The married Debtors (Mr. Alfonso and Ms. Diaz) filed a chapter 7 bankruptcy. Prior to filing, Ms. Diaz had been injured in a slip and fall accident while working at Nordstrom. The claim was not listed in the schedules.
Ms. Diaz hired a law firm to pursue her claim. The law firm (“Firm”) searched but did not find Ms. Diaz’ bankruptcy. The Debtors then received their bankruptcy discharge.
The Firm filed a lawsuit on behalf of Ms. Diaz which was eventually referred to arbitration. Ms. Diaz did not disclose hiring the law firm to her bankruptcy attorney, the trustee or the court, and did not disclose the bankruptcy to the Firm. Subsequently Nordstrom became aware of the bankruptcy and moved to dismiss the case for lack of standing.
The Debtors reopened the bankruptcy and amended Schedules B and C to disclose the claim and assert an exemption. The trustee initially objected to the exemption and later withdrew the objection. The trustee, Debtors and the Firm initially agreed that the trustee would retain the Firm, the Firm’s compensation agreement was altered and if any money was recovered after payment in full of unsecured claims then the balance would be returned to the Debtors. Before the firm was officially hired however, Nordstrom made a settlement offer directly to the trustee in the amount of $105,000.00.
The trustee and Nordstrom jointly filed a motion to approve the proposed settlement to the Bankruptcy Court. The Firm objected to the proposed settlement, arguing that the trustee and Nordstrom settled a claim purportedly worth between $500,000 and $1.5 million for far less.
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