In re Key West Restaurant & Lounge, Inc.
| Decision Date | 25 October 1985 |
| Docket Number | Bankruptcy No. 84 B 4838,Adv. No. 84 A 728. |
| Citation | 54 BR 978 |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In re KEY WEST RESTAURANT & LOUNGE, INC., Debtor. KEY WEST RESTAURANT & LOUNGE, INC., Plaintiff, v. CONNECTICUT INDEMNITY COMPANY, et al., Defendants. |
COPYRIGHT MATERIAL OMITTED
Gerard A. Brost, Dept. of Justice, Washington, D.C., for U.S.
R.S. Maione, Law Offices of Drugas, Maione, Morgan & Hyink, Chicago, Ill., for Intern. Meat Co. intervenor.
Neil F. Hartigan, Joel R. Nathan, Atty. General's Office, Revenue Litigation Div., Chicago, Ill., for State of Ill. Dept. of Revenue.
Robert F. Peck, Johnson & Peck, Western Springs, Ill., for Village of Countryside.
Paul J. Richter, William J. Raleigh, DeHaan & Richter, P.C., Chicago, Ill., for Federal Deposit Ins. Corp. as receiver of United Bank of America.
Lawrence M. Cooper, David R. Brown, Cooper & Cooper, Ltd., Chicago, Ill., for Key West Restaurant & Lounge, Inc.
David N. Missner, Steven N. Bazer, Robert P. Handler, Schwartz, Cooper, Kolb & Gaynor Chartered, Chicago, Ill., for Edgewood Bank.
Jerome H. Torshen, Robert J. Slobig, Jerome H. Torshen, Ltd., Chicago, Ill., for Hoffberg Spack & Associates, Inc. (Theodore Spak & Associates, Inc.)
Peter G. Frezados, Regas & Frezados, Chicago, Ill., for Regas & Frezados.
In the fall of 1984, on motion of Court, the parties to this adversary proceeding submitted statements of claim and briefs supporting their respective lien claims. No motion has been filed by any party nor have the parties filed supporting affidavits or a stipulation of facts. However, should the parties to this action file cross motions for summary judgment in accordance with Fed.R.Civ.P. 56(a) Bankruptcy Rule 7056 accompanied by supporting affidavits or stipulations of fact demonstrating the facts supporting their respective positions and provided no counteraffidavits pose triable issues of fact, this Court shall be prepared to rule and enter judgment in accordance with this Memorandum and Order. Accordingly, the parties to this proceeding shall be given 28 days from the issuance of this Memorandum and Order to file motions for summary judgment with supporting affidavits or stipulations.
On January 1, 1981, the debtor, Key West Restaurant & Lounge, Inc. ("Key West"), leased the premises at 5917 South LaGrange Road, Countryside, Illinois, ("the premises") from William Bockos and Harry Bockos in order to operate a restaurant. The Bockos acquired the beneficial interest in the premises in 1977 through a financing arrangement with Amalgamated Trust and Savings Bank ("Amalgamated") which holds title to the premises as trustee under trust No. 3347 and held, as mortgagee, the mortgage for the $750,000 purchase price.1
On October 1, 1981, defendant Connecticut Indemnity Company ("Connecticut") insured the premises by issuing and endorsing a $2,100,000 special multi-peril policy No. SMP 85-16-83 (SAR). The named insured were Key West, Amalgamated as trustee, and William and Harry Bockos, the trust beneficiaries. Amalgamated as mortgagee was an additional loss payee. On October 26, 1981, fire damaged the premises and Key West terminated its restaurant business.
It appears Connecticut suspected arson, then denied liability for the loss and litigation ensued. On March 15, 1984, the insureds' suit against Connecticut was settled for $285,000 ("Settlement Fund") and a release by Connecticut of all claims arising under the mortgage interest Connecticut acquired as part of a prior settlement with Amalgamated.
On April 13, 1984, International Meat Company filed an involuntary chapter 7 petition against Key West, William Bockos and Harry Bockos. After dismissal of the Bockos from the involuntary case, Key West converted to a voluntary chapter 11 and on May 17, 1984, an order for relief was entered. An examination of the debtor's statement of affairs indicates: the restaurant business has not resumed; unsecured claims total $113,022.69; secured claims total $546,532.00; and, the value of all property owned by the debtor, except a tractor subject to a lien, is $286,100.00. $285,000 of that property is the Settlement Fund.
