Ninth Circuit refuses to apply Section 506(b)(6) to all damages related to lease claims.
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- Case Type:
- Case Status:
- Reversed and Remanded
- No. 14-16697 (9th Circuit, Dec 29,2016) Published
- 502(b)(6) cap applies to attorney fees for litigating lessor's claim for future, but not past, rent.
- Procedural context:
Before filing its chapter 11 petition, debtor breached lease and vacated premises. In chapter 11 case, lessor filed proof of claim for unpaid past and future rent and prepetition attorney and arbitration fees. Debtor objected, arguing that 502(b)(6) cap applies to all fees, as well as rent. Lessor contended that cap does not apply to any fees. Bankruptcy court agreed with lessor, allowing all fees. On first appeal, district court affirmed. But on second appeal, Ninth Circuit reversed and remanded.
Ninth Circuit rejects parties' and lower courts' all-or-nothing approach to application of 502(b)(6) to fees incurred in litigating lessor's claims for past and future rent. Cap applies only to damages resulting from lease termination, not those resulting from every lease breach. Fees resulting from lease termination are not capped if lessor would have fee claim against lessee without regard to whether lease had been terminated. Here, lessor was entitled to past rent regardless of whether lease was terminated, so lessor's claim for fees for litigating its entitlement to past rent is not capped, but its claim for litigating its right to future rent is capped.
- Susan P. Graber and Mary H. Murguia, Circuit Judges, and Mark W. Bennett, District Judge for the Northern District of Iowa, sitting by designation. Opinion by Judge Graber.