Decided April 21, 2012 by a bankruptcy court in Florida in the Eleventh Circuit

This is the seminal ruling that established the foundations of the modern bifurcation.

After the first Walton ruling, Clark & Washington, P.C. changed its business practices by switching from one-contract retainers to two-contract retainers with segregated prepetition and postpetition contracts. It also started collecting payments using automatic debits from cliens’ bank accounts, rather than collecting post-dated checks prepetition. The law firm also added a “three option disclosure” to its prepetition agreement:

Under the modified procedure, the prepetition fee agreement describes the two-contract procedure in detail and sets forth the client’s three options for postpetition legal services. Those three options are: (i) the client can proceed pro se, (ii) the client can retain [the law firm], or (iii) the client can retain another firm. [The law firm] now gives its clients two weeks to exercise one of those three options; the debtor is no longer required to exercise one of those options on the same day the petition is filed.

The U.S. Trustee asked the judge to rule whether these new practices violated the court’s prior ruling, and in this amended opinion, the court held these new practices were permissible.

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

To prevent clients from being left without representation after the filing of their skeletal petition, the court also held that the law firm must:

include in its initial Rule 2016 statement that the firm will represent the client until the Court enters an order allowing the firm to withdraw from representation.

With these modifications, the court held that bifurcation of Chapter 7 bankruptcies were permissible, as:

In the end, there is no prohibition against a debtor making postpetition installment payments for postpetition services.

This case in the Middle District of Florida does not set a binding precedent, even in the Eleventh Circuit. However, it outlines guidelines that enable the postpetition payment of postpetition services, and is an oft-cited case because of its clear and compelling logic. This landmark case established the following pillars of the modern bifurcation: (A) the use of two contracts, including a prepetition contract making an offer solely to provide prepetition services that is signed before filing, and a postpetition contract making an offer solely to provide postpetition services that is signed after filing; (B) a commitment to 100% disclosure to the client and the court; (C) the use of automatic debits from a client’s bank account for postpetition payments; (D) granting clients a right of rescission after signing the postpetition contract and; (E) an agreement to represent the client until the Court allows the firm to withdraw.

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