Reported today from Bankruptcy Court:
In re: Ernst, 04-12291
Decided: April 27, 2007
"UNDER A retainer agreement allowing interest on unpaid fees, the lawyer providing legal services to the debtor brought a state action to collect $72,274 in unpaid legal fees from the debtor and his wife. Shortly after entry of an award in the lawyer’s favor, the debtors sought Chapter 13 bankruptcy protection. In disallowing the attorney-creditor’s claim for fees incurred in collecting on the debtors’ bill, the bankruptcy court noted that the Appellate Division, First Department in Ween v. Dow held that fees associated with the collection of unpaid legal fees could not be recovered by an attorney unless the applicable retainer agreement also gave the client the right to recover attorney fees. In Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co. the U.S. Supreme Court emphasized the requirement that bankruptcy courts consult state law in determining the validity of most claims. In rejecting the lawyer’s claim, the bankruptcy court noted that the Ween court emphatically declared that a retainer provision identical that used by the lawyer was unenforceable.
"This decision granting summary judgment to the Debtors on their claim objection and disallowing a claim by an attorney-creditor for fees incurred in collecting a bill owed by his former client relies heavily on two recent case law developments – the first in the Appellate Division of the New York State Supreme Court holding that claims such as this one are not enforceable and the second decided last month by the United States Supreme Court emphasizing the requirement that bankruptcy courts consult state law in determining the validity of most claims. Both decisions involve the same underlying subject matter – the contractual right of an attorney to recover counsel fees from a third party. When considered together, these cases compel granting Debtors’ Motion for Summary Judgment and disallowing the attorney-creditor’s claim. "