On June 21, 1984, Key West instituted this adversary proceeding to receive the Settlement Fund and resolve claims asserted against the fund. The Court authorized Key West to receive the Settlement Fund and deposit it in a segregated interest bearing account, dismissed Connecticut as a party defendant, and ordered all claimants to file documentation of their claims and memoranda.
Of the secured claims listed in Key West's statement of affairs, $545,000 are asserted against the insurance Settlement Fund. It has been reported to the Court by Lawrence Cooper, escrowee, that as of April 15, 1985, the Settlement Fund was $296,300.25, this amount must include accrued interest.2 The claimants against the Settlement Fund are:3
The court notes the additional insured, Amalgamated as trustee and the Bockos, have not presented claims of an interest in the Settlement Fund. Moreover, Amalgamated, as mortgagee, received a $565,000 settlement from Connecticut on October 6, 1982. It has withdrawn its claim of an interest in the fund based upon an assignment of rents and business interruption insurance.
Each creditor asserts a secured interest in the Settlement Fund based upon transactions with or the liability of the debtor, Key West. The factual basis of the creditors' claims and the dates upon which rights arose is set forth in Appendix A hereto which describes with particularity the transactions and occurrences which produced this priority controversy. Appendix B sets forth the order of distribution of the Settlement Fund that this Court concludes (subject to verification in accordance with summary judgment procedure) should be made. Appendix C details the IRS's secured claim for taxes, interest and penalties. These appendices appear at the conclusion of this opinion.
Two claimants, the Village of Countryside and the law firm Regas & Frezados, do not have a secured interest in the Settlement Fund. The court will first indicate why they are not entitled to recover their claims from the Settlement Fund and then address the priority of secured claimants.
The Village of Countryside filed a claim based upon a $1,472.36 lien for water services and then changed the statement to claim $1,135.00 for weed cutting, but did not file documentation of recording liens. There is no indication liens were recorded within 60 days of the weed cutting as required by Ill.Rev.Stat. ch. 24 ¶ 11-20-7. In any event, if the Village's lien is for weed cutting or water services, such liens attach only to the real estate and would not extend to the Settlement Fund. Ill.Rev.Stat. ch. 24 ¶¶ 11-20-7, 11-139-8.
Regas & Frezados were orally retained the day of the fire to represent the insureds regarding the fire loss. On April 16, 1982, after Connecticut denied liability for the loss, the firm filed suit in the United States District Court on behalf of the insureds. On October 3, 1983, the firm executed a written retention agreement with Key West, William Bockos and Harry Bockos for representation on claims against Connecticut, including prosecution of the suit. A contingent fee was specified:
The Client agrees to pay to the Attorneys all costs or out-of-pocket expenses incurred in behalf of the Client relating to the aforesaid prosecution of claims in their behalf at their request. Further, the Client agrees to pay to the Attorneys an amount equal to seventeen and a half (17-1/2%) percent of all sums recovered from the Connecticut Indemnity Insurance Company of Hartford, Connecticut, by reason of a trial and judgment awarded therein, or fifteen (15%) percent of any and all sums recovered by reason of settlement, either before or during trial; it being understood that once the trial has been concluded, the Attorneys shall receive seventeen and a half (17-1/2%) percent, even if the cause is subsequently settled.
The total settlement with Connecticut included the $285,000 cash payment and release of the $565,000 mortgage interest acquired from Amalgamated, a total value of $850,000. Regas & Frezados claim a contingent fee equal to 15% or $127,500. They argue their fee is a charge against the Settlement Fund and prior to all claims except that of the public adjuster who is on a parity. Unfortunately for their claims here they never served notice to perfect a claim of lien under the statute granting liens for attorneys at law. Ill.Rev.Stat. ch. 13 ¶ 14.
A lawyer is entitled to compensation for professional services rendered a client. Greenbaum & Browne Ltd. v. Braun, 88 Ill.App.3d 210, 213, 43 Ill.Dec. 303, 307, 410 N.E.2d 303, 307 (1st Dist.1980). The written retention agreement executed by the insureds will control the compensation due Regas & Frezados. Greenbaum & Browne, 88 Ill.App.3d at 213, 43 Ill.Dec. at 307, 410 N.E.2d at 307. In Illinois a contingent fee agreement, standing alone, is not an assignment to the lawyer of an...
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