In re Smith, Bankruptcy No. 98-56522 (KCF). Adversary No. 00-5042(TF).
| Decision Date | 08 June 2001 |
| Docket Number | Bankruptcy No. 98-56522 (KCF). Adversary No. 00-5042(TF). |
| Citation | 263 BR 71 |
| Parties | In re Bernea SMITH, Debtor. Deborah Del Nobile Tennenbaum, Chapter 7 Trustee, Plaintiff, v. Bernea Smith, Friedman & Associates and Allstate Indemnity Company, Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Paul J. Maselli, Maselli Warren, P.C., Princeton, New Jersey, for defendant Friedman & Associates.
Jay L. Lubetkin, Shoshana Schiff, Rabinowitz, Trenk, Lubetkin & Tully, P.C., West Orange, New Jersey, for Deborah Del Nobile Tannenbaum, Chapter 7 Trustee.
William Oliver Jr., Asbury Park, New Jersey, for debtor.
Suzanne C. Meola, King, Kitrick, Jackson & Troncone, Brick, New Jersey, for Allstate Indemnity Co.
This is the court's decision on a motion by plaintiff Deborah Del Nobile Tannenbaum, the chapter 7 trustee for the bankruptcy estate of Bernea Smith, for summary judgment on the counterclaim filed by defendant Friedman & Associates (hereinafter the "Friedman firm"), which asserts a statutory and common law lien on its attorney's file and in the proceeds of settlement of a personal injury case. The Friedman firm opposes the motion. The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 151 and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E), (K) and (O). This shall constitute the court's findings of fact and conclusions of law.
On June 22, 1995, debtor-defendant Bernea Smith was involved in a motor vehicle accident wherein she sustained personal injuries. On August 1, 1995, Ms. Smith retained the Friedman firm, which filed suit against the driver who caused her injuries. Ms. Smith recovered $15,000 from the other driver, which was the driver's liability insurance policy limit. The Friedman firm then filed a claim with Ms. Smith's insurer, Allstate Indemnification Co. ("Allstate"), pursuant to the underinsured motorist provision in her policy. That policy provided that all claims are subject to non-binding arbitration. To prepare for the arbitration, the Friedman firm conducted discovery, obtained medical records and expert reports, and prepared an arbitration statement in support of Ms. Smith's claim. On February 11, 1998, the claim was arbitrated, and the panel set Ms. Smith's damages at $225,000. However, Ms. Smith was only entitled to her policy limit of $100,000, less the $15,000 recovered from the adverse driver, which left her with an award of $85,000.
Allstate declined to pay the award. Thus, on May 5, 1998, the Friedman firm filed suit in the Superior Court of New Jersey against Allstate on behalf of Ms. Smith. After additional discovery and negotiations, a settlement was reached. On January 7, 1999, Allstate agreed to pay Ms. Smith $85,000, the remaining policy limit, in exchange for a release which dismissed the action. Upon receipt of the settlement funds, the Friedman firm disbursed approximately $56,000 to Ms. Smith and retained approximately $26,000, which represented the firm's contingency fee and costs.
On December 28, 1998, however, during the pendency of the state court action, Ms. Smith filed a pro se petition for relief under chapter 7 of title 11, United States Code (the Bankruptcy Code). Ms. Smith never informed the Friedman firm or the state court of her bankruptcy filing. Additionally, Ms. Smith failed to schedule the cause of action against Allstate in the relevant sections of her bankruptcy schedules and statement of affairs. As a result, the state court settlement, which occurred post-petition, was consummated without the required bankruptcy court approval.
Upon commencement of Ms. Smith's bankruptcy case, the trustee was appointed. In March 2000, the trustee discovered that the Friedman firm had represented Ms. Smith in connection with a workers compensation claim. For the next two months, the trustee attempted to obtain additional information from the Friedman firm concerning any other matters in which it represented Ms. Smith. Finally, in May 2000, the trustee issued a subpoena under Fed.R.Bankr.P.2004 to the Friedman firm for the turnover of any and all case files involving Ms. Smith. In response to the subpoena, the Friedman firm disclosed the existence of the Allstate settlement and turned over Ms. Smith's case file to the trustee.
