In re Walsh
| Decision Date | 24 September 2015 |
| Docket Number | Case No. 08 B 06424 |
| Citation | 538 B.R. 466 |
| Parties | In re: John F. Walsh, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
John F. Walsh, Chicago, IL, pro se.
AMENDED MEMORANDUM OPINION
This matter is before the Court on Freeborn & Peters LLP's (“Freeborn”) Motion For Award of Compensation and Reimbursement of Expenses and Allowance of Administrative Expense (“Fee Application”) for post-petition, pre-conversion services. The Chapter 7 Trustee, Catherine L. Steege, Esq. (“Trustee”), and Sixty Thirty Condominium Association (“Condo Association”) filed separate objections to Freeborn's Fee Application.
On May 12, 2015, the Court conducted a hearing concerning the Fee Application. It thereafter allowed counsel to file supplemental briefing, and the matter was taken under advisement. The Court has considered the submissions of the parties, the arguments of counsel, as well as the applicable law, and for the reasons set forth below, Freeborn's Fee Application is denied, Freeborn's administrative claim is disallowed, and both objections are sustained.
This Court has jurisdiction to hear this matter pursuant to 28 U.S.C § 1334(a) and the District Court's Internal Operating Procedure 15(a). This is a core proceeding as to which this Court may enter a final order pursuant to 28 U.S.C. § 157(b)(2)(A) —matters concerning the administration of the estate and § 157(b)(2)(B) —allowance or disallowance of claims against the estate.
The sole asset of the estate is a $339,010.28 judgment (the “Judgment”) entered in favor of John F. Walsh (the “Debtor” or “Walsh”) against Wright Development Group, LLC (“Wright”). In 2007, Walsh was the president of the Condo Association. On October 4, 2007, Wright sued Walsh and other parties for defamation in the Circuit Court of Cook County, Illinois (the “Litigation”).1 Wright's Complaint sought damages against Walsh and others for defamation based on statements made by Walsh during his tenure as president of the Condo Association at a meeting in July 2007 attended by a Chicago alderman's aides regarding problems with the construction of the condominium building at 6030 N. Sheridan, which statements were printed in a local newspaper.
Walsh retained Freeborn to perform legal services on his behalf in the Litigation. At that time, Freeborn represented the Condo Association in at least three lawsuits pending between the Condo Association and Wright.2 The Condo Association states that it indemnified Walsh for liability and attorney's fees in connection with the Litigation, and all invoices were sent to and paid by the Condo Association.3 Walsh did not pay (nor was he required to pay) any legal fees for the Litigation.
On April 15, 2008, in the defamation case, Walsh filed a Motion to Dismiss the Complaint (the “ICPA Dismissal Motion”) under the Illinois' Citizen Participation Act, 735 ILCS 110/1, et seq. (the “ICPA”) on the ground that the Complaint was a Strategic Lawsuit Against Public Participation (a “SLAPP ”) and asked for attorney's fees under the anti–SLAPP statute. The trial court denied Walsh's ICPA Dismissal Motion. Walsh also pursued a motion to dismiss Wright's Complaint for failure to state a claim for which relief could be granted, pursuant to 735 ILCS 5/2–615 (“Section 2–615 ”), which was granted on September 26, 2008.
Although Wright's Complaint was dismissed, Walsh filed an appeal because he was denied statutory immunity from liability and mandatory attorney's fees—redress available only under the ICPA. The Appellate Court dismissed Walsh's appeal on the ground that the issue was moot based upon the dismissal of Wright's Complaint under Section 2–615.
As counsel to Walsh, Freeborn sought review by the Illinois Supreme Court. On October 21, 2010, the Illinois Supreme Court found in Walsh's favor.4 The Court unanimously found that the Complaint was a SLAPP action and that, as a victim of a SLAPP, Walsh was entitled to immunity under the ICPA. The Court remanded the case “to the circuit court to award Walsh reasonable attorney fees and costs incurred in connection with the [ICPA] motion.”5
On remand, Freeborn submitted a request for fees and costs incurred in connection with the ICPA Dismissal Motion. The trial court held evidentiary hearings on the attorney's fee petition on September 8 and October 5, 2011. On January 3, 2012, the trial court entered final judgment in favor of Walsh and against Wright in the amount of $339,010.28, finding that all of Walsh's attorney's fees and expenses were reasonable and allowable under the ICPA. The Judgment covers services rendered by Freeborn and Sanchez Daniels & Hoffmann LLP (“Sanchez”) both prior to the Petition Date and during the chapter 13 case.6 On February 15, 2011 and March 12, 2013, pursuant to 770 ILCS 5/1, Freeborn served Notices of Attorney's Lien in connection with the Litigation via certified mail on Wright and its counsel in the amounts of $183,034.47 and $261,807.28 (amended), respectively.
