Opinion
Case No. 97-70416
September 28, 2000
OPINION
This matter is before the Court on the Objections of Mariann Pogge, Trustee ("Trustee") to Claim #9 and to Claim #24. Claim #9 was subsequently amended by Claim #25, and the Trustee's objections to Claim #9 relate to Claim #25 as well. Claims #25 was filed as a priority unsecured claim in the amount of $34,166.55 by Patricia Hayes on July 6, 2000. Claim #24 was filed as a "secured and/or priority" claim in the amount of $57,500 by Richard D. Rixner on August 22, 1997.
On February 7, 1997, Donald Weinhoeft and Anita L. Weinhoeft ("Debtors") filed their voluntary Chapter 7 petition in bankruptcy, and the Trustee was subsequently appointed. For a number of years prior to the filing of the petition, Mr. Weinhoeft had been an employee of Magna Bank, N.A., successor-in-interest to Capital Bank of Springfield and predecessor-in-interest to Union Planters National Bank (individually and collectively "the Bank"). In September, 1992, the Bank terminated Mr. Weinhoeft's employment. Mr. Weinhoeft subsequently retained Mr. Rixner, who was also representing a number of other Plaintiffs in a class action against the Bank. In 1993, Mr. Weinhoeft and Mr. Rixner met with Ms. Hayes. Ms. Hayes was asked and agreed to serve as co-counsel and was to prepare and file Mr. Weinhoeft's civil rights and ERISA claims against the Bank. Meanwhile, Mr. Rixner was to handle Mr. Weinhoeft's RICO claims against the Bank. On August 27, 1993, Mr. Weinhoeft and Ms. Hayes entered into an Attorney Fee Agreement whereby Mr. Weinhoeft agreed to pay Ms. Hayes a contingency fee of one-third of any settlement or recovery. Subsequently, Mr. Rixner and Mr. Weinhoeft entered into a Fee Agreement on April 6, 1994, wherein Mr. Weinhoeft agreed to pay Mr. Rixner a contingency fee of one-third of any settlement or recovery. No one disputes that it was the intent of all parties that the aggregate fee payable to Mr. Rixner and Ms. Hayes was to be one-third of any settlement or recovery.
In September, 1995, the civil suit was filed against the Bank's holding company and 18 other affiliated entities, officers, and directors in the United States District Court for the Central District of Illinois, in a case captioned Weinhoeft v. Magna Group, et al., Case No. 96-2166 ("the Wrongful Discharge Action"). In the Wrongful Discharge Action, Mr. Weinhoeft asserted various claims for age discrimination, retaliatory discharge, ERISA, and civil RICO violations against the Bank and other defendants, all stemming from the termination of his employment.
Approximately two months later, Ms. Hayes advised Mr. Weinhoeft that she could not work with Mr. Rixner, and Ms. Hayes asked Mr. Weinhoeft to make a decision either to stay with Mr. Rixner and allow her withdraw or to dismiss Mr. Rixner and stay with Ms. Hayes. Mr. Weinhoeft chose the former, and Ms. Hayes subsequently withdrew from the case.
At the time Debtors filed their petition in bankruptcy, the Wrongful Discharge Action was pending. Initially, Debtors failed to include the Wrongful Discharge Action on their schedules. Subsequently, however, Debtors filed an Amended Schedule B wherein they listed the Wrongful Discharge Action as a "contingent and unliquidated claim." Following the filing of the petition in bankruptcy and the amendment of Schedule B, this Court lifted the automatic stay in order to permit the parties to present to the District Court the question of whether the parties had previously reached an enforceable settlement of the Wrongful Discharge Action prior to the bankruptcy filing. The Bank contended that they had reached such a settlement; Mr. Weinhoeft argued that no such enforceable settlement was reached. On January 11, 1999, the U.S. District Court for the Central District of Illinois entered its order finding that no such pre-petition settlement had been reached.
On December 17, 1998, counsel for the Bank submitted a written settlement proposal to Trustee wherein the Bank has offered an immediate cash payment of $165,000 to the estate and has agreed to waive its right to any distribution from the estate in exchange for a complete release of all claims that have been or could be asserted by Mr. Weinhoeft in the Wrongful Discharge Action.
Under the terms of its settlement offer, the Bank reserved its right to enforce its secured claim under its real estate note and mortgage against Debtors' real property.
On June 24, 1999, this Court entered its Order finding the entire Wrongful Discharge Action (and any damages awarded or settlement received based upon it) to be property of the estate under 11 U.S.C. § 541(a)(1).
On December 27, 1999, this Court entered an Order approving the settlement offered by the Bank. On January 7, 2000, Debtors filed a Notice of Appeal. On March 30, 2000, the U.S. District Court for the Central District of Illinois dismissed the appeal.
On April 24, 2000, Debtors filed their Motion to Reconsider, and on May 16, 2000, the District Court entered an Order denying the Motion to Reconsider.
At this stage in these proceedings, the settlement offer made by the Bank has been accepted and approved by the Court. The question before the Court now is what, if anything, are Mr. Rixner and Ms. Hayes entitled to receive based upon the settlement and their pre-petition fee agreements with Mr. Weinhoeft.
With exceptions not relevant here, 11 U.S.C. § 365(a) provides that a trustee may assume or reject any executory contract of the debtor. Pursuant to 11 U.S.C. § 365(d)(1), a trustee has sixty days from the order for relief within which to assume or reject an executory contract. Any contract not assumed within that period is deemed rejected. Under 11 U.S.C. § 365(g), the rejection of an executory contract of the debtor constitutes a breach of such contract and gives rise to a claim by the non-bankruptcy party against the debtor's estate. See 11 U.S.C. § 502(g).
