In re: Craighton Thomas Boates
AZ-15-1279-KuJaJu
9th Cir. BAPJul 8, 2016Background
- Debtor Craighton Boates paid Schian Walker, P.L.C. a $60,000 flat fee under a November 5, 2014 retainer letter for defense in anticipated nondischargeability litigation.
- The retainer letter described the flat fee as covering "the value of all work we will perform through the conclusion of the Adversary Proceeding" but did not expressly mention litigation costs.
- Schian Walker’s separate, incorporated Billing Policies and Procedures stated clients are liable for "all out-of-pocket costs incurred in connection with the matter." Boates acknowledged both the letter and the Billing Policies.
- Chapter 7 Trustee Dale Ulrich appealed, arguing (inter alia) the retainer was an executory contract because of the costs provision. The Panel’s June 9, 2016 opinion construed the contract to require Boates to pay costs.
- Schian Walker moved for rehearing, arguing the $60,000 was intended to cover fees and costs and asserting extrinsic evidence of the parties’ intent; it claimed the Panel misapprehended that point.
- The Panel denied rehearing, holding that even if the retainer did not obligate Boates to pay costs (and thus was non-executory), the prepaid contractual right to future legal services still became property of the bankruptcy estate under Ninth Circuit precedent, so the original result stands.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the retainer obligated Boates to pay litigation costs | Ulrich: contract (including Billing Policies) required debtor to pay costs, making the retainer executory | Schian Walker: $60,000 flat fee covered both services and costs (now relying on extrinsic evidence) | Panel previously construed the contract to include costs; on rehearing, held result would be same even if no costs obligation because contract rights are estate property |
| Whether the retainer was an executory contract | Ulrich: yes, because future obligations (including costs) remained | Schian Walker: disputes executory characterization; urges alternate interpretation | Panel: may have erred on executory label, but any error is harmless because prepaid contract rights are estate property |
| Whether prepaid contractual rights to future services are property of the bankruptcy estate | Ulrich: prepaid rights become estate property | Schian Walker: impliedly contests or focuses on intent about costs impacting characterization | Panel: follows Ninth Circuit — prepaid contractual rights are estate property regardless of executory status |
| Whether rehearing warranted to consider extrinsic evidence of parties’ true intent about costs | Schian Walker: extrinsic evidence shows fee covered costs; requests rehearing | Ulrich: opposed implicitly | Panel: denied rehearing; extrinsic evidence unnecessary because outcome unchanged under precedent |
Key Cases Cited
- Gordon v. Hines (In re Hines), 147 F.3d 1185 (9th Cir. 1998) (prepaid contractual right to future legal services becomes estate property)
- Rau v. Ryerson (In re Ryerson), 739 F.2d 1423 (9th Cir. 1984) (prepetition contract rights are estate property)
- Sliney v. Battley (In re Schmitz), 270 F.3d 1254 (9th Cir. 2001) (discussing Ninth Circuit precedent on contract rights in estate)
- Gladstone v. U.S. Bancorp, 811 F.3d 1133 (9th Cir. 2016) (debtor’s prepetition rights under life insurance policies were estate property)
- First Ave. W. Bldg., LLC v. James (In re Onecast Media, Inc.), 439 F.3d 558 (9th Cir. 2006) (rejection does not divest estate of rights existing on petition date)