Term: 2006
Docket: 05-1429
Travelers Casualty & Surety Company Of America v. Pacific Gas And Electric Company
- Pro
05-1429 TRAVELERS CASUALTY & SURETY CO. V. PACIFIC GAS AND ELECTRIC CO. DECISION BELOW:167 Fed. Appx. 593 CERT. GRANTED 10/6/2006 QUESTIONS PRESENTED: Petitioner and Respondent entered into a contract that included a provision that Petitioner is entitled to recover its attorneys’ fees incurred in connection with the enforcement, protection, or litigation of its contractual and legal rights. Petitioner incurred attorneys’ fees litigating its rights during the course of Respondent’s bankruptcy case and sought to recover them from Respondent. Adhering to its prior decision in Fobian v. Western Farm Credit Bank (In re Fobian), 951 F.2d 1149 (9th Cir. 1991), the Ninth Circuit held that Petitioner could not recover its attorneys’ fees because the relevant litigation in the bankruptcy court involved issues of federal bankruptcy law. The court reasoned that, as a matter of general federal common law, a party may not recover its attorneys’ fees pursuant to a contract or state statute where the issues litigated involve matters of federal law because only federal law may authorize such a recovery. The question presented is: Should the Court grant certiorari to resolve a conflict among nine courts of appeals concerning whether a litigant may recover attorneys’ fees under a contract or state statute where the issues litigated involve matters of federal bankruptcy law? LOWER COURT CASE NUMBER: 04-15605
In the 2006 case of Travelers Casualty & Surety Company of America v. Pacific Gas and Electric Company, the U.S. Supreme Court ruled in favor of Travelers, reversing a decision made by the Ninth Circuit Court of Appeals. The dispute arose when Pacific Gas and Electric (PG&E) filed for bankruptcy and sought to discharge its debts under Chapter 11; one such debt was owed to Travelers for insurance premiums. The Ninth Circuit had previously held that PG&E could not be required to pay interest on this debt during their bankruptcy proceedings due to an existing federal rule prohibiting claims for unmatured interest against bankrupt entities. However, upon review, the Supreme Court disagreed with this interpretation and found that there was no valid statutory basis or historical precedent supporting it within bankruptcy law context. Therefore, they concluded that PG&E may indeed owe post-petition interest on their insurance premium debt pending confirmation of their reorganization plan.
In the dissenting opinion for Travelers Casualty & Surety Company of America v. Pacific Gas and Electric Company, Justice Stevens argued that the majority's interpretation of Section 502(f) was incorrect. He believed that this section should not be read as a standalone provision but rather in conjunction with other sections of the Bankruptcy Code. In his view, it is clear from these combined provisions that Congress intended to allow recovery only when an insurer has paid a claim on behalf of its insured debtor. Therefore, he disagreed with the majority’s decision allowing Travelers to recover costs associated directly with litigation against PG&E under their fidelity bond agreement because those costs were not incurred due to claims made by third parties against PG&E (the insured). Instead, they arose out of disputes between Travelers and PG&E themselves over coverage issues related to bankruptcy proceedings – something which he felt fell outside what could be recovered under Section 502(f).
