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South Florida Creditor Who Settled in Chapter 11 Case Forced to Pay Fees for Violating Agreement Terms

signatureIn almost any legal agreement, it is important to review and understand all of the terms of that agreement before you sign off on it. That’s because, once it is completed, you are legally bound by its terms and can create problems for yourself by not following it. This includes settlement agreements made relative to your creditor claim in a Chapter 11 case. For one South Florida creditor who settled but then violated the agreement’s terms, that meant being forced by the court to pay attorney’s fees.

The case was a winding one that began when a former member of a South Florida bridge club sued the club on behalf of himself and other members after the club terminated his membership in 2010. In response to the disgruntled member’s litigation, the club chose to file Chapter 11 bankruptcy. Eventually, the bankruptcy court approved a settlement that resolved the member’s claim. The member received $75,000. In exchange, he promised to drop all of his litigation actions and release the club, its leadership, and its attorney from claims arising out of the club’s actions during the litigation of the bankruptcy. The agreement also stated that the member would be barred from undertaking future litigation over these same issues.

Apparently still less than fully satisfied, the member sent a letter to the club demanding that the club sue its attorney. The attorney asked the bankruptcy court to issue an order enforcing the settlement agreement, and he also asked the federal District Court to sanction the member for undertaking this action, which the lawyer argued was in contradiction of the settlement agreement. Both courts sided with the attorney, with the member being ordered to pay $5,320 in the lawyer’s legal fees.

The member took his case to the 11th Circuit but still lost. The lower courts clearly had the authority to issue the ruling enforcing the settlement agreement and awarding attorney’s fees in this case. The settlement agreement that this member and the club worked out plainly stated that the member received a settlement payment, and, in exchange, he was to drop all of his bankruptcy-related legal actions and relinquish the right to pursue future derivative actions related to the conduct of the club, the club’s leaders, and the club’s attorney during the litigation of the bankruptcy case. By following up that settlement with a demand that the club undertake legal action to recover from the attorney “all damages occasioned by his wrongful conduct” during his legal representation of the club, the member was in flagrant violation of the settlement agreement, which was established specifically to stop “all hostilities, motions and actions” by the member against, among others, the club’s attorney. Under those circumstances, the fees award was entirely proper.

There are many ramifications of any contractual agreement you enter into, including one that resolves your creditor claim in a Chapter 11 bankruptcy. Before you sign, talk to knowledgeable counsel. The skilled and experienced South Florida bankruptcy attorneys at Stok Folk + Kon have been helping creditors and debtors in Chapter 11 cases for many years.

Contact us online or by calling (305) 935-4440 to schedule your consultation and find out how this firm can help you protect your interests.

More blog posts:

Exception to Automatic Stay Provision Allows Lawsuits to Proceed Despite Florida Medical Practice’s Chapter 11 Filing, Florida Business Lawyers Blog, Dec. 19, 2016

Creditors Hold Onto Priority Status in South Florida Homebuilder’s Chapter 11 Bankruptcy, Florida Business Lawyers Blog, July 20, 2016