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In re Chicago H&S Hotel Property

December 2, 2009

IN RE: CHICAGO H&S HOTEL PROPERTY, LLC, DEBTOR.
CHICAGO TITLE AND TRUST CO., PLAINTIFF,
v.
CHICAGO H&S HOTEL PROPERTY, LLC, ET AL., DEFENDANTS.
MIRABELLA FOUNDATION, APPELLANT.
SHAW GUSSIS FISHMAN GLANTZ WOLFSON & TOWBIN, LLC, APPELLEE.



Appeal from the United States Bankruptcy Court for the Northern District of Illinois Case Nos. 07 B 20088 & 08 A 523.

The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Mirabella Foundation appeals the bankruptcy court's order directing payment of attorney's fees to the law firm of Shaw Gussis Fishman Glantz Wolfson & Towbin, LLC out of settlement funds that were to be distributed to Mirabella. For the reasons stated below, the Court remands the case in part to the bankruptcy court for further proceedings.

Background

On September 29, 2008, Shaw Gussis and Mirabella entered into a retainer agreement pursuant to which Shaw Gussis agreed to represent Mirabella in connection with a Chapter 11 case involving Chicago H&S Hotel Property and a related adversary proceeding. The adversary proceeding was filed by Chicago Title and Trust Co., which filed an interpleader action regarding deposits made by the debtor's investors. Mirabella claimed an interest in the deposits as the assignee of one of the investors. Farhan Naseer, a creditor of that investor, disputed Mirabella's claim and argued that a judgment lien that he asserted had priority over whatever interest Mirabella had. Shaw Gussis represented Mirabella in (among other things) its dispute with Naseer.

Shaw Gussis' fee agreement provided that it would submit invoices to Mirabella on a monthly basis for attorney's fees and other expenses and that Mirabella was "responsible for abiding by the fee arrangement and for prompt payment of the Firm's invoices." Appellee Br., Group Ex. C 2, 4. Shaw Gussis also required Mirabella to pay a $7,500 advance retainer. Id. 4.

On October 28, 2008, the bankruptcy court granted Naseer's motion to transfer the interpleader action to the United States Bankruptcy Court for the Southern District of Florida. The interpleaded funds were deposited with the clerk of the bankruptcy court here in Chicago.

Shaw Gussis continued to represent Mirabella after the transfer of the case. In an e-mail dated December 16, 2008 to Frank Lara, its contact at Mirabella, Shaw Gussis stated that

[p]ursuant to [their] telephone discussion . . . this e-mail confirms [Lara]/Shaw Gussis' authority to propose a settlement offer on behalf of Mirabella in the sum of $80,000 to Naseer and his counsel to resolve the adversary proceeding 08-01760 pending in the United States Bankruptcy Court for the Southern District of Florida. This e-mail further confirms that a $20,000 carveout of the monies thereafter payable to Mirabella shall be paid simultaneously to Shaw Gussis.

Appellee Br., Group Ex. B 23. By December 31, 2008, Mirabella had incurred $26,572.30 in legal fees and other expenses. Id. 18.

On January 20, 2009, Shaw Gussis filed a motion to withdraw as Mirabella's counsel. The motion included an assertion by Shaw Gussis of a lien on the interpleaded funds. Shaw Gussis served the motion on Mirabella and on Naseer's counsel. See Appellant Br. 5, Appellant Reply 12-13, Appellee Br. 2. The bankruptcy court granted Shaw Gussis' motion on January 28, 2009.

Mirabella and Naseer later entered into a settlement and agreed to divide the interpleaded funds. On May 12, 2009, the bankruptcy court entered an order effectuating the settlement. The order provided that Mirabella would receive $60,000. On May 14, 2009, before the Clerk disbursed the settlement proceeds, Shaw Gussis filed a motion asserting statutory and equitable liens amounting to $19,505.80 on Mirabella's portion of the proceeds. Appellee Br., Group Ex. C 1.

On May 26, 2009, the bankruptcy court ruled that Shaw Gussis had not established an entitlement to an attorney's lien under the Illinois Attorney's Lien Act.

The court ruled that the Act requires strict compliance with its requirements before a statutory lien may attach. May 26, 2009 Tr. 5. The court concluded that Shaw Gussis had not strictly complied with the statute's requirements, because "the parties against whom the attorney's clients may have had suits, ...


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