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Contingency Fees Case Analysis

Inexplicably, the court never even addresses the language of the statute, or attempts to explain why the reasoning of the Fifth Circuit in Daniels v. Brown, 325 F.3d 690 (5th Cir. 2003), is erroneous.

The heart of this issue is the meaning of the following language in 11 U.S.C. 328(a): “Notwithstanding such terms and conditions, the court may allow compensation different from the compensation provided under such terms and conditions after the conclusion of such employment, if such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions.”

Indisputably, the court and the Trustee did not anticipate that the money would be recovered as easily, and with as few billable hours, as it was.

However, that is not the issue; the issue is whether the ease of recovery was capable of being anticipated. Just as indisputably, the ease of recovery was capable of anticipation.

The Revision Notes to the statute make clear that this is the proper inquiry, stating that the issue is whether the development was “unanticipatable”; the inquiry is not whether the development was “unanticipated.” (Whether “unanticipatable” is an actual word can be debated, but the meaning of the term is nevertheless clear, and is not synonymous with “unanticipated”).

The Fifth Circuit understood this. It acknowledged that the recovery was “relatively” easy and that the legal issues facing appointed counsel were “straightforward.” Barron, 325 F.3d at 692.

Nevertheless, it held, “There appear to be no intervening circumstances that were incapable of anticipation by the bankruptcy court at the time it approved the award.

Although the [bankruptcy court’s reasoning that the fee was unreasonable] has some force when viewed through today’s lenses, the factors relied upon to find the award improvident were foreseeable (emphasis in original).” Id., at 694.

Nothing in In re Lytton’s, 832 F.2d 395 (7th Cir. 1987), compels a different result in the Seventh Circuit.

The court in Lytton’s emphasized at the outset, “The only issue we need to decide is whether the district court properly dismissed Cluett’s appeal from the [order appointing counsel] for lack of finality.” Id., at 396.

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Contingency fee can be reduced

The court later noted that fees could be reduced in some circumstances. However, the court at no point suggested that fees could be reduced for something that was unanticipated, but capable of being anticipated. The opinion only holds that the statute explicitly permits reductions, and that, as long as that possibility exists, there is no final order to appeal.

Nothing in the cases which Judge Kelley cites for support address the central issue either. They address only whether the fee was reasonable, but not the issue the Fifth Circuit considered — whether there was an intervening circumstance that was unanticipatable. In re American Mortgage Investment Services, 158 B.R. 43 (Bankr.D.N.J. 1993); In re Begun, 162 B.R. 168 (N.D.Ill.1993).

As a result, attorneys retained by trustees on a contingency fee basis, who have their fees reduced merely because they obtained a quick recovery for the estate, should feel confident on appeal that they can recover the fees originally agreed to, notwithstanding the decision in this case.

– David Ziemer

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David Ziemer can be reached by email.

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