Global Industrial Technologies, Inc. v. J.P. Morgan Trust Co. (In re Global Industrial Technologies, Inc.)

344 B.R. 382, 56 Collier Bankr. Cas. 2d 485, 2006 Bankr. LEXIS 1011, 46 Bankr. Ct. Dec. (CRR) 183
CourtUnited States Bankruptcy Court, W.D. Pennsylvania
DecidedJune 5, 2006
DocketNo. 02-21626-JKF
StatusPublished
Cited by1 cases

This text of 344 B.R. 382 (Global Industrial Technologies, Inc. v. J.P. Morgan Trust Co. (In re Global Industrial Technologies, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Global Industrial Technologies, Inc. v. J.P. Morgan Trust Co. (In re Global Industrial Technologies, Inc.), 344 B.R. 382, 56 Collier Bankr. Cas. 2d 485, 2006 Bankr. LEXIS 1011, 46 Bankr. Ct. Dec. (CRR) 183 (Pa. 2006).

Opinion

MEMORANDUM OPINION1

JUDITH K. FITZGERALD, Bankruptcy Judge.

J.P. Morgan Trust Company, N.A., is the Indenture Trustee under an Indenture of Trust and filed a general unsecured proof of claim against Debtor A.P. Green Industries, Inc., in the principal unpaid balance of $5,200,000 plus interest of $128,917 through the petition date, plus certain compensation, fees and expenses that had also been incurred as of the date the bankruptcy was filed. The proof of claim also includes compensation, fees and expenses to be incurred postpetition. Debtor objects to the postpetition portion of the claim.

The Indenture of Trust is attached to J.P. Morgan’s proof of claim.2 The relevant portion is Section 8.06, Compensation of Trustee, which states:

The Trustee shall be entitled to payment for its services and reimbursement of advances, counsel fees and other expenses as shall be agreed to between the Trustee and the Company or, in the absence of any such agreement, to payment of such fees and expenses as may be reasonably made or incurred by the Trustee and reasonable in amount in connection with its services under the Indenture. To secure the payment or reimbursement to the Trustee provided for in Section 5.2(b) of the Loan Agreement, the Trustee shall have a senior claim, to which the Bonds are made subordinate, on all money or property held or collected by the Trustee, except that held in the Bond Fund, the Retirement Fund or under Article VI, or otherwise held in trust to pay principal of and interest on particular Bonds.

Debtor contends that the contractual provision is no different from similar provisions in any contract and that the postpetition counsel fees are not allowable for unsecured creditors. Debtor relies on an opinion this court previously issued in this same case, In re Global Industrial Technologies, Inc. (Global Industrial Technologies Services Company, et al. v. Tanglewood Investments, Inc.), 327 B.R. 230 (Bankr.W.D.Pa.2005), for the proposition that postpetition attorneys’ fees and expenses are not allowable to unsecured creditors.

J.P. Morgan contends first that, because it has fiduciary obligations imposed upon it by statute (such as reporting to its bondholders and meeting certain filing requirements under the Trust Indenture Act), pursuant to 11 U.S.C. § 502 its compensation, fees and expenses are allowable, even [384]*384though they actually arise postpetition. J.P. Morgan cites two cases in support of its claim, the applicability of which Debtor disputes, as addressed below.

Debtor asserts that, as a matter of law, an unsecured creditor cannot recover postpetition expenses, fees and costs as part of its claim absent the consent of the parties through a plan negotiation process. Thus, Debtor distinguishes the first case cited by J.P. Morgan, In re Worldwide Direct, Inc., 334 B.R. 112 (Bankr.D.Del.2005), which permitted partial allowance of the indenture trustee’s claim for postpetition attorneys’ fees and expenses based on binding language in the confirmed plan that expressly provided for those items as “an additional component of the Allowed Noteholder Claims.” Id. at 129. In the case at bench, the plan has not been confirmed and, therefore, there is no obligation under a plan to pay J.P. Morgan’s postpetition attorneys’ fees and expenses.

J.P. Morgan further relies on In re Flight Transportation Corp. Securities Litigation, 874 F.2d 576 (8th Cir.1989), a case in which the indenture trustee sought administrative expense allowance for post-petition attorneys’ fees and expenses, but also argued in the alternative that the fees and expenses were allowable under 11 U.S.C. § 502 as a general unsecured claim. Its claim for administrative expense status was pursuant to 11 U.S.C. § 503(b) for making a substantial contribution to the reorganization by fulfilling its fiduciary duties under the Trust Indenture Act of 1939. That argument did not prevail. Both the district court sitting in bankruptcy, 78 B.R. 562, 564 (D.Minn.1987), and the Court of Appeals for the Eighth Circuit found that carrying out its duties as indenture trustee for the benefit of the debenture holders was not evidence of a substantial contribution to the estate. 874 F.2d at 581. Thus, the estate was not responsible for paying for services that were primarily for the benefit of the debenture holders and only incidentally for the benefit of the bankruptcy estate.

In the pending matter, J.P. Morgan does not seek administrative expense status under § 503(b). Rather, it relies on § 502 for the proposition that the indenture agreement provided it with a contractual right to payment for its services and reimbursement of its expenses', including its attorneys’ fees. Because this contractual right existed when the bankruptcy case was filed, J.P. Morgan finds comfort in Flight Transportation, a case in which the indenture trustee argued that its post-petition fees constituted part of its prepetition claim. The Court of Appeals for the Eighth Circuit ruled in Flight Transportation that the indenture trustee’s claim included postpetition counsel fees because the definition of “claim” is to be given the broadest interpretation. However, the Court of Appeals did not allow the fees under § 502. Rather, the Court of Appeals held that a claim existed on the date of filing but the amount of that claim was not known. The issue was remanded to the district court for determination of whether the indenture trustee had waived its claim. There is no indication in Flight Transportation that an indenture trustee can collect postpetition attorneys’ fees as a prepetition claim.

J.P. Morgan acknowledges that its position would enable every unsecured contractual creditor to claim postpetition attorneys’ fees, even though that creditor had only state law rights. As J.P. Morgan’s counsel noted, virtually every promissory note has a provision for reimbursement for attorneys’ fees and expenses and many other contracts also contain those entitlements. Nonetheless, J.P. Morgan asserts, these claims are allowable under § 502 because Congress specified certain [385]*385exceptions to allowance, such as claims for unmatured interest, limitations on landlords’ claims, and claims for items that are not recoverable under applicable nonbank-ruptcy law. Those exceptions, J.P. Morgan continues, do not include attorneys’ fees. Thus, because Congress has chosen to specify certain limitations, J.P. Morgan asserts that there are no others. This argument is not persuasive, as we addressed in Tanglewood, and will restate below.

Next, J.P. Morgan argues that its postpetition attorneys’ fees constitute an unsecured claim allowable under § 506. J.P. Morgan asserts that in making it clear that a fully secured creditor can recover its attorneys’ fees, Congress did not mean to suggest that an unsecured creditor cannot also recover attorneys’ fees. J.P.

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Bluebook (online)
344 B.R. 382, 56 Collier Bankr. Cas. 2d 485, 2006 Bankr. LEXIS 1011, 46 Bankr. Ct. Dec. (CRR) 183, Counsel Stack Legal Research, https://law.counselstack.com/opinion/global-industrial-technologies-inc-v-jp-morgan-trust-co-in-re-global-pawb-2006.