Everett, Clarke & Benedict v. Alpha Portland Cement Co.

• Decision Date: 22 July 1915
• Docket Number: 228.
• Citation: 225 F. 931
• Parties: EVERETT, CLARKE & BENEDICT v. ALPHA PORTLAND CEMENT CO. In re ALPHA PORTLAND CEMENT CO.
• Court: U.S. Court of Appeals — Second Circuit

225 F. 931

EVERETT, CLARKE & BENEDICT v. ALPHA PORTLAND CEMENT CO.

In re ALPHA PORTLAND CEMENT CO.

No. 228.

United States Court of Appeals, Second Circuit.

July 22, 1915

[Copyrighted Material Omitted]

Everett Clarke & Benedict, of New York City (Herman S. Hertwig and George M. Clarke, both of New York City, of counsel), for plaintiffs in error.

Louis H. Porter, of New York City (Louis H. Porter and F. Carroll Taylor, both of New York City, of counsel), for defendant in error.

Before COXE, WARD, and ROGERS, Circuit Judges.

ROGERS Circuit Judge.

The question presented to the court in this case involves the validity of an order allowing the substitution of attorneys and the turning over of papers upon which the attorneys claim a lien; the substitution of the attorneys and the surrender of the papers being conditioned on the giving of security for the payment of any final judgment which the displaced attorneys might obtain against the defendant in an independent action.

The Employers' Indemnity Company of Philadelphia, in 1912 insured the defendant for a period named in the contract on account of accidents to defendant's employes; the liability on account of an accident to any one person being limited to $5,000. The defendant was entitled to recover this amount only after it had paid out the amount in money, after trial of issue, in satisfaction of the final judgment against it. In consideration of this insurance the defendant paid the premium and agreed to place in the control of the Employers' Indemnity Company any action brought against it for the injuries covered by the policy, and empowered the Indemnity Company to designate attorneys to appear on behalf of the defendant in such actions without interference from the defendant. The Indemnity Company undertook to defend such actions at its own cost in the name and on behalf of the assured. While this policy was in effect the action in which the order complained of was made, Corsi v. Alpha Portland Cement Company, was commenced, and pursuant to the terms of the policy the defense of the action was intrusted to the Indemnity Company, and the latter retained the plaintiffs to appear and defend on behalf of the defendant. The same course was pursued in the case of certain other actions brought by various other injured employes against the defendant.

After certain of the actions had been concluded, but while the Corsi action was still pending, the Indemnity Company was dissolved by order of the Pennsylvania courts in May, 1914, and its affairs were placed in the hands of the Pennsylvania state superintendent of insurance for liquidation. Upon receipt of this notice the defendant requested the plaintiffs to consent to the substitution of Mr. Louis H. Porter as its attorney in the Corsi action and the delivery to him of the papers, pleadings, and exhibits in their possession relating to the defense of the action. Plaintiffs agreed to consent to this upon receiving payment of their claim for services and disbursements in the action, amounting to $130.50, and to surrender the papers, pleadings, and exhibits on satisfaction of their alleged lien thereon for the unpaid balance of their claim for services rendered and disbursements made in the various matters in which they had represented the defendant, amounting to $1,092.26. The conditions named by the plaintiffs were rejected by the defendant, on the ground that plaintiffs under the circumstances had no lien or claim enforceable against the defendant. A motion was thereupon made by the defendant to determine the question. The District Court held that:

'Whether or not defendant is indebted to Messrs. Everett, Clarke & Benedict for professional services in connection with this and other litigations, and, if so, in what amount, are questions which will have to be settled in an independent action.'

Accordingly the order under review was made, substituting Mr. Porter as attorney for the defendant, and directing plaintiffs to deliver to him the papers, pleadings, and exhibits, on condition that the defendant first file an undertaking to secure the payment of the amount claimed by plaintiffs in the event that either or both of their contentions should be established either in independent proceedings or on appeal from the order.

