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Over-Secured Lenders and Requests for Attorneys' Fees

By Mark A. McDermott and Christine A. Okike
November 30, 2014

The United States Court of Appeals for the Fifth Circuit recently reaffirmed the long-established rule that an over-secured lender's legal and other fees are subject to court approval as reasonable under section 506(b) of the Bankruptcy Code. See, Wells Fargo Bank, N.A. v. 804 Congress, L.L.C. (In re 804 Congress, L.L.C.), No. 12-50382, 2014 U.S. App. LEXIS 11819 (5th Cir. June 23, 2014). This rule is embodied in the plain language of section 506(b), which provides that an over-secured creditor may recover “'fees, costs, or charges provided for under the agreement ' under which such claim arose' ' but only to the extent that the fees, costs, or charges are reasonable.” Id. at 8.

While the rule is relatively clear, many consensual reorganization plans provide for payment of secured lenders' and other stakeholders' fees that, while subject to reasonableness review, often are not actually reviewed in any meaningful detail by a bankruptcy court. Indeed, if a plan is consensual and no one objects, there arguably is no need. But 804 Congress is a reminder that the standard nonetheless is there, and that the burden is on the professional to establish reasonableness when the amount of the fees is being challenged.

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