Decided August 31, 2010 by a bankruptcy court in Tennessee in the Sixth Circuit

Following its defeat in Waldo, Clark & Washington’s Tennessee office rewrote its one-contract “straddle” retainer agreement to comply with the court’s directives by making these changes:

removing the non-refundable nature of the fees, adding the language advising that pre-petition attorneys’ fees were potentially subject to discharge, adding the language concerning the potential conflict with taking post-dated checks in some jurisdictions, and removing all carve-outs other than adversary proceedings and post-petition amendments.

To download this case brief, 20 other case briefs in our Bifurcation Case Law Summary, and the full text of all opinions, click the button below:

Download our free bifurcation case law summary

However, the court found that these changes were not sufficient:

[I]n order to be a true “straddle” fee arrangement bifurcating pre- and post-petition services, the contract must clearly identify the services to be included within the pre-petition fee and the services to be included within the postpetition fee. It must also unambiguously disclose, at a minimum, that all pre-petition fees must be paid prior to filing and any unpaid pre-petition fee will be discharged and that all post-petition fees, which are not subject to the discharge, will be billed only when services are rendered and only for the specific amount of time for each activity at an agreed upon hourly rate for attorneys and a considerably lesser agreed upon hourly rate for para-professionals.

Moreover, there were significant disclosures issues with various Form 2030s.

As with the Waldo case, fees were disgorged, contracts canceled, and post-dated checks returned. In addition, because Clark & Washington had not sufficiently addressed the mistakes made in Waldo, the court ordered a small punitive fine and repayment of prosecutorial expenses to the UST.

The concept of a one-contract agreement that “straddles” prepetition and postpetition services is not consistent with the segregated two-contract approach to modern bifurcation.

To download this case brief, 20 other case briefs in our Bifurcation Case Law Summary, and the full text of all opinions, click the button below:

Download our free bifurcation case law summary