2009 Chapter 11 Recent Developments (Part I)

Issues:

(1)

"Whether the Court can use § 105(a) to enforce an alleged promise made in court, but not in a contract..."

(2)

Whether condemnation counsel's charging lien could be enforced.

Rules:

(1)

In quoting the Restatement (Second) of Contracts § 2, the court noted that "'[e]ven if a present intention is manifested, the reservation of an option to change that intention means that there can be no promisee who is justified in an expectation of performance."

(2)

Under NY law, an attorney's charging lien is presumed to be valid and is a vested property right. In determining whether to grant an attorney's charging lien priority over another party's rights to the proceeds of a judgment, the court may take into account equitable considerations, the most significant being "whether the attorney's services created the funds at issue and the extent to which allowing another party to recover the entire fund created by the attorney's efforts would be inequitable."

Holding: Although the court did not say whether § 105(a) could be used to enforce an alleged promise made in open court, the court, in assuming that it could be done, nonetheless denied the Lender's request on other bases, including the Lender's lack of standing and the nature of the statements that were made. The debtor's and principal's cross-motions were denied since they contravened the releases in the settlement. The condemnation counsel's charging lien was enforced.

Reasoning: To the extent that the Lenders seek to enforce the settlement agreement, the court approved the Lender's motion. However, the Lender's lacked standing to seek to enforce the principal's statements because, if enforced, it would be for the benefit of the estate, not the Lenders. In any event, the principal's statements were not so unequivocal that they are binding. With regard to the condemnation counsel's charging lien, the court found that counsel's efforts resulted in incremental increases in the funds that are available. And, also, the facts at issue in this case did not justify a departure from the general rule allowing such a lien, which necessarily reduced the Lenders' recovery. Thus, the charging lien was allowed despite the court's trepidation in tagging the Lenders with paying the condemnation counsel's fees despite the fact that the principal told the court that he would take care of such expenses. But, the court noted that without more, it was forced to allow the lien.

Raymond Management Services, Inc. v. William A. Pope Co. (In re Raymond Professional Group, Inc.), 2008 WL 4968001 (Bankr. N.D. Ill. 2008)

Facts: Raymond Professional Group, Inc. (the "Debtor" or "RPG") was the 100% shareholder of the plaintiff, Raymond Professional Group-Design/Build, Inc. ("RPG-Design/Build" or "Plaintiff"), who was also in chapter 11. The Plaintiff sued its subcontractor, William A. Pope Co. ("Pope"), asking the court to vacate an arbitration award that had been entered against the Plaintiff. The arbitration panel entered an award requiring the Plaintiff to pay Pope around $3.6 million dollars (the "Award"). Pope moved for summary judgment.

Issues: Whether the Plaintiff can show from the face of the arbitration award that the arbitrators exceeded their power or otherwise acted by undue means.

Rules:

(1)

Under both the Illinois Arbitration Act and the Federal Arbitration Act, grounds for vacating an arbitration award are extremely narrow and require a showing that: "'(1) The award was procured by corruption, fraud or other undue means... or (2) The arbitrators exceeded their power.'" "Neither error nor clear error nor gross error is a ground for vacating an award."

a.

"'Undue means' refers to some aspect of arbitrator's decision or decision-making process which