UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
JULIE BOUDOUSQUIE GERDSEN
a/k/a Diamond Construction Company
DEBTOR CASE NO. 95-20957
This matter is before the Court on the application of Ronald J. Denicola ("Denicola") for attorney fees for services provided to the debtor in state court litigation against Provident Bank prior to the filing of her Chapter 7 petition. The trustee herein settled the cause with Provident Bank for the sum of $20,000.00. Denicola then filed his application with this Court seeking an award of one-third of the settlement amount, or $6,666.66.
The record in this case reveals that the debtor filed her Chapter 7 petition in this Court on August 30, 1995. On April 24, 1996, the trustee filed a Motion to Approve Compromise in regard to the dispute between the debtor and Provident Bank. The debtor filed a Response to the trustee's Motion on May 8, 1996, objecting to the settlement. The Motion and Response were heard on June 4, 1996, and on July 3, 1996, this Court entered an Order Overruling Objection, which approved the compromise and settlement of the debtor's claim against Provident Bank for the sum of $20,000.00.
Denicola filed his Motion to Approve Attorney Fees on July 24, 1996, along with an Affidavit of the debtor setting out their agreement that he represent her in the action against Provident Bank. Denicola had agreed to represent the debtor on a contingency basis whereby he would receive one-third of any settlement or collection of a judgment paid by Provident Bank. Denicola did in fact represent the debtor in that action, and from July 1993 he and his firm expended some 78.75 hours in legal time. (Exhibit A, Fee Statement dated 02/01/06).
Of that total, however, 13.5 hours expended from September 19, 1995 through January 16, 1996, may not be considered herein as they were accumulated after the debtor filed her bankruptcy petition. At that point the claim against Provident Bank became property of the estate and not of the debtor personally. The trustee did not apply to have Denicola represent the estate. As above Denicola appeared in opposition to the trustee=s motion for approval of the settlement the trustee had worked out with Provident Bank and asserted that the claim was worth significantly more than the proposed settlement figure. This objection was overruled.
Denicola's Motion was heard on August 6, 1996. The Court allotted time for Denicola and the trustee to brief the matter, after which it was to be submitted for consideration. Denicola filed his Memorandum in Support of Motion to Approve Attorney Fees on August 16, 1996. The trustee declined to file a brief, and on September 17, 1996, an Agreed Order of Submission was entered.
Since Denicola was not hired to represent the estate in this matter he may only recover to the extent that he has a valid lien on the proceeds. Therefore the issues before this Court are whether Denicola has a lien on the proceeds of the settlement entered into by the trustee and Provident Bank, when such lien attached to those proceeds, and whether he is due the full amount of the fee under the contract. An attorney's lien is provided for in KRS 376.460 which states in pertinent part:
Each attorney shall have a lien upon all claims, except those of the state, put into his hands for suit or collection or upon which suit has been instituted, for the amount of any fee agreed upon by the parties or, in the absence of such agreement, for a reasonable fee. If the action is prosecuted to a recovery of money or property, the attorney shall have a lien upon the judgment recovered, legal costs excepted, for his fee.
Denicola cites Labach v. Hampton, Ky.App., 585 S.W.2d 434, 435 (1979), for the proposition that an attorney's lien is an integral part of the subject matter of the action. In addition, the lien relates back to the time the contract between attorney and client arose. Exchange Bank of Kentucky v. Wells, Ky.App., 860 S.W.2d 785, 787 (1993). The fact that the settlement was entered into without the participation or even the knowledge of the attorney in question does not affect the lien. Jellico Coal Mining Co. v. Pope, 292 Ky. 171, 166 S.W.2d 287,289 (1942). It is clear that Denicola has a lien on the proceeds of the settlement, and that it arose when he entered into the contract with the debtor.
The Labach court was faced with a situation somewhat similar to the case at bar. There the attorney had a lien on the proceeds of a settlement to secure the payment of his fee; however, he did not negotiate the settlement. He had been employed under a contingent fee contract to continue litigation begun by another attorney. He in turn was discharged by his client before the litigation was terminated, and a third attorney obtained an offer of settlement which the client accepted. The court observed that "the discharged attorney cannot rely upon the contract to collect a full fee but must deduct from the contract fee the reasonable cost of services of other attorneys required to complete the contract." Labach, supra, at page 436.
Denicola was not discharged, but he did not complete the Provident Bank litigation. He did not negotiate the settlement; the trustee did. Therefore, this Court must put a value on the efforts of the trustee in that regard, and subtract it from the amount due Denicola under the contingent fee arrangement. This Court believes that a fee of $4,000 is reasonable when the value of the trustee=s efforts is subtracted from the total fee. An order in conformity with this opinion will be entered separately.
By the Court -
Ronald J. Denicola, Esq.
Michael L. Baker, Esq., Trustee