Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 84 C 8942, William T. Hart, Judge.
Before BAUER and POSNER, Circuit Judges, and GRANT, Senior District Judge.*fn*
GRANT, Senior District Judge.
The Bankruptcy Court granted summary judgment to plaintiff-appellee finding that certain monies received by defendant-appellant constituted a preferential transfer under 11 U.S.C. § 547(b) and did not qualify as an exception to preferential transfers under 11 U.S.C. § 547(c)(1)-(3) (Supp. V 1981). The district court affirmed and defendant-appellant seeks our review. We reverse.
On October 11, 1981, debtor, Brass Kettle Restaurant, Inc. and defendant-appellant, the law firm Ash, Anos, Freedman & Logan entered into a retainer agreement under which Ash, Anos promised to represent Brass Kettle in certain actions arising out of a fire at Brass Kettle's corporate premises. The agreement stated that
[i]n return for said defense, the BRASS KETTLE RESTAURANT, INC. and the undersigned agree to pay the firm of ASH, ANOS, FREEDMAN & LOGAN, the sum of ONE THOUSAND FIVE HUNDRED DOLLARS plus Forty Percent (40%) of any recovery made in their behalf, with the understanding that there shall be a rebate of the contingency fee of Forty Percent (40%) based upon the actual hours expended in their behalf at the hourly rate of ONE HUNDRED DOLLARS ($100.00) per hour or the then current hourly rate of the firm of ASH, ANOS, FREEDMAN & LOGAN.
Answer to Adversary Complaint, Exhibit A, Bankruptcy Record at 2. On November 17, 1981, Ash, Anos' efforts resulted in a $40,000 settlement in one of the actions. Ash, Anos placed 40% of the settlement $16,000, in a segregated account.
Brass Kettle entered bankruptcy proceedings on December 23, 1981, pursuant to an involuntary petition. Ash, Anos remitted $7,085.16 to plaintiff-appellee, Brass Kettle's Trustee in Bankruptcy, which Ash, Anos determined to be the excess portion, over the actual hours expended, of the retained $16,000. Ash, Anos' billing records reflect statements for Brass Kettle's legal fees in the amounts of $5,109.84, $2,055, and $1,750. The statements show that payment of the first amount was made on December 3, 1981 and of the second amounts, on January 4, 1982. After failing to recoup this $8,914.84 from Ash, Anos, the Trustee filed the instant action and recovered these payments as preferential transfers. Brass Kettle's bankrupt estate consists only of the $40,000 settlement obtained by Ash, Anos.
The resolution of this appeal involves only one issue:
Whether the retainer agreement created and equitable lien.
We look to state law to determine whether property is an asset of a debtor. Weng v. Farb, In re K & L limited, 741 F.2d 1023, 1030 n.7 (7th Cir. 1984). In Illinois, an equitable lien arises in two situations, the first of which occurs
where the parties express in writing their intention to make a particular property, real or personal, or some fund, the security for a debt, or where there has been a promise to convey or assign the property as security (Oppenheimer v. Szulerecki (1921), 297 Ill. 81, 87-88, 130 N.E. 325; Carlyle v. Jaskiewicz (1984), 124 Ill.App.3d 487, 495, 79 Ill. Dec. 847, 464 N.E.2d 751; 4 Pomeroy's Equity Jurisdiction § 1235 (5th ed. 1941)). . . . The essential elements of an equitable lien are (1) a debt, duty, or obligation owing by one person to another, and (2) a res to which that obligation fastens. Hargrove, 124 ...