In re Baxter & Co.
| Decision Date | 28 February 1907 |
| Docket Number | 159,182.,208,105 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | In re BAXTER & CO. |
Benjamin F. Tracy and John M. Harrington, for appellants.
John J Adams, for respondent.
Before WALLACE, LACOMBE, and COXE, Circuit Judges.
The question in this case is whether Mr. Abney, the petitioner for review, has an attorney's lien upon a fund in the custody of a court of bankruptcy. By the order under review the court below disallowed the lien.
In February, 1904, petitions in involuntary bankruptcy were filed in the United States District Court for the Southern District of New York against the corporation styled 'A B. Baxter & Co.,' in behalf of certain creditors, by Mr Abney as attorney, and February 6th the court appointed a temporary receiver of the property of the corporation. The assets of the corporation were about $229,000, and its debts amounted to about $850,000. Pending a hearing upon the petitions, one Smathers and others, who were interested in effecting a financial rehabilitation of the corporation, made a settlement in behalf of the corporation with all of its creditors whose demands were undisputed, purchasing these demands and obtaining assignments thereof. These settlements were made upon the understanding that the liabilities of the corporation were to be paid in full; and the hearing upon the petition was adjourned from time to time to enable this to be done. The creditors were numerous, were scattered throughout many states, and the demands of some of them were disputed wholly or in part, by the corporation. By June, 1904, over $800,000 had been paid in settlement of recognized claims; but the efforts to adjust the disputed claims, amounting to about $50,000, had been ineffectual. Thereafter, and in that month, the corporation applied to the court to dismiss the bankruptcy proceeding, and Mr. Abney appeared in opposition. The court denied the application provisionally, with leave to renew, and made an order directing the corporation to deposit $50,000, which was to stand as security for the payment of all the disputed claims, the costs of the bankruptcy proceeding, and 'of such attorney's liens or equitable assignments as exist in the premises, if any.'
The lien for attorney's services which is claimed by Mr. Abney is based upon his services for a number of those creditors for whom he had formally appeared in the bankruptcy proceeding, whose claims were settled, and who had employed him to collect these claims. Before these claims had been settled he notified the attorneys for the corporation that, if any of these creditors whom he represented were not settled with through him, his compensation must be provided for, and served them with a written notice that he had an attorney's lien upon the several demands for his services. They assured him that he would be protected. The negotiations for settlement were continued in behalf of the corporation directly with the creditors, and the payments were made directly to them. It does not appear that these creditors were personally irresponsible, or that the settlements with them were made for the purpose of defeating the claim of Mr. Abney, and the fair inference from the evidence is that the corporation and those acting in its behalf preferred to deal directly with the creditors in order to expedite the adjustment of its affairs.
The general rule that an attorney has a right in the nature of a lien to be compensated for his services out of a fund which is brought into a court of equity by his aid is well settled. His lien extends, however, only to that part of the fund which belongs to those parties whose interests he has represented in the suit. The fund in this case consists of a deposit brought into court to satisfy certain specified claims and liens. No part of it is a fund belonging to the creditors who had been settled with, as it was not brought into court for their benefit. In opposing the application to dismiss the bankruptcy proceeding, except as he may have represented the petitioning creditors and creditors holding disputed claims, Mr. Abney appeared only for himself and to protect his own interests, and the court very properly made an order protecting his rights, if he had any. It is manifest that the rule giving an attorney a lien upon the fund in court has no application to the case. If he has an attorney's lien based upon his services for the creditors who had been settled with, it is protected by the order.
We should entertain no doubt that no lien existed, if it were not for the effect to be given to the statute of New York respecting attorney's liens. An attorney has a lien upon the papers of his client in his possession, and a lien upon the fund or judgment which he has recovered for those whose interests he has represented in the suit. But, in the absence of some statutory provision, he has no lien upon the naked cause of action of his client. Indeed, the whole law of an attorney's lien rests upon the principle that he has secured the fruits of a litigation of which he ought not to be deprived by the unfair conduct of his client. But the courts have always recognized the right of the client to settle the controversy with the opposite party against the consent of his attorney, and, where this has been done after an action has been commenced, have repeatedly declared as in Emma Silver Mining Co. v. Emma Silver Mining Co. (C.C.) 12 F. 815, that the attorney's lien cannot stand in the way, unless the settlement was made for the purpose of depriving the attorney of his costs. The proposition has never been more plainly and concisely stated than by Judge Brewer, now Mr. Justice Brewer, in Swanson v. Chicago Ry. Co. (C.C.) 35 F. 638, where he said:
'It is unquestioned that parties to a lawsuit may settle and compromise their litigation without consulting their counsel; and that, in the absence of a statute giving the attorney a lien for his fees, courts will not intervene unless there has been collusion between the parties, and an attempt to defraud the attorney out of his fees.'
Upon the argument of the case, we were disposed to regard the New York statute as one merely regulating practice in the courts of the state, but a more careful reading of the statute satisfies us that it was intended to have a wider application, and should be treated as one establishing a substantive right. As merely a practice act, it would not affect the present proceeding, which is essentially an application to the equity powers of the court, as the courts of the United States, when exercising equity...
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