MEMORANDUM OF DECISION
JOSEPH M. MEIER, Chief Bankruptcy Judge.
Before the Court are two objections. First, debtor Michael Von Jones' ("Debtor") Amended Objection to Claim Number 1 filed by claimant Wright Brothers Law Offices, PLLC ("WBLO"). Doc. No. 147. Second, Safaris Unlimited, LLC's ("Safaris") objection to WBLO's Motion to Turn Over Settlement Proceeds. Doc. No. 153. The Court heard oral argument on the matter on April 26, 2022, and thereafter took the matter under advisement.
The Court has considered the evidence and arguments put forth, and this Memorandum Decision sets forth the Court's findings, conclusions, and reasons for its disposition of the objections. Rules 7052; 9014.
Prior to filing his petition, Debtor was involved in state court litigation with Jeremy Sligar ("Sligar") and Overtime Garage, LLC. Mike Jones v. Jeremy Sligar and Overtime Garage, LLC, Twin Falls County Case No. CV42-16-1554 (the "Sligar Litigation").
Pre-petition, Safaris petitioned for and obtained a writ of execution, after which Safaris purchased Jones's rights to the Sligar Litigation at a sheriff's sale on June 17, 2017 by making a $2,500.00 credit bid. Also, Debtor was a party in another Idaho state court case to determine ownership of the Sligar Litigation. Safaris Unlimited, LLC v. Jones, 169 Idaho 644, 501 P.3d 334 (2021). Safaris had purchased Debtor's interest in the Sligar Litigation at a sheriff's sale with the intention of settling the lawsuit. The Idaho district court granted Debtor's motion to vacate the sheriff's sale, and Safaris appealed to the Idaho Supreme Court. While on appeal, WBLO incurred fees while providing services for Debtor in the Sligar Litigation.
The Idaho Supreme Court overturned the district court's decision and remanded for further proceedings. After the Idaho district court issued an order in accordance with the Idaho Supreme Court's instructions, Debtor appealed that order. While that appeal was pending, Debtor filed his chapter 13 petition. The automatic stay was lifted to allow the Idaho Supreme Court to determine ownership of the Sligar Litigation, and eventually the Idaho Supreme Court determined that Safaris would retain ownership rights, and that Debtor never had an interest in the Sligar Litigation.
Prior to the sheriff's sale ever taking place, Sligar and Safaris entered into a Conditional Settlement Agreement that provided that, if Sligar retained ownership rights of the litigation, Sligar would pay Safaris $100,000 and that "Safaris shall bear the risk of any attorney's liens or claims or other creditors of [Debtor], if any, against said amount."
WBLO filed a proof of claim in the amount of $33,093.60, representing the unpaid amount for legal services incurred by Debtor in the Sligar Litigation. WBLO's claim shows that the total amount is comprised of a secured portion of $32,724.60 for an attorney's lien pursuant to Idaho Code § 3-205, and an unsecured portion in the amount of $369.00 for a conservatorship. Debtor objected to the proof of claim.
Prior to confirmation, Debtor and WBLO stipulated as to the treatment of the proof of claim, the validity of which depended upon the Idaho Supreme Court's decision in determining ownership rights of the Sligar Litigation. The Second Amended Plan provided for the treatment of the proof of claim:
Doc. No. 109. Simply put, the Second Amended Plan recognized that Debtor had a contingent interest in the Sligar Litigation. This Court's Order Confirming Plan provides that "if the Idaho Supreme Court affirms the trial court's ruling or otherwise holds in favor of Safaris, then Safaris shall settle Debtor's claims in the Sligar Litigation action with Jeremy Sligar and Overtime Garage pursuant to the terms of the written Conditional Settlement Agreement[.]" Doc. No. 130, at p. 2.
Debtor objects to WBLO's proof of claim arguing that WBLO should seek to recover the attorney's fee amount from Safaris. WBLO first argues that its proof of claim should be allowed in full because Safaris has not remitted the amount from the settlement proceeds. Second, WBLO argues that this Court should enter an order requiring Safaris to remit the attorney's fee amount from the settlement proceeds. Safaris objected to WBLO's motion for turnover, arguing that it is under no obligation to remit any funds from the settlement proceeds because the rights associated with the Sligar Litigation, and the proceeds therefrom, were never part of the estate.