On March 18, 2008 (the “Petition Date ”), less than six months after the start of the Litigation and less than one month before filing the ICPA Dismissal Motion, Attorney Donna B. Wallace, on behalf of Walsh, filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy Court ”). The Debtor did not schedule Wright as a creditor, nor did he list the claim for attorney's fees against Wright or the pending Litigation in his Statement of Financial Affairs. On that same date, the Debtor filed a proposed chapter 13 plan (the “Plan ”).
On May 12, 2008, the Bankruptcy Court confirmed the Debtor's Plan.
On December 1, 2011, before the Debtor completed the payments required under the confirmed Plan, he filed a notice of voluntary conversion of his chapter 13 bankruptcy case to chapter 7. Notably, the conversion occurred only two to three months after the state trial court held evidentiary hearings on Walsh's fee petition. Neither the Debtor nor Freeborn informed the Trustee about the pending state court litigation or the Illinois Supreme Court decision holding that the Debtor was entitled to recover attorney's fees.
On January 19, 2012, one week after the Judgment was entered in state court, the Trustee held the § 341 meeting of creditors. The Debtor testified that he was not suing anyone at the time he filed bankruptcy and that there was no one he could sue who owed him money. Subsequently, the Trustee filed a no-asset report. The Debtor received a discharge on March 20, 2012; the bankruptcy case was closed on March 23, 2012.
At some point thereafter, Wright discovered that the Debtor had filed for bankruptcy and that he had not disclosed the Litigation. On October 16, 2012, Wright filed an Emergency Petition for Relief from Final Judgment to vacate the Judgment (the “Motion to Vacate ”) on the ground that the Debtor was judicially estopped from enforcing the Judgment because he failed to schedule the civil lawsuit as an asset in his bankruptcy case.7 Freeborn claims it was not scheduled as a creditor of the Debtor, and that it was not aware of the bankruptcy filing until Wright raised the issue in its Motion to Vacate.
On November 15, 2012, the Debtor, via his counsel, filed a response to the Motion to Vacate and argued that the attorney's fees awarded in the Judgment were not property of the estate. Under 11 U.S.C. § 541, at filing, a debtor's property, including claims against its creditors, becomes property of the bankruptcy estate. The Debtor argued that: (1) the attorney's fee claim belonged to the Condo Association under the doctrine of equitable subrogation; and (2) the claim was subject to a resulting trust in favor of the Condo Association. On January 23, 2013, the state court denied Wright's Motion to Vacate. Wright appealed the trial court's decision on the Motion to Vacate. Still, the Debtor and his attorneys at Freeborn & Peters LLP failed to inform the Trustee of the state court action, and the fact that a dispute over whether the claim was property of the bankruptcy estate was being litigated outside the Bankruptcy Court. After Wright appealed the state trial court's denial of its Motion to Vacate, Wright's counsel notified the Trustee of the Litigation.
On April 22, 2013, the Trustee filed a motion to reopen the Debtor's chapter 7 case to pursue the Judgment. On April 30, 2013, the Bankruptcy Court entered an order reopening the Debtor's chapter 7 case. All attempts by the Trustee to negotiate a consensual resolution of the dispute between the Debtor and Wright failed.
On July 21, 2014, Illinois' First District Appellate Court dismissed both Wright's appeal and Walsh's cross-appeal after determining that, as a result of Walsh's bankruptcy filing, it lacked jurisdiction and found that every trial court order and filing entered in the Litigation after the Petition Date was void, including the notice of appeal. That Court also held that only the Bankruptcy Court has authority to retroactively annul the automatic stay that was in effect at the time the state trial court proceeded after the Debtor's bankruptcy case was filed. The Illinois Appellate Court ruled that the claim against Wright belonged to the Trustee. Wright Development Group, LLC v. John Walsh, 2014 IL App (1st) 130646-U (July 21, 2014).
On November 20, 2014, Freeborn filed its Fee Application in this court seeking compensation and reimbursement of expenses in the total amount of $196,691.65, which Freeborn argues relates to services performed during the chapter 13 case, pursuant to 11 U.S.C. § 330(a)(4)(B). Other than its Fee Application, Freeborn has not filed an appearance or pleadings in this bankruptcy case. Freeborn...
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In re Lindsey
...benefit to the estate or lack thereof. See, e.g. , In re Tahah , 330 B.R. 777, 782–83 (10th Cir. BAP 2005) ; In re Walsh , 538 B.R. 466, 474–75 (Bankr. N.D. Ill. 2015). If a debtor's attorneys' fees are allowed by the court, they are entitled to administrative expense status. See 11 U.S.C. ......
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In re Carr
...benefit to the estate or lack thereof. See, e.g., In re Tahah , 330 B.R. 777, 782–83 (10th Cir. BAP 2005) ; In re Walsh , 538 B.R. 466, 474–75 (Bankr. N.D. Ill. 2015).If a debtor's attorneys' fees are allowed by the court, they are entitled to administrative expense status. See 11 U.S.C. § ......
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