The defendant claims that no liability to the plaintiffs on their part exists; that all the services performed by the plaintiffs were rendered solely in the interest of the Employers' Indemnity Company, and not for the defendant, whose interests from the beginning of the litigation were represented by Mr. Louis H. Porter as their personal counsel. In support of this view of the matter attention is called to a letter written by the plaintiffs to the defendant on May 19, 1914, in which they announced the dissolution of the Employers' Indemnity Company by the action of the Pennsylvania court, and that the insurance commissioner of Pennsylvania had taken charge with powers of a receiver, to liquidate the business and protect the creditors. The letter continued:

'In respect to all unsettled claims, which arose prior to the reinsurance date, the assured, being liable in the first instance, must see to the protection of their own interests by continuing the litigation, compromising, appealing, etc., as they may consider most expedient. In this connection, we, who have heretofore represented the Employers' Indemnity Company, have been authorized by the commissioner to confer with the assured and offer such aid as may be advisable to protect the rights of all creditors and to reduce the ultimate liability of the company. Our charges for this service will be paid by the commissioner. We shall be pleased to confer with you as to pending cases.'

To that Mr. Porter replied on behalf of defendant as follows:

'I have consulted with my clients with regard to the case of Corsi against the Alpha Portland Cement Company and they accept my recommendation that you continue in charge of this case as heretofore, my understanding being that your charges will be borne by the insurance department of Pennsylvania, and that I will co-operate with you in the defense of the case as in the other cases that we have heretofore had.'

Thereupon plaintiffs replied as follows:

'I acknowledge the receipt of your letter of May 27th, referring to the above case, and stating that your clients have accepted your recommendation that we shall continue in charge of the case as heretofore, it being understood that our charges are to be borne by the insurance department of Pennsylvania, and that you will co-operate in the defense of the case as heretofore. This is entirely satisfactory.'

This correspondence makes plain what the original understanding of the parties was, and that the plaintiff's fees and disbursements were to be paid by the Indemnity Company. Moreover, the policy issued to the defendant by the Indemnity Company expressly stated that the latter would be 'liable for the costs of court and of the company's attorneys and agents in defending or effecting the settlement of any suit or claim covered by this policy. ' The plaintiffs were employed by the Employers' Indemnity Company, and they had full knowledge of the provision referred to, which was inserted in all the policies issued by the company.

The plaintiffs nevertheless assert that they have a lien on the papers, pleadings, and exhibits in the action for the general balance due to them for services and disbursements 'in matters in which they represented the Alpha Portland Cement Company' and that they are entitled to have that lien satisfied before being compelled to surrender the papers. In the argument in this court they admitted that they have no personal claim upon defendant for their fees and disbursements, and that the only personal liability which existed was against the Indemnity Company. They contended merely that the personal liability of the Indemnity Company for unpaid fees and disbursements is secured by their attorney's lien on the papers in their possession and that the defendant, as well as the Indemnity Company, is bound to respect that lien, and to satisfy it before it can lawfully require the surrender of the papers. The argument is that, when the defendant empowered the Indemnity Company to retain attorneys to appear in these actions and to defend them, it is to be assumed that they knew that the law gave to attorneys so designated a lien on the papers to secure payment of their fees and disbursements; that therefore its agreement that the Indemnity Company might designate the attorneys necessarily carried with it an understanding that it thereby assented to the legal consequences of such designation, namely, the accrual of a lien which in an emergency, would be enforceable against it; that defendant is in precisely the position of A., who permits B. to pledge A.'s property with C. to secure the personal claim of C. against B.

An attorney's general or retaining lien is a common-law lien, which has its origin in the inherent power of courts over the relations between attorneys and their clients. The power which the courts have summarily to enforce the performance by the attorney of his duties toward his client enables the court to protect the rights of the attorney as against the client. This lien is one which the courts have long recognized and protected. Almost 200 years ago, in a case before Lord Chancellor Talbot, Ex parte Bush, 7 Viner's Abr. 74 (1734), it was held that:

'The attorney hath lien upon the papers in the same manner against assignees as against the bankrupt, and though it does not arise by any express contract or agreement, yet it is as effectual, being an implied contract by law.'

And in a case before Lord...