Analysis and Disposition
A. Debtor's Objection to Proof of Claim Number 1
When a bankruptcy petition is filed, a bankruptcy estate is created. § 541(a). The estate is "comprised of all the following property, wherever located any by whomever held: (1) . . . all legal or equitable interests of the debtor in property as of the commencement of the case." Id. The Supreme Court has noted that Congress intended the scope of § 541(a)(1) to be broad. United States v. Whiting Pools, Inc., 462 U.S. 198, 205, 103 S.Ct. 2309, 2313, 76 L. Ed. 2d 515 (1983). The Idaho Bankruptcy Court has previously addressed whether a debtor's cause of action and recovery thereon:
Porrett v. Hillen (In re Porrett), 564 B.R. 57, 69 (D. Idaho 2016).
In this case, at the time the petition was filed, all the parties agree Debtor held only a contingent interest in the Sligar Litigation. Debtor tried unsuccessfully, albeit rather fervently, to stake his rights to the Sligar Litigation. The Idaho Supreme Court, after several appeals, ruled against Debtor and in favor of Safaris. It is clear to the Court, then, based on the rulings made by the Idaho Supreme Court, that Debtor does not now have, nor ever had, a vested interest in the Sligar Litigation. Therefore, any claims made in the Sligar Litigation by the rightful plaintiffs, and any recovery thereunder, were never part of Debtor's estate.
WBLO argues that it should have a secured claim pursuant to § 1327, which provides:
(a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
§ 1327 (emphasis added). The Second Amended Plan, which was confirmed by this Court, provides:
Doc. No. 109 (emphasis added).
First, although plan confirmation vests all property of the estate in Debtor, the Second Amended Plan recognized that Debtor held only a contingent interest in the Sligar Litigation. Second, the Second Amended Plan contemplates WBLO having a perfected lien, and therefore a secured claim, on condition that there is some sort of award or settlement in Debtor's favor. Not only did this never occur but, again, Debtor never even had an interest in the Sligar Litigation. There is no perfected lien because there was no settlement or award of damages in Debtor's favor.
Additionally, the Second Amended Plan provides that, "In the event there is no settlement or award of damages in Debtor's favor as described above, [WBLO] shall be paid $33,093.60 as a general unsecured claim[.]"
Finally, Idaho Code § 3-205 provides a mechanism for attorneys to attach a lien to the proceeds of their client's causes of action:
Idaho Code § 3-205. With regard to this Idaho statute, this Court has previously stated, "The plain language of [Idaho Code § 3-205] allows only for a lien in favor of a lawyer against that lawyer's own client." Elsaesser v. Raeon (In re Goldberg), 235 B.R. 476, 484 (Bankr. D. Idaho 1999); see also Hopkins v. Thomason Farms, Inc. et al. (In re Thomason), No. ADV. 08-8032, 2009 WL 1851217, at *5-6 (Bankr. D. Idaho June 24, 2009) ("[Idaho Code § 3-205] recognizes that a charging lien in favor of an attorney may attach to the client's cause of action to secure the payment of attorneys' fees incurred by the attorney in procuring benefits for his client.").
In the Sligar Litigation, assuming that the settlement proceeds constitute a judgment in favor of Safaris, the proceeds emanating from that settlement are not derived from Debtor's cause of action; the Idaho Supreme Court determined that Debtor had no rights in the Sligar Litigation. Moreover, the settlement is not a verdict, report, decision, or judgment in favor of Debtor. If anything, it is in favor of Safaris. Therefore, applying the plain words and meaning of the statute, WBLO cannot have a lien in the settlement proceeds that may have been paid to settle the Sligar Litigation. ASARCO, LLC v. Celanese Chem. Co., 792 F.3d 1203, 1210 (9th Cir. 2015) ("A primary canon of statutory interpretation is that the plain language of a statute should be enforced according to its terms, in light of its context.").
