In the

United States Court of Appeals

For the Seventh Circuit

No. 99-2363

IN RE:

HOLSTEIN MACK & KLEIN, a partnership,

Debtor.

AMERICAN NATIONAL BANK & TRUST CO.

OF CHICAGO,

Plaintiff-Appellee,

v.

ROBERT A. HOLSTEIN & ASSOCIATES, P.C.,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern

Division.

No. 98 C 8141--John A. Nordberg, Judge.

Argued January 13, 2000--Decided November 14,

2000

 Before BAUER, POSNER, and ROVNER, Circuit

Judges.

 ROVNER, Circuit Judge. Robert Holstein

was a principal in the now-defunct

Chicago law firm of Holstein Mack & Klein

("HMK"). When that firm dissolved in

1996, it owed the American National Bank

and Trust Company of Chicago ("ANB" or

"the bank") more than $1.5 million. After

litigation over the debt had commenced,

the bank entered into a forbearance

agreement with, among others, Robert

Holstein and his new firm, Robert A.

Holstein & Associates ("RAHA"). In

exchange for the forbearance, the bank

was given a secured interest in the fees

that RAHA earned during the term of that

agreement. RAHA and the bank also agreed

to divide the fees realized from certain

cases in which RAHA had succeeded HMK as

counsel. Shortly after the agreed-upon
forbearance period expired, RAHA was

awarded substantial fees in one of these

cases. The bank claims entitlement to the

entire award based on the expiration of

the forbearance period and its security

interest in RAHA’s accounts receivable.

RAHA, on the other hand, contends that it

remains entitled to a quarter of the

award based on the language of the feesharing provision, which calls for

division of the fees regardless of when

those fees are received. The bankruptcy

and district courts found in favor of the

bank, as do we.

I.

 Until its dissolution, HMK principally

engaged in personal injury and class

action litigation. Beginning in 1989, ANB

made a number of loans to HMK and of

course took a security interest in the

firm’s property, including its accounts

receivable. In 1996, when HMK defaulted

on its loan obligations, ANB terminated

the firm’s line of credit and the firm

dissolved. By this time, HMK owed the

bank more than $1.5 million. ANB sued HMK

and its principals in state court, and in

furtherance of its security interest, the

bank signaled that it planned to contact

HMK’s former clients and have them pay

any fees they owed the defunct firm to

ANB directly. This did not bode well for

the firm’s principals, who had taken many

of HMK’s clients with them when the firm

dissolved. 

 Settlement negotiations ensued and

culminated in a January 3, 1997

forbearance agreement between ANB, HMK,

Holstein, and RAHA, among other parties.

In that agreement, the parties

acknowledged that the loans ANB had

extended to HMK were in default and the

entire amount of HMK’s debt was due and

payable at once. They also confirmed that

the bank’s security interest in HMK’s

accounts receivable, as well as the

guaranties given by HMK’s principals,

remained in full force and effect.

Furthermore, paragraph 13 of the

agreement granted to ANB a new, firstpriority security interest in RAHA’s

"accounts, chattel paper, contract

rights, and general intangibles" insofar

as they arose from professional services

that the new firm provided during the

period of the forbearance agreement.
 In exchange for the affirmation of

existing obligations and the new interest

in RAHA’s receivables, ANB agreed

temporarily to forbear from the full

exercise of its rights to collect on the

overdue debt. It consented to a stay of

the two collection actions that were

pending in state court, and it agreed to

lengthen the time given HMK and its

principals to make good on the debt.

para.para. 2, 11, 14.

 The bank also gave RAHA access to monies

to which ANB would otherwise have been

entitled to lay claim, in whole or in

part, pursuant to its security interests.

Approximately $135,000 remained in HMK’s

existing account with ANB, for example.

Rather than taking all of this money to

reduce the outstanding debt, the bank

took only $45,000. The remaining $90,000

was transferred to a new account for RAHA

at ANB, which RAHA subsequently used to

handle day-to-day operating expenses. See

para. 12. The agreement also provided for

the sharing of fees received by HMK and

RAHA (after the associated costs were

paid) according to percentages specified

in the agreement. para. 16. Paragraph

16(a) of the agreement provided that

where the net fees exceeded $100,000, the

bank would take 75 percent, while RAHA

would take 25 percent. Paragraph 16(e),

which lies at the heart of the instant

dispute, specified that with respect to

certain pending lawsuits identified in an

attachment to the agreement, the fees

paid to HMK and RAHA "shall be

distributed" between ANB and RAHA in

accordance with the fee-sharing

arrangement "without regard to the date

upon which the [money] is received . . .

