U.S. District Court, Western District of N.Y. Case Summaries:

Daily Record (Rochester, NY), Jan 15, 2008

Bankruptcy

Debtor's Earnings --

Right of Setoff

In Re Clarey and Clarey

05-18045 K

Judge Kaplan

Issue: Does a contractual provision in the debtor's fee agreement with a law firm for which he maintained an "of counsel" relationship allow the firm to exercise the contract's right of setoff within the confines of the debtor attorney's bankruptcy proceeding?

Background: One of the debtors is an attorney who had an of counsel relationship with a law firm contemplating several related class action lawsuits. The written agreement stated the debtor would perform the "leg work" on these matters, be paid a flat fee and receive a percentage of any awards if the firm decided to initiate litigation. Advances were paid based on expected awards. The various suits did not produce the windfall expected and the debtor's estate, now in bankruptcy, is subject to the claims of the law firm for the excess advance payments.

Ruling: The court rules not to reduce the firm's claim at the present time as the proceeding is a lift-stay motion and not a claim objection by the debtor. It grants the firm's motion so it can exercise the right of setoff in its contract with the debtor.