
    John BLAIR, et al., Appellants, v. BANK ONE, N.A., Appellee. Comdisco, et al., Appellants, v. Bank One, N.A., Appellee.
    Civ. No. 03 C 3095, 03 C 6948 and 03 C 8914.
    United States District Court, N.D. Illinois, Eastern Division.
    March 29, 2004.
    
      Champ W. Davis, Jr., Gini S. Marziani, Julia Dee Mannix, John B. Alsterda, Davis, Mannix & McGrath, Chicago, IL, for Appellant.
    Lawrence R. Desideri, Winston & Strawn LLP, Chicago, IL, for Appellee.
    Daniel Patrick Dawson, Nisen & Elliott, William J. Raleigh, Elena Gallo, Raleigh & Cahill, P.C., Chicago, IL, for Debtor, Com-disco Inc.
   MEMORANDUM OPINION AND ORDER

BUCKLO, District Judge.

In July 1997, representatives of First National Bank of Chicago, predecessor in interest to appellee Bank One, N.A. (“Bank One”), approached appellant Com-disco Holding Company, Inc. (“Comdisco”) with a proposal for a shared incentive investment plan (“SIP”). Under the SIP, Bank One would provide loans to select Comdisco employees for purchase of Com-disco shares. Bank One stated that it had used similar SIPs with other companies, and that the SIP would comply with the applicable federal securities laws. Com-disco relied on the representations by Bank One, and agreed to implement the SIP. Comdisco entered into an agreement guaranteeing the loan and indemnifying Bank One for any loss. On February 2, 1998, select Comdisco senior employees were offered a one-day stock option, with the condition that they finance 100 percent of their purchase with a loan from Bank One. Over 100 Comdisco employees participated in the SIP, purchasing more than 6.3 million shares at a price of $17.25 per share.

On July 26, 2001, Comdisco filed for a Chapter 11 bankruptcy. Bank One subsequently filed a Master Proof of Claim for the outstanding loans to the SIP participants, claiming the principal sum of $109,020,000.00 as well as a claim on behalf of Dresdner Bank AG in the amount of $3,454,920.19 plus interest and expenses.

On January 23, 2003, Comdisco filed an amended specific objection to Bank One’s claim. On February 14, 2003, certain SIP participants (“intervenors”) moved to intervene and for a declaratory judgment in their favor against Bank One. The motion to intervene was granted. Bank One filed a motion to dismiss the intervenors’ petition for declaratory judgment and to strike the portion of Comdisco’s amended specific objection seeking to void Bank One’s claim on the basis of alleged margin violations, pursuant to Fed.R.Civ.P. 12(b)(6) and 12(f). On April 28, 2003, Bankruptcy Judge Bruce Black granted Bank One’s motions, stating that neither Comdisco nor the intervenors had standing to challenge the legality of the loans underlying Bank One’s claim. On June 4, 2003, Bank One moved for a judgment on the pleadings concerning its request for the recovery of breakage charges and attorney’s fees. Judge Black granted that motion on August 20, 2003. On January 9, 2004, Com-disco and the intervenors filed this appeal of both decisions.

I.

On appeal, the legal decisions of a bankruptcy court are reviewed de novo. In re Morris, 223 F.3d 548, 553 (7th Cir.2000). Comdisco and the intervenors appeal the motions to dismiss and strike, arguing that they have standing to ehal-lenge the legality of the loans underlying Bank One’s claim. The appellants claim that the loans violated the federal securities laws, specifically 12 C.F.R. § 221 et seq. (“Regulation U”), promulgated under Section 7(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78g(d). The appellants argue that § 7(d) and § 29(b) of the Act, in conjunction, do provide a defense to a claim in bankruptcy. 15 U.S.C. § 78g(d); 15 U.S.C. § 78cc(b). Bank One argued, and the bankruptcy court agreed, that Regulation U does not contain a private cause of action for enforcement and therefore appellants had no standing.

