Chapter 11

MEMORANDUM OPINION AND ORDER GRANTING PLAN TRUSTEE'S MOTION TO STRIKE DEFENDANT'S REQUEST FOR PREVAILING PARTY FEES

Michael G. Williamson, United States Bankruptcy Judge.

Under the American Rule, a prevailing party is not entitled to attorney's fees and costs absent a statute or contractual provision authorizing recovery of prevailing party fees and costs. In this case, there was a prevailing party attorney's fee provision in the Payment Agreement between the Debtor and Seaside Carriers Inc. ("Seaside") that also provided for arbitration in the event of a dispute arising under their agreement. However, this action was brought by the Plan Trustee pursuant to a confirmed plan of reorganization1 and the Critical Vendor Orders2 authorizing the recovery or "claw-back" of post-petition transfers from the bankruptcy estate. As such, the prevailing party provision contained in the Payment Agreement does not apply to this proceeding. The Plan Trustee's motion to strike the prayer for attorney's fees in Seaside's amended answer3 will be granted.

Background

The Debtor offers comprehensive transportation services, including customized consolidation, distribution, logistics, and warehousing services. Seaside provides trucking services that are essential to the Debtor's business operations. Immediately after filing its Chapter 11 case, the Debtor moved to pay the pre-petition claims of its critical vendors, including Seaside. Critical vendors are those whose services are necessary to the successful reorganization of the Debtor and who continue to provide the Debtor with these services post-petition.

The Court's Critical Vendor Orders authorized the Debtor to make post-petition payments to its critical vendors and reestablish normal and customary trade terms with them. In keeping with the Critical Vendor Orders, the Debtor executed the Payment Agreement with Seaside on January 31, 2011. Under the Payment Agreement, in exchange for payment of the pre-petition claim, Seaside agreed to provide the Debtor with post-petition services and not to pursue collection actions or demands against the Debtor's customers.4 The Plan Trustee seeks in this adversary proceeding to avoid and recover post-petition payments the Debtor made to Seaside, alleging that Seaside has not complied with the Payment Agreement and the Court's Critical Vendor Orders.5

Seaside moved for leave to amend its answer to include a request for costs and attorney's fees pursuant to the Payment Agreement.6 The Court granted Seaside's motion, but also permitted the Plan Trustee to file a motion to strike Seaside's request for costs and fees.7 The Court now considers that motion.8

Conclusions of Law

The American Rule9 generally prohibits the prevailing party from collecting its attorney's fees and costs from the losing party. However, an exception may apply when a statute or contract authorizes the recovery of reasonable costs and fees. In this case, the Debtor and Seaside executed a post-petition contract, the Payment Agreement, which contained the following disputes provision:

It is clear that if the parties had a dispute arising under the Payment Agreement, the dispute would be subject to arbitration, and the prevailing party in that arbitration would be entitled to recovery of reasonable costs, expenses, and attorney's fees. However, this action is not an arbitration proceeding under the Payment Agreement. It is a proceeding to pursue a remedy created under the Critical Vendor Orders and the Confirmation Order under which the Plaintiff as Plan Trustee has a right to recover payments made to critical vendors who do not abide by the terms of their agreements.11

While these recoveries are dependent upon a finding by this Court that Seaside failed to perform under the Payment Agreement, the actual claim for relief being asserted in this proceeding is grounded in the Critical Vendor Orders and the confirmed plan of reorganization in this case. The attorney's fees provision contained in the Payment Agreement applies only "[i]n the event of a dispute arising out of this Agreement," i.e., the Payment Agreement.12 It has no application to this claw-back proceeding.

Conclusion

Based on the Court's conclusion that the fee-shifting provision in the Payment Agreement has no applicability to proceedings seeking claw-back recoveries, the motion to strike the prayer for attorney's fees will be granted.

Accordingly, it is

ORDERED that the Plan Trustee's motion to strike the request for prevailing party attorney's fees and costs from Seaside's amended answer is GRANTED.