Istim, Inc. v. Chemical Bank

• Decision Date: 17 October 1991
• Citation: 78 N.Y.2d 342,575 N.Y.S.2d 796,581 N.E.2d 1042
• Parties: , 581 N.E.2d 1042 In the Matter of ISTIM, INC., Respondent, v. CHEMICAL BANK, Respondent, and Willkie Farr & Gallagher, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 796

575 N.Y.S.2d 796

78 N.Y.2d 342, 581 N.E.2d 1042

In the Matter of ISTIM, INC., Respondent, v. CHEMICAL BANK, Respondent, and Willkie Farr & Gallagher, Appellant.

Court of Appeals of New York.

Oct. 17, 1991.

[78 N.Y.2d 343] Anthony F. Phillips and Pamela Bannon Kelly, New York City, for appellant.

[78 N.Y.2d 344] Maralyn B. Fairberg, New York City, for Istim, Inc., respondent.

OPINION OF THE COURT

HANCOCK, Judge.

Both parties to this appeal claim a right to a settlement fund from a terminated Illinois Federal court action in which neither party was a litigant. Petitioner Istim, Inc.'s claim is based on a default judgment, and respondent law firm Willkie Farr & Gallagher's claim is based on a disputed statutory attorney's charging lien. The issue before us is a choice-of-law question: whether the Illinois or New York attorney's lien statute applies. If Illinois law applies, Willkie's asserted lien did not attach because it failed to provide the notice apparently required by the Illinois statute. If the New York attorney's lien statute applies, Willkie has a valid claim to the settlement fund. We hold that under the interests analysis approach to choice-of-law questions, the courts below erroneously concluded that Illinois law applies in this proceeding. Accordingly, we modify and remit for a determination of which of the parties' valid claims has priority to the settlement fund.

I

This is a special proceeding brought by Istim seeking turnover of the settlement fund as partial payment of an unpaid loan. Istim is a New York corporation acting in the United States as a purchasing and sales agent for Israeli manufacturers, and Willkie Farr & Gallagher is a New York law firm. In January 1983, Istim loaned $1,000,000 to Coronet Enterprises, a Utah mining company owned by two Israeli entrepreneurs, Yori Salant and Haggai Blich. Coronet failed to make the first loan repayment due in July 1983. Thereafter, Salant and/or Blich allegedly informed Istim that Coronet would repay the loan with the proceeds from a lawsuit. Coronet, represented by Willkie, commenced the lawsuit in July 1983 in Federal District Court in Illinois (Coronet Enters. v. ETX Petroleum Corp. [the Illinois lawsuit].

Meanwhile, the Israeli government was conducting an investigation of Salant and Blich which resulted in their indictment in January 1986 for stock fraud and manipulation; they both absconded. In June 1986, during the pendency of the Illinois lawsuit, Istim commenced an action against Coronet in Supreme Court, New York County, seeking damages arising from Coronet's default on its loan agreement (Istim, Inc. v. Coronet Enters. [the debt action]. Istim moved to attach the settlement fund it expected the Illinois lawsuit to yield. In August 1986, Coronet and ETX settled the Illinois lawsuit and created a settlement fund with Willkie acting as escrow agent. In October 1986, in the debt action on the loan, which Coronet never repaid, the New York court entered a default judgment for Istim against Coronet. The Illinois lawsuit settlement fund, in which both parties claim an interest, is presently held in a Treasury Bill by respondent Chemical Bank in New York.

In September 1988, Istim commenced this special proceeding pursuant to CPLR 5225(b) and 5227 seeking an order directing Chemical Bank to turn over the settlement fund to Istim. Supreme Court, New York County, denied Willkie's motion to disqualify Istim's law firm. Thereafter, Willkie answered the petition and cross-moved for an order dismissing the petition, denying Istim's application and awarding Willkie summary judgment enforcing its statutory lien on the settlement fund pursuant to Judiciary Law § 475 or its retaining lien pursuant to New York common law. Supreme Court denied Willkie's cross motion, granted Istim's application and ordered Chemical Bank to turn over the fund to Istim. Supreme Court stated that the choice of applying either Judiciary Law § 475 ¹ or Illinois' Attorneys Lien Act ² was dispositive. The court applied the interests analysis approach for choice-of-law questions and determined that Illinois' interests and contacts were more significant than New York's. It, therefore, applied Illinois law and held that Willkie had waived its lien by failing to give notice as required by the Illinois statute. The Appellate Division, First Department, affirmed 165 A.D.2d 739, 560 N.Y.S.2d 392. This Court granted Willkie leave to appeal.

II

In deciding whether the New York or Illinois attorney's lien statute applies, we first must determine what choice-of-law approach will be utilized in this type of proceeding.

Prior to Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99 and Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279, New York courts generally applied a traditional, "territorially oriented" approach to choice-of-law issues which applied the law of the geographical place where one key event occurred, such as the place of the wrong in tort cases or where an agreement was entered into or performed in contract cases (see, Schultz v. Boy Scouts, 65 N.Y.2d 189, 196, 491 N.Y.S.2d 90, 480 N.E.2d 679). In Auten, the Court abandoned such rules and adopted the more flexible "center of gravity" or "grouping of contacts" theory. An even more flexible approach often called "interests analysis" was utilized in Babcock, a tort case in which the Court stated that choice-of-law questions are governed by "the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation." (Babcock v. Jackson, supra, at 481, 240 N.Y.S.2d 743, 191 N.E.2d 279.) These less rigid approaches were also applied in property cases (see, Matter of Clark, 21 N.Y.2d 478, 288 N.Y.S.2d 993, 236 N.E.2d 152; Matter of Crichton, 20 N.Y.2d 124, 281 N.Y.S.2d 811, 228 N.E.2d 799), although the traditional situs rule--that the location of the property was controlling--continued to hold some sway (see, James v. Powell, 19 N.Y.2d 249, 256, 279 N.Y.S.2d 10, 225 N.E.2d 741 [conveyance of real property governed by the law of the place where the property was located, but Babcock's interests analysis also employed in determining a punitive damages issue].

Under the "interests analysis" approach, the " 'law of the jurisdiction having the greatest interest in the litigation will be applied and * * * the [only] facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict' " (Schultz v. Boy Scouts, 65 N.Y.2d 189, 197, 491 N.Y.S.2d 90, 480 N.E.2d 679, supra [quoting Miller v. Miller, 22 N.Y.2d 12, 15-16, 290 N.Y.S.2d 734, 237 N.E.2d 877]. Because interests analysis is an analytical approach of general application and has been employed by this Court in recent years in a number of areas of law, we see no reason not to apply this approach to the present turnover proceeding concerning competing claims to a settlement fund.

In determining whether Illinois or New York law governs Willkie's attorney's lien, it is important to identify the litigation in which this issue is being resolved. This is a turnover proceeding brought by Istim, a New York corporation, against Willkie, a New York law firm, in a New York court under New York law seeking a settlement fund located in New York based on a default judgment in a debt action which Istim also chose to bring in New York. The proceeding does not present the typical attorney's lien dispute between an attorney and a client or a party to the litigation upon which the lien is based where focusing upon the underlying litigation would be appropriate. The parties to the Illinois lawsuit, Coronet and ETX, have no interest in the present proceeding. The only connection between the Illinois lawsuit and this proceeding is essentially historical--that it was in the now-defunct Illinois lawsuit where the settlement fund originated and Willkie performed the work upon which it bases its lien. Thus, Supreme Court's focus on the Illinois lawsuit to the virtual exclusion of the present proceeding,...