." (We shall refer to this as the

"[whenever] received" provision of the

agreement.) The upshot of these

provisions was that RAHA obtained access

to vital working capital (by ANB’s

account, some $400,000) to see the firm

through its early days as a spinoff from

the defunct HMK.

 Provided that no further defaults

occurred, the forbearance period was

originally to have expired no later than

June 30, 1997. para. 10. By that time, it

was hoped, HMK and its principals would

have paid off HMK’s outstanding debt or,

in the alternative, the parties would

have extended the agreement. para. 11.

The parties in fact did extend the term
of the forbearance period for at least

two months, through August 31, 1997. In

late September, however, ANB notified HMK

and RAHA that the forbearance period had

expired. Paragraph 38 of the agreement

made clear what the bank’s rights were in

this circumstance: HMK’s liabilities

would become due and payable immediately,

and ANB would be entitled to pursue all

of the rights and remedies available to

it under the original loan agreements,

the forbearance agreement, and the

Illinois Commercial Code.

 One of the cases listed in the

forbearance agreement from which net fees

were to be shared by the bank and RAHA

"[whenever] received" was a lawsuit that

had been pending in the Circuit Court of

Cook County, Illinois, since 1992 under

the name Trucway v. GECAL. That case

eventually was settled, and in a series

of orders entered in July, August, and

September 1997, the state court approved

a fee award of just under $700,000,

payable jointly to both HMK and RAHA.

Payment of the fees was delayed, however,

by uncertainty as to who had a right to

claim those fees. HMK’s share of the

award--$469,279.48--was ultimately turned

over to ANB in January 1998. The

appropriate disposition of RAHA’s portion

of the net fees--which came to

$108,696.29--remained in controversy,

however, and that sum was placed in

escrow. There was no dispute that RAHA

earned its share of the Trucway fees

during the term of the forbearance

agreement and that, as a result, ANB had

a security interest in those fees that

the bank could enforce once the period of

forbearance concluded. Notwithstanding

that interest, RAHA believed that it

remained entitled to a 25-percent

allocation of those fees under Paragraph

16(a) and (e) of the agreement. 

 The bankruptcy court and the district

court each concluded that ANB was

entitled to take the full amount of the

fees awarded to RAHA. In the bankruptcy

court’s view, the forbearance agreement

granted ANB a secured interest in any and

all fees that RAHA earned during the life

of the agreement. That interest

necessarily extended to the fees that

were allocated to RAHA under Paragraph

16(a). In other words, RAHA had a right,

so long as the forbearance period lasted,

to 25 percent of the fees awarded to it
in the Trucway litigation, but that

allocation was still subject to ANB’s

security interest. Consequently, once the

forbearance term expired, the bank was

free to enforce its interest and take

RAHA’s entire share of the Trucway fees:

[This] is the only reading that will give

effect to the Agreement’s provisions

without adding new restrictive terms to

which the parties did not agree. For

example, it is significant that nothing

in the Agreement excludes fees placed in

the RAHA account pursuant to para. 16(a)

from ANB’s security interest. It should

also be noted that prior to entering into

the Agreement, ANB already had a security

interest in HM&K’s share of any fee

award. Thus, the only reason for creating

the new security interest in para. 13 of

the Agreement would be to allow ANB to

proceed against RAHA’s portion of fee

awards.

American Nat’l Bank & Trust Co. of

Chicago v. Law Offices of Robert A.

Holstein & Assocs., P.C. (In re Holstein

Mack & Klein), Adv. No. 98 A 00159,

Memorandum Decision, at 10 (Bankr. N.D.

Ill. Nov. 18, 1998) (Lefkow, J.). The

district court agreed. No. 98 C 8141,

1999 WL 284721 (N.D. Ill. April 28)

(Nordberg, J.).

II.

 RAHA’s appeal turns on the proper

construction of the terms of the

forbearance agreement. As such, it

presents a question of law, and our

review of the decisions below is de novo.

