In re Pappas – Case Brief Summary (Wyoming)

In In re Pappas (Bankr. D.Wyo. 1989) 106 B.R. 268, the Federal Deposit Insurance Corporation (FDIC) was permitted to pursue a suit for legal malpractice against a lawyer/debtor in order to reach its malpractice carrier, a situation similar to that in Forsyth.

The court recited its own version of the three conditions that must be met before the action could proceed:

"(1) Where it is necessary to join the debtor to establish liability against a third party;

(2) a creditor pays the debtor's reasonable costs of defense, including legal fees and expenses, where those costs and expenses and fees are not borne by a third party;

3) the creditor may not execute on any judgment obtained in the litigation against the debtor personally or against his assets." (Id. at p. 271.)

Because "in Wyoming it is necessary to establish the liability of an insured before insurer can be held liable," and because the FDIC "agreed to reimburse the debtor his reasonable costs of defense" and also agreed "not to execute on any judgment it may obtain against debtor either personally or against his assets," the conditions were met. (Ibid.)