The Seventh Circuit held in Bassler v. Central Nat’l Bank, 715 F.2d 308 (7th Cir.1983), that no private cause of action existed under § 7(d) or § 29(b) of the Securities Exchange Act of 1934, either alone or in context of the entire Act. The appellants do not make a convincing argument that the present case can be distinguished from Bassler. The appellants argue that as they wished to assert an affirmative defense, not a separate cause of action, Bassler does not control. The argument appears to be one of semantics. The appellants want a judgment in their favor, stating that Bank One cannot pursue its claims against them. While Comdisco has filed an objection to Bank One’s claim, the intervenors moved for declaratory judgment, rather than asserting any such defense.

The facts in Bassler demonstrate that no matter what the label, this cause of action does not exist under § 7(d) and § 29(b). Plaintiff Bassler had entered into a series of loans with the defendant Central National Bank in order to purchase stock. Bassler, 715 F.2d at 308-09. The loans violated federal securities laws, as the defendant had failed to obtain a required statement from Bassler. Id. at 309; 12 C.F.R. § 221. After Bassler discovered that the defendant had defrauded him with respect to the value of the purchased stock, he sought to have his loans declared void because of the violation of § 7(d). Id. The Seventh Circuit held Bassler could not obtain such a declaration, because neither § 7(d), § 29(b), nor any other provisions of the Act provided him with a cause of action against the lender. Id. at 313. As such a declaration is precisely what is sought by appellants, Bassler controls.

The majority of the cases cited by the appellants in favor of a private right of action either were decided before Bassler or involve the interpretation of other laws. The appellants rely especially on Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979), for the proposition that they can raise Bank One’s violations of § 7(d) as a defense. However, the court in Bassler specifically dealt with TAMA, stating that the ruling in TAMA did not require an implied right of action arising from § 7(d). Bassler, 715 F.2d at 311-12.

The intervenors attempt to limit the reach of Bassler by noting that the violation in that case was not a substantive one, but only the technical violation of neglecting to obtain a required statement. The alleged violation in this case is more substantive: Bank One’s 100 percent financing of the stock purchases, combined with a security interest in the stock, would be in direct violation of Regulation U. The Seventh Circuit did not limit its holding to technical violations, however, instead stating that no right of action existed for “investment borrowers as against investment lenders.” Id. at 313.

The intervenors also argue that after Bassler was decided in 1983, Congress enacted amendments to § 7 that exempted “innocent” investors, negating the rationale behind Bassler. To determine when implying a cause of action is appropriate, courts must consider whether Congress explicitly or implicitly expressed an intention to create a private right of action. Bassler, 715 F.2d at 310 (citing Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975)). Congress did not intend to protect investors with § 7. As the intervenors admit, the main purpose of § 7 “was to control the excessive use of credit in security transactions.” Bennett v. United States Trust Co. of New York, 770 F.2d 308 (2nd Cir.1985) (holding no private cause of action exists in § 7); Bassler, 715 F.2d at 313. The intervenors direct me to no law or legislative history suggesting that protection of investors was anything but an incidental benefit, or that a private cause of action should be implied for them from § 7.

Finally, Comdisco argues that the refusal to imply a private cause of action for § 7 violates the constitutional separation of powers. Congress violates the separation of powers only when it enacts a law stating how the judiciary must decide an issue of fact (under threat of loss of jurisdiction) or binding the judiciary to “decide a case in accordance with a rule of law independently unconstitutional on other grounds.” In re Consol. U.S. Atmospheric Testing Litigation, 820 F.2d 982, 992 (9th Cir.1987) (citing United States v. Klein, 80 U.S. (13 Wall.) 128, 20 L.Ed. 519 (1871)). Congress’ decision not to allow a private cause of action, but rather to limit enforcement of § 7 to the Securities and Exchange Commission, neither instructs the court on how to decide an issue of fact nor binds it to an unconstitutional law. I affirm the bankruptcy-court’s ruling dismissing the intervenors’ petition for declaratory judgment and striking those portions of Comdisco’s objection that challenged the legality of Bank One’s claim.

II.