E.g., Bourke v. Dun & Bradstreet Corp.,

159 F.3d 1032, 1036 (7th Cir. 1998).

 RAHA’s principal argument is

straightforward. Under Paragraph 16(a) of

the agreement, RAHA had a right to 25

percent of the net fees it realized in

the Trucway litigation and the bank had a

right to 75 percent of those fees. RAHA

acknowledges that Paragraph 13 granted to

ANB a security interest in the fees that

RAHA earned during the life of the

agreement, including the Trucway fees,

and that the bank was free to enforce

that interest once the forbearance period

expired. But in RAHA’s view, ANB’s

security interest is effectively limited

by the language in Paragraph 16(e)

indicating that fees realized from
Trucway and the other identified cases

"shall be distributed" according to the

formula specified in Paragraph 16(a)

"without regard" to when those fees were

received. (Emphasis supplied.) The sole

purpose and effect of this "[whenever]

received" clause, in RAHA’s view, was to

make clear that RAHA was entitled to a

25-percent allocation even if the fees

were received after the forbearance term

had expired. As RAHA sees things, then,

one can permit ANB to enforce its

security interest by taking RAHA’s 25-

percent allocation of the Trucway fees

only by reading Paragraph 16(e) out of

the contract altogether.

 We disagree. As RAHA concedes, Paragraph

13 granted ANB a security interest in the

fees that RAHA earned during the life of

the forbearance agreement, and "[t]he

sec. 13 security interest, on its face,

unambiguously applies to the disputed

Trucway fees." RAHA Br. 6. Possessed of

that interest, ANB had a right under

Paragraph 38 to reach RAHA’s share of the

Trucway fees once the forbearance period

had come to an end. Nothing in either

Paragraph 13 or Paragraph 38 restricted

the bank’s rights in that regard. Nor do

we find such a limitation in Paragraph

16(e). Paragraph 16 says nothing at all

about ANB’s security interest. It simply

serves to allocate to RAHA a share of the

fees awarded in Trucway and like cases.

So long as the forbearance period

continued, RAHA would enjoy the use of

those fees, much as ANB had consented to

grant RAHA the use of $90,000 of the

funds left in HMK’s account with the

bank. But even if we assume, as RAHA

argues, that fees in these cases were to

be divided as specified by Paragraph 16

not only during the period of

forbearance, but after that period as

well, the percentage of such fees

allocated to RAHA was still subject to

ANB’s security interest. Thus, assuming

that RAHA retained the right to a 25-

percent distribution of the Trucway fees

once the forbearance period had expired,

ANB had the right, by virtue of its

security interest, to step in and collect

RAHA’s percentage, just as the bank had

the right to take any fees that RAHA

clients owed to the firm for work it

performed during the forbearance period.

para.para. 13, 38; see 810 ILCS 5/9-502.

In the exercise of its discretion,

perhaps, ANB might have elected not to

claim RAHA’s share of the Trucway fees.
Or perhaps other assets might have proven

sufficient to satisfy the outstanding

debt. In any case, whatever right RAHA

had to an allocation of the Trucway fees,

the bank’s undisputed security interest

in that allocation gave it the right,

upon the close of the forbearance period,

to keep those fees./1 

 RAHA secondarily and alternatively

argues that if the "[whenever] received"

clause does not resolve what it perceives

to be the conflict between paragraphs 13

and 16(e) of the agreement, then there is

an ambiguity as to the relationship

between the two provisions which opens

the door to parol evidence as to the

parties’ understanding of the agreement.

See Bourke, 159 F.3d at 1036-37. We

discern no ambiguity in the agreement,

however. Whatever questions Paragraph

16(e) might raise as to RAHA’s right to

receive its allocated percentage of

attorney fee awards after the forbearance

period ended are answered by Paragraphs

13 and 38, which granted ANB a security

interest in those fees together with the

right to enforce that interest. Nothing

in the contract remotely suggests that

this interest was anything less than a

full, first-prior security interest that

ANB could enforce in the usual ways.

Thus, once the bank was no longer

contractually obligated to forbear,

RAHA’s right to a 25-percent allocation

of the Trucway fees was really a right in

name only, wholly subordinate to the

bank’s right to enforce its security

interest. 

III.

 Under the plain terms of the forbearance

agreement, ANB was entitled to take

RAHA’s share of Trucway fees in

furtherance of the bank’s security

interest, as both the bankruptcy and

district courts concluded.

AFFIRMED

/1 

We need not consider whether the bank was entitled to reach other funds allocated to RAHA under

the agreement, including monies that had already

been distributed to the firm during the forbearance period.