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In re Solis

July 9, 2010

IN THE MATTER OF: LUIS E. SOLIS, ET AL.,
APPEAL OF: JOSEPH M. O'CALLAGHAN. DEBTORS.



Appeal from the United States District Court for the Northern District of Illinois, Western Division. No. 3:09-cv-50164-Philip G. Reinhard, Judge.

The opinion of the court was delivered by: Hamilton, Circuit Judge

ARGUED MAY 28, 2010

Before MANION, WILLIAMS, and HAMILTON, Circuit Judges.

The legal profession has not treated debtor Luis Solis well. The secretary of an attorney who settled Solis' workers' compensation claim stole nearly half of the amount he was owed. Then a second attorney whom Solis had hired to recover the rest of the stolen settlement-appellant Joseph O'Callaghan-asserted an attorney fee claim for a percentage of the entire amount of the settlement, including the portion that Solis had already been paid before he hired that second attorney. The legal issue in this appeal is whether the second attorney "recovered" money for his client when he established the client's entitlement to the sum of money already in the client's possession. Appellant O'Callaghan insists that the answer is yes. We disagree. Under the terms of the contingent fee agree-ment in this case, O'Callaghan is entitled to a percentage of only the money he actually recovered from other parties, not a percentage of the money Solis had received earlier. We affirm the judgment of the district court.

This appeal comes to us from a bankruptcy proceeding in which the court resolved O'Callaghan's claim for an attorney fee and costs on cross-motions for summary judgment. The relevant facts are not in dispute. Luis Solis suffered substantial spinal injuries on the job in 2001 and 2002. He hired an attorney to assert a workers' compensation claim. That claim was eventually settled in 2004 for a net payment to Solis of $107,980 after attorney fees and costs. Solis' attorney issued him a check in that amount, but that check was stolen by the attorney's secretary, Maura Mora, and deposited into her personal bank account. In February 2005, after Solis asked about his money, Moracaused a cashier's check to be issued to Solis in the amount of $62,410. She told Solis the cash-ier's check was a partial payment of the settlement proceeds. Solis never received the remainder of the settlement funds.*fn1

Afterhe received the check from Mora, Solis retained a second attorney, appellant O'Callaghan, to recover the rest of the settlement that was owed to him. O'Callaghan took the case on a contingent fee basis. Under the written contingent fee agreement, O'Callaghan would receive 40 percent of "any gross amount recovered in the event of suit being filed." "Gross amount" was defined as "the total amount of money received on [the] case before deduction of any expenses." O'Callaghan filed suit in Illinois circuit court against a number of named and unnamed defendants. In that suit, he requested money damages for the unpaid portion of the settlement and a declaration that Solis was legally entitled to retain the $62,410 he had already received. In 2007, the parties to that state court action settled the case for a new payment of $60,000 in cash to Solis and an agreement by the defendants to relinquish any claims they might have had to the sum of $62,410 already in Solis' possession.

Before the settlement funds were transferred to Solis, however, he filed for Chapter 7 bankruptcy protection. The bankruptcy trustee stepped into Solis' shoes and recovered the promised settlement payment of $60,000 in cash. O'Callaghan then filed a claim against the bankruptcy estate for $49,719.63 in attorney fees and costs. His claim seeks 40 percent not only of the new $60,000 cash that was obtained, but also of the $62,410 that Solis had received before he even contacted O'Callaghan (plus $755.63 in expenses). The bankruptcy trustee objected that O'Callaghan was entitled at most to $24,755.63- equal to 40 percent of the $60,000 cash actually received under the settlement, plus the same expenses. The parties filed cross-motions for summary judgment.

The bankruptcy court denied O'Callaghan's motion, granted the trustee's motion in part, and allowed O'Callaghan's claim in the amount of $24,755.63. The district court affirmed on appeal, and O'Callaghan has filed this further appeal. We have jurisdiction because the bankruptcy court's decision and the district court's decision were both appealable final decisions that completely resolved O'Callaghan's claim. See, e.g., Zedan v. Habash, 529 F.3d 398, 402 (7th Cir. 2008); In re Golant, 239 F.3d 931, 934-35 (7th Cir. 2001). We review the bankruptcy court's grant of summary judgment de novo. In re Midway Airlines, Inc., 383 F.3d 663, 668 (7th Cir. 2004).

We first address O'Callaghan's misplaced argument that the trustee lacked standing to challenge his claim because (1) the trustee was not a party to the fee agreement; and (2) the $62,410 on which the disputed portion of the fee was based was not part of the bankruptcy estate. Under O'Callaghan's theory, apparently no one would have standing to object to his claim, which would certainly make it easier for the claim to be approved. But it is irrelevant that the trustee was not personally a party to the fee agreement. A bankruptcy trustee acts as the debtor's representative regarding such claims. See In re New Era, Inc., 135 F.3d 1206, 1209 (7th Cir. 1998) (noting that a trustee has the nearly exclusive right to represent the debtor in court, and that it was "sanctionably clear" that another lawyer had no right to appeal in debtor's name). It is also irrelevant whether the first $62,410 was part of the bankruptcy estate. The $60,000 against which O'Callaghan asserted his claim is of course part of the estate. The trustee had standing to contest O'Callaghan's claim.

O'Callaghan's claim turns on the interpretation of a contract for fees, so we look to Illinois contract law. See Grogan v. Garner, 498 U.S. 279, 283-84 & n.9 (1991). In Illinois (as in all states), a court gives contract terms their "common and generally accepted meaning," as informed by the "context of the contract as a whole." Krilich v. American National Bank & Trust Co. of Chicago, 778 N.E.2d 1153, 1164 (Ill. App. 2002). Illinois construes attorney contingent fee agreements strictly in favor of clients in order to protect them from unscrupulous attorneys who might manipulate the agreement terms in their favor. See Guerrant v. Roth, 777 N.E.2d 499, 504-05 (Ill. App. 2002).*fn2

Under his agreement with Solis, O'Callaghan was to receive a percentage of the money "recovered." The bankruptcy court held that O'Callaghan "recovered" only the $60,000 in cash obtained after Solis hired O'Callaghan, and that he at most "clarified title" to the earlier payment of $62,410. The district court agreed: "Construing the fee agreement to include this sum as an amount recovered stretches the terms of the agreement too far.

The language of the agreement makes no mention of calculating the fee based on losses avoided. Appellant's efforts as to the $62,410 did not result in a recovery but at best a loss avoidance." Judge Reinhard also wrote: "The ordinary meaning of 'recover' is to get something back that is not currently in one's possession. The ordinary meaning of 'recovered' would not encompass retaining something already in one's possession."

We agree with the bankruptcy and district courts. Read in context-as part of a contingent fee agreement-the term "recovered" most naturally encompasses situations in which the client actually receives cash or property from some other parties as a result of the attorney's efforts. That the Illinois courts read contingent fee agree-ments strictly in favor of the client supports this interpretation. This contingent fee agreement cannot fairly be read as an agreement by Solis to pay O'Callaghan 40 percent of the $62,410 that Solis had already received. Nor can it fairly be read as a promise to pay O'Callaghan 40 percent of that sum for securing Solis' title to the money or for defending him against any claims for that money. The agreement makes no mention of any such claims having been asserted against Solis at the time he and O'Callaghan entered the agreement.

For purposes of this argument, we may assume without deciding that attorney fee agreements for defense of claims or counterclaims could have some contingent element that would depend on the ultimate outcome of the case. We are confident that if such agreements are permissible (for example, in commercial litigation in which the client is a sophisticated consumer of legal services), they would still require clear and explicit language that the client fully understands. In this case, there was certainly no clear or explicit ...


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