The case law interpreting the statute informs this Court's decision. As the Idaho Supreme Court has explained:
Skelton sets forth five distinct requirements for the establishment of a valid charging lien:
Id. at 1079 (internal citation omitted).
The third requirement prescribed above is not satisfied. WBLO has not provided any evidence of an agreement between itself and Debtor that WBLO would be paid from the funds acquired upon successfully prevailing in the litigation. In fact, its submissions to this Court indicate just the opposite. See Doc. No. 149, WBLO's Motion for Turnover of Settlement Proceeds, p. 2 ("Debtor incurred the unpaid attorney fees at issue ($32,724.60) from October of 2017 through February of 2018 in the Sligar Litigation, which amount Debtor ultimately failed to pay."); see also Dkt No. 44, p. 2 ("[WBLO] billed [Debtor] on an hourly basis and sent him monthly invoices. [WBLO's Proof of Claim] is based on unpaid monthly invoices spanning October 2017 through February 2018."). Because WBLO fails to satisfy one of the Skelton requirements described above, its argument necessarily fails.
Shortly after the Idaho Supreme Court issued its decision in Skelton, it issued a decision recognizing that an attorney's lien could arise even in situations in which no "fund" was created by the attorney's efforts. See Frazee v. Frazee, 104 Idaho 463, 660 P.2d 928 (Idaho 1983). In such cases "`[t]he equitable source of the claimed charging lien necessitates that an attorney take affirmative steps in an adjudicative process to perfect and reduce his lien to a judgment or order of the court." Id. at 931. The Idaho Supreme Court stated, "A charging lien is only brought about by some affirmative act of the party asserting the lien in reducing it to a judgment or order of the court." Id.
This Court has also previously discussed the limited circumstances under which an attorney's charging lien will be enforced:
In re Secaur, 83 I.B.C.R. 175, 177-78 (Bankr. D. Idaho 1983) (emphasis in original; internal citation omitted).
Frazee is of no help to WBLO here either. Even assuming arguendo that it is applicable under these unique circumstances, WBLO has not reduced any lien to judgment or order of any court. For these reasons, Debtor's objection to WBLO's secured claim will be sustained in part.
B. Safari's Objection to WBLO's Motion for Turnover
WBLO seeks turnover of the settlement proceeds from Safaris, arguing that § 1327 and the Amended Plan requires turnover of said amount. At bottom, WBLO is seeking an order from this Court forcing Safaris to turnover the attorney's fee sought through enforcement of the Second Amended Plan.
Again, the Second Amended Plan provides that, "In the event of a settlement or award of damages in Debtor's favor in [the Sligar Litigation], [WBLO] shall be paid $32,724.60 from such proceeds (as a secured claim) and shall have an unsecured Ch. 13 bankruptcy claim in the amount of $369.00." That condition precedent did not occur, therefore WBLO cannot be paid from any settlement of the Sliger Litigation.
WBLO, however, argues that the Conditional Settlement Agreement requires Safaris to turnover said amount. Although the Second Amended Plan does not mention the Conditional Settlement Agreement, this Court's Order Confirming Plan provides that "if the Idaho Supreme Court affirms the trial court's ruling or otherwise holds in favor of Safaris, then Safaris shall settle Debtor's claims in the Sligar Litigation action with Jeremy Sligar and Overtime Garage pursuant to the terms of the written Conditional Settlement Agreement[.]" Doc. 130, at p. 2. The Idaho Supreme Court did, in fact, hold in favor of Safaris.
The Conditional Settlement Agreement, in turn, provides that Safaris would be required to "bear the risk of any attorney's liens or claims of other creditors of [Debtor], if any, against said amount." Doc. 147, at Exhibit A, ¶ 3. WBLO argues that Safaris bore the risk of its attorney's fee claim by way of the Conditional Settlement Agreement and seeks an order from this Court enforcing said provision.
Section 1327(a) states, "The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan."
An Idaho bankruptcy court has cited approvingly to cases holding that chapter 13 plans are more or less like consent decrees that should be interpreted according to contract principles. In re Yett, 540 B.R. 445, 450 (Bankr. D. Idaho 2015) (citing In re Harvey, 213 F.3d 318, 321 (7th Cir. 2000)). The court observed:
In re Yett, 540 B.R. at 450 (cleaned up).