Following the turnover, in June 2000, Ms. Smith amended her bankruptcy petition to reflect the state court action. At that time, Ms. Smith also claimed the settlement proceeds as exempt from the bankruptcy estate under Bankruptcy Code §§ 522(d)(11)(D) and (d)(11)(E). In response, on January 24, 2000, the trustee filed a four-count adversary complaint against Ms. Smith, the Friedman firm, and Allstate to: (1) avoid the settlement; (2) revoke Ms. Smith's discharge; (3) compel Ms. Smith and the Friedman firm to disgorge the settlement proceeds; and (4) object to Ms. Smith's exemption of the settlement proceeds from the bankruptcy estate.
On April 14, 2000, the trustee moved for partial summary judgment voiding the settlement between Ms. Smith and Allstate because it was not approved by this court pursuant to Fed.R.Bankr.Pro. 9019. That motion was granted on June 20, 2000. Additionally, the court ordered the Friedman firm to disgorge to Allstate its portion of the proceeds. On June 26, 2000, the Friedman firm filed a counterclaim wherein it asserts a common law and statutory lien in the attorney file and proceeds of the settlement to the extent of the contingency fee due to the firm.
On October 3, 2000, the firm of Baer, Arbeiter, Ploshnick, Tanenbaum & Weiss ("Baer Arbeiter") was retained as special litigation counsel to the trustee and replaced the Friedman firm as attorney for the plaintiff in the case against Allstate. On October 30, 2000, the court approved a settlement between the trustee and Allstate in the amount of $85,000, which was the same amount that the Friedman firm had obtained from Allstate in the settlement voided by the trustee.
On February 9, 2001, the trustee filed the instant motion for summary judgment seeking the dismissal of the Friedman firm's counterclaim. Hearings were held before this court on March 12, 2001, and April 9, 2001, after which the court reserved decision.
A party seeking summary judgment bears the initial burden of demonstrating that the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See Fed.R.Bankr.P. 7056; Fed.R.Civ.P. 56(c); see also In re Ricardo N. Uriarte, 215 B.R. 669, 671 (Bankr.D.N.J.1997) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986)). Where the moving party satisfies this burden, the burden then shifts to the non-moving party to set forth specific facts showing a genuine issue for trial. Id. at 672 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)). A court considering a motion for summary judgment does not resolve factual disputes but must view all facts and inferences therefrom in the light most favorable to the non-moving party. Id. (citing Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1362, n. 1 (3d Cir.1996)). There is no genuine triable issue unless there is sufficient evidence to permit a finding in favor of the non-moving party. Id. (citing Anderson, 477 U.S at 248, 106 S.Ct. at 2510).
The trustee seeks summary judgment as to the Friedman firm's counterclaim which asserts in part a common law retaining lien in the attorney file and proceeds from the state court settlement. The issues regarding this lien are: (1) whether the Friedman firm has a common law retaining lien; (2) what effect, if any, the court's June 20, 2000 order voiding the state court settlement has on that lien; and (3) whether the Friedman firm's turnover of the file voided the lien.
The trustee argues that summary judgment is appropriate because the Friedman firm's retaining lien dissolved when the firm voluntarily relinquished Ms. Smith's case file in response to the subpoena issued by the trustee. The trustee cites the Friedman firm's failure to object to the subpoena as evidence of the voluntary nature of the turnover. Alternatively, the trustee argues that since the Friedman firm had been paid in full, no retaining lien could exist because there was nothing to which the lien could attach.
According to the Friedman firm, it has a retaining lien because it obtained possession of documents concerning Ms. Smith in the course of the firm's representation of Ms. Smith.2 Moreover, the Friedman firm asserts that it turned over the file to comply with Bankruptcy Code § 542, and that such a turnover does not constitute a voluntary relinquishment of the file. For these reasons, the Friedman firm contends that summary judgment is inappropriate, and asks the court to deny the motion.
It is settled that property interests are created and defined by state law. See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). A lien is a property right, see In re Pennsylvania Central Brewing Co., 135 F.2d 60, 63 (3d Cir.1943), and New Jersey law therefore governs the court's analysis of the Friedman firm's lien rights.
Under New Jersey law, an attorney has a common law retaining lien which "attaches to all papers, books, documents, securities, moneys, and property of the client which come into the possession of the attorney in the course of, and with reference to, his professional employment." See Frenkel v. Frenkel, 252 N.J.Super. 214, 217, 599 A.2d 595 (App. Div.1991) (quoting Brauer v. Hotel Assoc., Inc., 40 N.J. 415, 419, 192 A.2d 831 (1963); H. & H. Ranch Homes, Inc. v. Smith, 54 N.J.Super. 347, 351-52...
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