Legal Updates

Law Firm’s Retainer Not Required to be Returned to Bankruptcy Estate

The United States Bankruptcy Court for the Southern District of Florida dismissed an adversary proceeding filed by a secured lender seeking the return of a $200,000 retainer provided by a borrower to its bankruptcy counsel prior to filing for chapter 11 bankruptcy.  In Armstrong Bank v. Shraiberg, Landau & Page, P.A. (In re Tuscany Energy, LLC), 581 B.R. 681 (Bankr. S.D. Fla. 2018), Armstrong Bank asserted a number of claims against Tuscany Energy, LLC’s law firm, including conversion, tortious interference with the bank’s loan agreement with Tuscany Energy, and unjust enrichment.

In dismissing the proceeding, the court held that not only did the bank not have a perfected security interest under UCC § 9-315 in the deposit account from which the retainer was paid, but even if it did, the debtor’s bankruptcy counsel was a transferee of the funds and took them free of the bank’s security interest in accordance with UCC § 9-332 because it had not colluded with the debtor.  In so ruling, the court emphasized that UCC § 9-332 provides a “high bar to a secured creditor’s pursuit of a transferee from a deposit account subject to the secured creditor’s lien,” and the mere fact that the law firm knew that the debtor was in default of its loans with Armstrong Bank at the time the retainer was paid did not rise to the level of collusion.