The Idaho Supreme Court, with regard to incorporating another document into a contract by reference, has stated:
In re Welch, No. BR 14-40327-JDP, 2015 WL 4574805, at *2 (Bankr. D. Idaho July 29, 2015) (citing Loomis, Inc. v. Cudahy, 656 P.2d 1359, 1372 (Idaho 1982) (quoting Scotts Valley Fruit Exch. v. Growers Refrigeration Co., 184 P.2d 183, 189 (Cal. Dist. Ct. App. 1947))). In addition, while exact words of incorporation are not required, to impliedly incorporate an external document by reference, the subject document must contain some clear and unequivocal reference to the fact that the terms of the external document are incorporated. City of Meridian v. Petra, Inc., 299 P.3d 232, 243 (Idaho 2013) (citing Harris, Inc. v. Foxhollow Constr. & Trucking, Inc., 264 P.3d 400, 416 (Idaho 2011) ("A signed agreement may incorporate by reference another agreement, which is not signed by the parties, if the terms to be incorporated are adequately identified and readily available for inspection by the parties.")).
While the Second Amended Plan does not expressly mention the Conditional Settlement Agreement, this Court's order confirming the plan does, providing that "if the Idaho Supreme Court affirms the trial court's ruling or otherwise holds in favor of Safaris, then Safaris shall settle Debtor's claims in the Sligar Litigation action with Jeremy Sligar and Overtime Garage pursuant to the terms of the written Conditional Settlement Agreement[.]" Doc. 130, at p. 2 (emphasis added). Even assuming the reference in this Court's order confirming the Second Amended Plan constitutes a valid incorporation of the Conditional Settlement Agreement into the Second Amended Plan under Idaho law, WBLO cannot force Safaris to turnover said amount for another reason.
Idaho Code § 29-102 states that "A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." The Idaho Supreme Court has previously explained how to determine whether a third-party is an intended or unintended beneficiary under a contract:
De Groot v. Standley Trenching, Inc., 157 Idaho 557, 562, 338 P.3d 536, 541 (2014) (quoting Idaho Power Co. v. Hulet, 140 Idaho 110, 112-13, 90 P.3d 335, 337-38 (2004) (internal citations and quotations omitted) (emphasis added)). "The mere mention of a third party in a contract does not render that party a third-party beneficiary absent a showing that the contract was made for that party's direct benefit. Id. (citing Blickenstaff v. Clegg, 140 Idaho 572, 579, 97 P.3d 439, 446 (2004)).
WBLO is not a party to the Conditional Settlement Agreement, nor is it an intended beneficiary. The Conditional Settlement Agreement does not expressly mention WBLO whatsoever. The agreement was not expressly made for WBLO's benefit, nor is there any evidence that the agreement was made primarily for its benefit. WBLO may be an incidental beneficiary of the agreement, but that is an insufficient status under Idaho law to enforce the agreement. As such, Safaris will not be required to turnover said amount through the enforcement of the Second Amended Plan by this Court.
Accordingly, Safaris' objection will be sustained, and WBLO's motion for turnover will be denied.
The Idaho Supreme Court determined Debtor never had any interest in the Sligar Litigation, and WBLO has failed to establish all the requirements to establish a valid attorney's lien on any of the settlement proceeds. The language of the Second Amended Plan only contemplates WBLO having a secured claim if Debtor's rights vested in the Sligar Litigation, which they never did. Therefore, in accordance with the plain language of the Second Amended Plan, WBLO shall have a general unsecured claim. Moreover, WBLO is merely an incidental beneficiary of the Conditional Settlement Agreement, and therefore cannot force turnover of any amount owed to it by Safaris. Accordingly, for the reasons set forth herein, Debtor's Amended Objection to Claim Number 1 will be sustained in part, WBLO's claim will be allowed in the unsecured amount of $33,093.60, comprised of an unsecured portion of $32,724.60 for attorney's fees and an unsecured portion in the amount of $369.00 for a conservatorship. Safari's objection to WBLO's motion for turnover will be sustained.
A separate order will be entered.