Pacific Far East Line, Inc. v. Official Creditor Committee (In re Pacific Far East Line, Inc.)

This case presents certain questions regarding the force and effect of an attorneys’ contingency fee contract when there is an intervening arrangement under Chapter XI of the Bankruptcy Act of 1898. 1 The bankruptcy court awarded attorneys’ fees to the appellee, Joseph M. Alioto, for services rendered to Pacific Far East Line, Inc. [PFEL]. PFEL was the debtor in possession in the arrangement proceeding. Alioto rendered most of his services prior to the arrangement pursuant to a contingent fee contract. PFEL’s Official Creditors’ Committee [OCC] brings this appeal. 2

The OCC does not here contest the reasonableness of the award, which was $1,500,000. It does contend, however, that the amount awarded to the attorneys for services performed before the arrangement, constituting 95 percent of the fee, should be treated as a general creditor’s claim, thus subject to the pro rata reduction applicable *667 to all other unsecured claims. The appellee contends, on the other hand, that the district court was correct in finding that the attorneys had a lien on the funds generated by the settlement and that their fee was payable directly from the settlement fund in discharge of this lien. We…