Creditors well know that the legal fees incurred while pursuing a claim in bankruptcy court against a debtor can be substantial. The process is particularly frustrating for unsecured creditors that typically had no chance of ever recovering such costs, even if the underlying claim was ultimately paid. As a result of a recent decision by the 2nd U.S. Circuit Court of Appeals in Ogle v. Fidelity & Deposit Co. of Md ., however, the tide may be turning in favor of creditors. In Ogle , the court found that the Bankruptcy Code, and specifically Section 502, did not bar a pre-petition claim for post-petition attorney fees pursuant to an otherwise valid and enforceable indemnity agreement.
Fidelity & Deposit Co. of Maryland entered into several agreements with Agway Inc., pursuant to which Fidelity provided surety bonds to Agway’s insurers. Agway, in turn, agreed to indemnify Fidelity for any payments that it made under the surety bonds as well as legal fees incurred to enforce the agreements. After filing for Chapter 11, Agway defaulted on payments to its insurers, which then sought payment from Fidelity. Fidelity tendered payment consistent with its obligations under the surety bonds but incurred additional costs and legal fees enforcing its indemnity rights in prolonged litigation with the debtor.
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