In the Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co. case, Travelers Casualty & Surety Company took legal action against Pacific Gas and Electric Company alleging that Pacific Gas should be held accountable for legal fees that accumulated as a result of necessary actions on the part of Travelers Casualty to protect various assets during the process of a bankruptcy filing. Travelers Casualty & Surety Co provided pacific Gas & Electric with bonds. In return for the issuance of said bonds, Pacific Gas & Electric carried out several indemnity agreements for Travelers Casualty: the latter agreements granted Travelers Casualty the right to collect legal fees that Pacific Gas incurred from such bonds. When Pacific Gas filed for bankruptcy, Travelers Casualty ended up with legal fees and sought relief through the court when, as previously agreed, Pacific Gas refused to pay said legal fees.
Both the District Court and the Ninth Circuit Court were in agreement and ruled in favor of the Pacific Gas based on standards established in the case of Fobian v. Western Farm Credit Bank: citing that federal bankruptcy laws would not permit the collection of such a debt. The case was appealed and brought before the Supreme Court, vacated the previous decisions made by the lower courts and remanded the case. The Supreme Court held that a contract might surmount federal bankruptcy laws if both parties agreed to the contract before the bankruptcy was filed.
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