment would solve two issues. First, the amendment would clarify that a creditor can submit claims for their attorneys’ fees when a state statute requires the debtor to pay these fees. While most jurisdictions allow a creditor’s claim to include their attorneys’ fees, a minority of bankruptcy courts do not allow these claims. The minority position is inconsistent with the Code. Therefore, this amendment to the Code would clarify that the Code does not disallow a creditor’s claims for attorneys’ fees. Second, the amendment would give judges the new power to control unreasonable claims for a creditor’s attorneys’ fees. This power would ensure that all claims including attorneys’ fees are treated the same and that creditors’ attorneys, in rare cases like the PG&E case, could not take advantage of this hole in the Code. Judges need a mechanism to control all claims that include attorneys’ fees, no matter how infrequent the situation.
Reasonability of a Creditor's Claim for Attorneys' Fees,
Emory Bankr. Dev. J.
Available at: https://scholarlycommons.law.emory.edu/ebdj/vol37/iss1/8