Spiller McProud v. Siller (In re CWS Enterprises Inc.)
Spiller McProud v. Siller (In re CWS Enterprises Inc.),___F.3d___ 14-17045 (9th Cir. Sept. 14, 2017)
Ninth Circuit ringingly endorses allowance of prepetition contingent fee arrangements; holds 11 USC 502(b)(4) Fee Cap on prepetition attorneys fees, when client that owes attorneys fees to attorney thereafter files bankruptcy, seldom applies to contingent fee attorneys fees, earned by attorney prepetition. Commentators say the decision tackles a particularly cerebral question at the intersection of the Full Faith and Credit Act and Section 502(b)(4), the section of the Bankruptcy Code that puts a “reasonable value” cap on a prepetition claim for services by a debtor’s attorneys.
Without saying so explicitly, the Sept. 14 opinion by Circuit Judge Andrew J. Kleinfeld seems to stand for the proposition that a prepetition judgment or arbitration awarding contingency fees to a debtor’s counsel is not likely to be reduced under Section 502(b)(4) absent evidence that the fees were inflated by collusion. Arguably, the holding is equally applicable if the attorney does not have a judgment for contingency fees, only a claim based on a prepetition retention agreement.