Fee-Shifting in Bankruptcy

Abstract

This Article examines attorney fee-shifting practices in bankruptcy from theoretical, historical, caselaw, statutory, empirical and comparative perspectives. Although the Supreme Court has insisted that the American Rule remains the applicable background principle in insolvency cases as else-where, insolvency law, for sound equitable and systemic reasons, has always rejected strict application of the American Rule. Fee-shifting among the parties has been, and remains, pervasive in bankruptcy cases. Against this background, the Supreme Court’s position has led to anomalous and unto-ward results in discrete areas where the American Rule continues to apply. This Article argues for a forthright rejection of what little remains of the American Rule in bankruptcy and proposes a modified English Rule giving bankruptcy courts discretion over the award of attorney’s fees to remedy the remaining problems caused by the Supreme Court’s unjustified assumption that the American Rule is the correct background principle in the insolvency context. I go on to identify a set of non-exclusive factors that properly inform the exercise of the bankruptcy court’s discretion over the award of fees. Interestingly, the United Kingdom, starting from the tradition of the English Rule, has created a discretionary fee-shifting regime applicable to insolvency cases that mirrors the discretionary approach advocated here. Whether one’s legal system comes from a tradition starting with the English Rule or the American Rule, the realities of insolvency practice impel both the English and American systems towards a court-supervised discretionary fee-shifting regime in the bankruptcy arena.

Keywords: Fee-shifting, Attorneys Fees, American Rule, English Rule, Bankruptcy, Insolvency, Comparative Insolvency Law, Costs