Opinion ID: 515110
Heading Depth: 2
Heading Rank: 1

Heading: Effect of the Claim Adjuster's Letter

Text: 26 When Sonn was employed to represent the trustee, counsel was informed that the Estate had no funds with which to pay him for his services in pursuing this claim [against Voth in the state court] on behalf of the Estate. The trustee also told Sonn he would have to be appointed by the bankruptcy court and that his fees would have to be approved by the court. Sonn was advised that it had been the trustee's experience that the Court would likely approve a standard one-third contingency fee of any funds recovered on behalf of the Estate. Sonn agreed to represent the trustee on these terms. 27 A trustee may employ an attorney on a contingent fee basis with the bankruptcy court's approval. 11 U.S.C. Sec. 328(a) (1984). The trustee's application for Sonn's appointment was approved on November 22, 1985. The application stated that Sonn would receive as a contingent fee, one-third ( 1/3) of any recovery in excess of the [$65,000] claim of United Pacific Insurance Company.... The order noted that the appointment was approved subject to the terms and conditions set forth in said application and 11 U.S.C. Sec. 328. Thus, the bankruptcy court and the trustee faithfully complied with section 328 in employing Sonn. 28 The Wolfs argue that the contingent fee agreement was invalid at its inception because there was no new consideration for Sonn's employment by the trustee to pursue their claim against Voth. They contend that Sonn had already agreed to pursue their entire claim against Voth on an hourly fee basis pursuant to his contract with U.P. The Wolfs base this contention on the contents of a letter sent by U.P.'s claim adjuster to the Wolfs' attorney and to the trustee. The Wolfs rely on the following language from the letter: 29 In the event United Pacific was successful in recovering any money from Voth Brothers or the Wolf subcontract that are in excess of the loss, costs, and expenses incurred by United Pacific in pursuing such claim or cause of action, such funds would be made available or turned over to the trustee in bankruptcy. 30 Contrary to the Wolfs' interpretation, this letter does not obligate Sonn to pursue the Wolfs' claim. The debtors were already required to indemnify U.P. by the terms of their existing bond. U.P. had no duty to pursue the Wolfs' claim on behalf of the estate because the trustee had no funds with which to post the collateral required by the terms of the continuing agreement of indemnity. 31 U.P. was under no duty to pursue its claim against Voth beyond securing a release of all claims against it. Moreover, the letter did not provide for the trustee's approval of any settlement for less than the Wolfs' claim. 32 Finally, the letter did not indicate that the trustee had approved the alleged agreement that Sonn represent the Wolfs. Upon filing of the bankruptcy petition, the trustee, and not the Wolfs, possessed the rights to any claim that the Wolfs had against Voth. Contrary to the claim adjuster's conclusion, Sonn had no enforceable duty to pursue the Wolfs' claim against Voth prior to the court's approval of his employment by the trustee. Because of the risk that prosecution of this claim would be unsuccessful, and in view of the fact that the Wolfs had no assets, no other lawyer was willing to undertake representation of the estate even, on a contingent fee basis. The record supports the district court's finding that Sonn furnished adequate consideration for the contingent fee agreement by promising to provide representation in the action against Voth to recover more than the amount owing to U.P. 33