Mr. Weinhoeft's fee agreements with Mr. Rixner and Ms. Hayes were executory contracts. Trustee neither assumed nor rejected them; hence, they were deemed rejected under the provisions of 11 U.S.C. § 365(d)(1). Accordingly, Mr. Rixner and Ms. Hayes then became entitled to a claim against the bankruptcy estate for breach of contract.
The valuation of such a claim is the responsibility of the Bankruptcy Court. In cases where a discharged attorney seeks to recover from a fund obtained by her successor, quantum meruit is the appropriate method for determining the appropriate fee. As the Seventh Circuit held in Maksym v. Loesch, 937 F.2d 1237, 1247 (7th Cir. 1991):
[A] lawyer discharged by his client is limited to a suit for the fair value of his services . . . [T]he principal of quantum meruit, as applied to suits by lawyers on valid contracts, supplies not the cause of action — the contract supplies that — but rather a ceiling on contractual recovery. If the lawyer has a fee contract the suit is on the contract, even though the court may decide not to award the full contractually specified fee because the lawyer had not, prior to being discharged, rendered services commensurate with it.
Accord In re Ashley, 41 B.R. 67, 72 (Bankr.E.D.Mich. 1984); In re PDQ Copy Center, Inc., 27 B.R. 123, 126 (Bankr.S.D.N.Y. 1983); In re Ward, 32 B.R. 318, 321 (Bankr.E.D.Va. 1983). See also In re Estate of Callahan, 144 Ill.2d 32, 578 N.E.2d 985 (1991).
On June 23, 2000, the Court send notice to the parties that a hearing on Trustee's Objections to the Claims of Mr. Rixner and Ms. Hayes would be held on July 18, 2000, at 1:30 p.m. On July 17, 2000, Attorney Fredrich J. Cruse entered his appearance on behalf of Mr. Rixner and filed a Motion for Continuance. The Court denied the Motion on the same day.
On July 18, 2000, the Court held the hearing as scheduled. Ms. Hayes appeared on her own behalf; attorney James Enlow appeared (although no written entry of appearance was filed) on behalf of Mr. Rixner. Mr. Enlow renewed Mr. Rixner's request for a continuance, and that request was again denied.
Mr. Rixner presented no evidence to support his claim in this case. While he very well may have provided valuable legal services to the Debtor, he failed to appear at the hearing and he failed to file a fee itemization with the Court. Accordingly, there is no evidentiary basis for allowing any portion of Mr. Rixner's claim. For these reasons, Claim #24 will be disallowed.
As for Ms. Hayes' claim, the Court finds the Attorney Fee Agreement between Mr. Weinhoeft and Ms. Hayes to be an unreasonable quantification of Ms. Hayes' damages for the Trustee's implied rejection of the contingency fee agreement between Mr. Weinhoeft and Ms. Hayes. Ms. Hayes did not render services commensurate with the Agreement. By her own admission, Ms. Hayes worked only on certain elements of the Wrongful Discharge Action and she withdrew from the case two months after the complaint was filed and long before the bankruptcy was filed and the Wrongful Discharge Action was settled. Accordingly, the Court will employ a quantum meruit analysis to quantify Ms. Hayes' damages.
Ms. Hayes offered her fee and expense itemization into evidence and testified as to the services rendered and the reasonableness of her fee. Ms. Hayes began working for Mr. Weinhoeft on August 27, 1993, and moved to withdraw from the case in January, 1996. Ms. Hayes' itemization totals 278.71 hours, the vast majority of which relate to time actually expended by her. Ms. Hayes' time was billed at $150 per hour (the remaining time entries were for members of Ms. Hayes' staff and were billed at $50.00 to $75.00 per hour).
The Court has identified several non-compensable entries on Ms. Hayes' itemization. First, a member of Ms. Hayes' staff billed time for attending conferences with various individuals at which Ms. Hayes was also in attendance. These entries (8/27/93, 9/1/93, 10/22/93, 11/9/93, 11/10/93, 6/22/94, 7/9/94) total $1,000 and are not compensable. Second, in late March and early April, 1994, a member of Ms. Hayes' staff billed time for working on interrogatories. Ms. Hayes herself billed over $1,500 for her contemporaneous work on interrogatories. Accordingly, the Court finds that Ms. Hayes' staff member's time is not compensable. Said entries (3/21/94, 3/24/94, 4/4/94, 4/5/94) total $1,170. Third, two entries (4/14/94, 4/20/94) for time spent by a member of Ms. Hayes' staff during which the staff member "worked on file" are too vague to be compensable. These entries total $400. Fourth, on December 22, 1995, Ms. Hayes mailed her Motion for Leave to withdraw as Attorney for Plaintiff to the Clerk of the U.S. District Court. Fees incurred by Ms. Hayes and her staff after that date total $551.30 and expenses incurred after that date total $304.85. These fees and expenses are not compensable.
The Court finds that the adjustments in the aforesaid paragraph are the only adjustments which are appropriate and that Ms. Hayes is entitled to fees and expenses totaling $30,740.40 (the amount requested, $34,166.55, minus adjustments totaling $3,426.15). Accordingly, Claim #25 is allowed as a general unsecured claim in the amount of $30,740.40 and denied as to the remainder.
Claim #25 is filed as an unsecured priority claim. There is, however, no legal or factual basis for finding priority status, nor does the proof of claim indicate any such basis.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day, IT IS THEREFORE ORDERED AS FOLLOWS:
1. Claim #9 of Patricia Hayes be and is hereby disallowed as amended by Claim #25.
2. Claim #24 of Richard D. Rixner be and is hereby disallowed in its entirety.
3. Claim #25 of Patricia L. Hayes be and is hereby allowed as a general unsecured claim in the amount of $30,740.40 and denied as to the remainder.