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Jan R. Schlichtmann is on another crusade. Schlichtmann is the Massachusetts plaintiffs’ lawyer whose 1980s environmental holy war against corporate giants W.R. Grace & Co. and Beatrice Foods was chronicled in the nonfiction best-seller and movie “A Civil Action.” Now he is litigating against a far-smaller adversary: an Ohio company that buys mostly delinquent loans. The company’s recent victory in an appeals court threatens his survival as a lawyer, he maintains. Moreover, he says, the decision could have “devastating implications” for lawyers in fee disputes and debtors in bankruptcy. Schlichtmann’s earlier war, a nine-year epic, nearly took him down. After an $8 million settlement and a defense verdict, he declared Chapter 7 bankruptcy and his firm was dissolved. Schlichtmann, now practicing in Beverly, Mass., said that since then he has tried to make a comeback after hard lessons learned. The new fight began in 1995, when he was sued over a $300,000 legal fee in a case settled months before his 1991 bankruptcy. Schlichtmann and his former partners had pledged the fee as collateral on three bank loans that financed the case, a common practice for attorneys taking cases on contingency. The fee was not paid until years later, well after Schlichtmann had emerged from bankruptcy. He argued that the debt had been discharged in bankruptcy and that, because he worked on the case after bankruptcy, the fee was post-bankruptcy income. The noteholder, the Cadle Co. of Newton Falls, Ohio, which bought the loan when the lender failed, disagreed. It sued Schlichtmann in federal court. SUPPORTERS COMING A federal jury ruled for Schlichtmann, but an appeals court reversed, concluding that Cadle should have received summary judgment. Cadle Co. v. Schlichtmann, No. 00-1517 (1st Cir.). The decision has enraged the plaintiffs’ lawyer, who said that it effectively nullifies the meaning of bankruptcy. “If this opinion stands, it will in all likelihood end my career in the law,” he said. He said that “[t]he slightest research will show that there is absolutely no way that a secured creditor’s prebankruptcy secured interest can apply to post-bankruptcy earnings of a debtor.” He said he is enlisting supporters — attorneys and consumer groups, among them — to join his rehearing petition. “All the appeals court said is our lien is valid,” said Daniel C. Cadle, president of the Cadle Co. “Our argument is he pledged the collateral, and the collateral was ours, not his.” The appellate panel noted in its unanimous opinion that Schlichtmann wrote to the bank a year before bankruptcy to report the status of the litigation and assure the lender that the letter “serves as an additional security interest of the bank” in fees the lawyers might receive. It rejected Schlichtmann’s argument that bankruptcy absolved him of his obligation to hand over the fee and that his post-bankruptcy work entitled him to keep the money. The panel held Schlichtmann liable only for the fees he kept for himself, not the money he shared with former partners and a former co-defendant. Alan C. Adams, the Cadle Co. officer assigned the Schlichtmann account, claims that the lawyer is liable for about $299,000, which includes the Cadle Co.’s own legal fees. Schlichtmann would not say how much money is at stake, only a “substantial” sum. At least one outside bankruptcy expert disagreed with Schlichtmann’s view of the case. The appeals court decision “is no deviation from existing case law,” said Charles M. Tatelbaum, who heads the creditors’ rights practice in the Naples, Fla., office of Stamford, Conn.’s Cummings & Lockwood. Bankruptcy can discharge debts but not erase obligations of a lien, said Tatelbaum, who once taught bankruptcy law at the University of Maryland. Schlichtmann sank himself by writing the bank, specifically promising the anticipated fees as collateral, he said. “He gave the bank a lien,” Tatelbaum said. And it didn’t matter whether the fees were earned before or after the bankruptcy, he said.

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