Comdisco also appeals the ruling granting Bank One attorney’s fees and breakage costs. When Comdisco entered into the agreement with Bank One, it signed a broad indemnification agreement. The agreement stated that Comdisco would indemnify Bank One for “all losses, claims, damages, costs, expenses ... [including attorney’s fees] ... or liabilities of every kind whatsoever.” Comdisco now argues that because Bank One was an unsecured creditor, 11 U.S.C. § 506(b) prevents the recovery of attorney’s fees. Section 506(b) controls not whether recovery of attorney’s fees should be allowed, but whether such recovery should be considered a secured or unsecured claim. Section 502 instead controls the initial question of whether the fees are allowable. Under that section, attorney’s fees provided for in a pre-petition contract, such as Comdisco’s indemnification clause, are recoverable so long as they are not prohibited by one of the enumerated exceptions. 11 U.S.C. § 502(b). The Seventh Circuit has not yet considered this issue, but every federal circuit court of appeals that has done so has held that such fees do not fall into any of the exception categories. Id.; see, e.g., In re Welzel, 275 F.3d 1308, 1318 (11th Cir.2001); Woburn Assocs. v. Kahn, 954 F.2d 1, 9 (1st Cir.1992). I affirm the bankruptcy court’s grant of attorney’s fees.

Comdisco contests the award of breakage fees to Bank One, arguing that such fees constitute disguised post-petition interest charges which are not allowable under § 502(b). First, although the triggering event for the fees occurred post-petition, the obligation on Comdisco’s part was incurred pre-petition. Comdisco’s broad indemnification agreement was executed pre-petition, and the obligations under such an agreement arise at the time of execution. See, e.g., In re Manville Forest Products Corp., 209 F.3d 125, 129 (2nd Cir.2000).

Second, the breakage fees are not interest, nor a prepayment penalty as argued by Comdisco. While the Seventh Circuit has not considered this issue, the Eleventh Circuit recently made a detailed exploration of congressional intent as it related to interest rate swaps. Thrifty Oil Co. v. Bank of America Nat’l Trust and Savings Assoc., 322 F.3d 1039 (9th Cir.2003). The Eleventh Circuit found, and I concur, that allowing recovery of termination or breakage fees from interest rate swaps aligns with the congressional purpose of encouraging such swaps. Id. at 1053. Furthermore, such fees fall within the broad indemnity clause signed by Comdisco. I affirm the bankruptcy court’s award of breakage fees. 
      
      . As this appeal results from the grant of a motion pursuant to Rules 12(b)(6) and 12(f) and a motion for judgment on the pleadings by Bank One, the facts are taken from Com-disco’s amended specific objection to Bank One’s claim. For both motions, I must assume all material facts presented by the non-moving party are true. Thompson v. Ill. Dep't of Prof. Regulation, 300 F.3d 750, 753 (7th Cir.2002).
     
      
      . The certain SIP participants include John Blair, Bryant Collins, David Coons, Chuck Dale, Steve Davis, Charles DeMory, Ward Doonan, James Duncan, Paul Edstrom, Harold Finkel, Victor Fricas, Thomas Gazdziak, Rosemary Geisler, Greg Gifford, Allan Graham, Steve Grundon, Bruce Grybas, Jay Hal-ler, Scott Harvey, Michael Herman, Joseph Hold, Jim Hyland, Roger Innes, Jim Jenks, David Keenan, John Kenning, Jeff Keohane, Jeff Knaus, Heide Levin, Stephen McFarland, Michael McFarland, Andrew Mitzen, Charles Neff, Keith Olenek, Edward Pacewicz, Lyssa Kaye Paul, Michael Poisella, Thomas Preder-gast, Dean Prokos, Mike Ross, Paul Sanfilip-po, Jeff Schwiering, Joseph Scozzafava, Robert Sibik, Mark Stachulski, Charles Stevens, Tom Vallone, Greg Weiss, Brad Wheatley, Jeff Wolinski, and Ira Wollwich.
     
      
      . The Rules apply to a bankruptcy proceeding through Bankruptcy Rule 7012.
     
      
      . To support a loan such as the one made to Comdisco, lenders make complex arrangements known as hedging or interest rate "swaps” to ensure a fixed rate of return. When the loan is defaulted, lenders incur loss as they are forced to terminate these arrangements prematurely. See Thrifty Oil Co. v. Bank of America Nat’l Trust and Savings Assoc., 322 F.3d 1039 (9th Cir.2003), for a detailed explanation of interest rate swaps.
     