Lucky-Goldstar v. International Mfg. Sales Co.

• Decision Date: 10 March 1986
• Docket Number: No. 84 C 9941.,84 C 9941.
• Parties: LUCKY-GOLDSTAR INTERNATIONAL (AMERICA), INC., Plaintiff, v. INTERNATIONAL MANUFACTURING SALES CO., INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

636 F. Supp. 1059

LUCKY-GOLDSTAR INTERNATIONAL (AMERICA), INC., Plaintiff, v. INTERNATIONAL MANUFACTURING SALES CO., INC., et al., Defendants.

No. 84 C 9941.

United States District Court, N.D. Illinois, E.D.

March 10, 1986.

R. Dickey Hamilton, Catherine H. McMahon, Barry A. Miller, Miller, Shakman, Nathan & Hamilton, Chicago, Ill., for plaintiff.

E. James Gildea and Wm. D. Kelly, (Pro Se-Deponents only), Robert M. Wigoda, Conklin & Adler, Ltd., Chicago, Ill., for defendants.

MEMORANDUM OPINION

GRADY, District Judge.

Attorneys Conklin & Adler, Ltd. ("C & A") and Robert Wigoda have filed this motion to quash a subpoena served upon them for the production of records in their possession, which are the property of their former client International Manufacturing and Sales Company, Inc. ("IMS"), but over which C & A claims an attorney's retaining lien. For the reasons stated below, the motion to quash is denied. This denial, however, is conditioned on IMS posting security in the amount C & A claims IMS owes it in attorney fees.

FACTS

Plaintiff Lucky-Goldstar International (America), Inc. ("Lucky") brought a breach of contract action against IMS and Dan Andre (collectively "defendants") in November 1984. C & A represented defendants in this action by first filing an answer to Lucky's complaint and later a counterclaim against Lucky. On May 22, 1985, with leave of this court, C & A withdrew as counsel for defendants. The defendants consented to the withdrawal, and there is no suggestion that C & A refused to proceed without just cause or was discharged because of unprofessional conduct.¹

The defendants retained other counsel and continued in their defense and counterclaim against Lucky. In July 1985, Lucky requested the defendants to produce the records at issue here pursuant to Fed. R.Civ.P. 34. At various times after Lucky's discovery request, the defendants requested the documents from C & A, but C & A asserted that because IMS still owes C & A substantial attorney fees, C & A has an attorney's retaining lien on the documents. C & A therefore refused the defendants' requests. In September 1985, Lucky filed a motion pursuant to Fed.R. Civ.P. 37 to compel the defendants to produce those documents and for sanctions for failure to produce them. Six days later, the defendants subpoenaed the documents from C & A. C & A then filed this motion to quash, and the issue has now been fully briefed by the parties.²

DISCUSSION

C & A correctly asserts that Illinois common law recognizes an attorney's retaining lien. Intaglio Service Corp. v. J.L. Williams & Co., 112 Ill.App.3d 824, 832, 68 Ill.Dec. 347, 352, 445 N.E.2d 1200, 1205 (1st Dist.1983); Upgrade Corp. v. Michigan Carton Co., 87 Ill.App.3d 662, 664-65, 43 Ill.Dec. 159, 161, 410 N.E.2d 159, 161 (1st Dist.1980).³ A retaining lien enables an attorney to retain papers, money, securities, and property received from his client in the course of his professional employment. Upgrade, 410 N.E.2d at 161, 43 Ill.Dec. at 161. It is termed a "passive" lien, since it cannot be actively enforced through foreclosure proceedings and rests wholly upon the right to retain possession until the bill is paid. Id.⁴ The purpose of such a lien is to prevent the client from refusing to pay charges justly due. Id. Because the lien would lose its force if the client were permitted to use the papers held by the attorney, the rule in Illinois is that an attorney has a right to his retaining lien until the parties settle their fee dispute or the client posts adequate security for payment. Id. at 161-62, 43 Ill.Dec. at 161-62. Intaglio Service, 445 N.E.2d at 1205, 68 Ill.Dec. at 352.⁵ In fact, courts in at least one jurisdiction have held that forcing an attorney to return papers subject to a retaining lien prior to settlement of the dispute or the posting of security is an abuse of discretion. Pomerantz v. Schandler, 704 F.2d 681, 683 (2d Cir.1983) (New York law); Tri-Ex Enterprises v. Morgan Guaranty Trust Co., 583 F.Supp. 1116, 1117 (D.C.N.Y.1984).

While the defendants concede that Illinois recognizes an attorney's right to a retaining lien, they correctly point out that Illinois courts have not addressed the apparent conflict between that common law right and an attorney's duties to his former client under the Code of Professional Responsibility of the American Bar Association ("ABA Code") and of the Illinois Supreme Court Rules ("Illinois Code").

Disciplinary Rule 2-110(A)(2) of the ABA and Illinois Codes provides that

... a lawyer should not withdraw from employment until he has taken reasonable steps to avoid foreseeable prejudice to the rights of his client, including ... delivering to the client all papers and property to which the client is entitled....

Similarly, Disciplinary Rule 9-102(B)(4) of the ABA and Illinois Codes provides:

A lawyer shall ... promptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive.

In addition, Ethical Consideration 2-32 of the ABA Code states:

A lawyer should not withdraw without considering carefully and endeavoring to minimize the possible adverse effect on the rights of his client and the possibility of prejudice to his client as a result of his withdrawal.

The codes, however, do not provide an attorney guidelines to determine when a client is "entitled" to receive funds or properties in the attorney's possession. See ABA Standing Committee on Ethics and Professional Responsibility ("ABA Committee"), Informal Opinion 1461 (Nov. 11, 1980) ("Informal Op. 1461"); American Bar Foundation, Annotated Code of Professional Responsibility 448 (1979). In fact, the ABA Committee has expressly declined to provide such guidelines. See Informal Op. 1461.

In the context of an attorney's retaining lien, we believe the "entitled to" standard begs the question. If the attorney is properly asserting the retaining lien, the client is not entitled to the property, and to that extent the disciplinary rules quoted above do not apply. If the attorney is not properly asserting the lien, the client is entitled to the property, and the rules do apply. See Committee on Ethics of the Maryland State Bar Association, Opinions 81-33, 81-35 (Feb. 24, 1981), in Lawyer's Manual at 801:4308; Crane Co. v. Paul, 15 Wash. App. 212, 548 P.2d 337, 340 (1976). In other words, the rules by themselves simply do not advance the ball.⁶

We are therefore faced with a direct conflict between two well-established principles: An attorney may hold a client's property under an attorney's retaining lien, but a client should have his property returned to him when his attorney withdraws. Although both principles are well established, neither is absolute. Informal Op. 1461. Both are judicial devices, the former for the protection of the attorney, the latter for the protection of the client. See Steiner v. Stein, 141 N.J.Eq. 478, 58 A.2d 102, 104 (1948).

There is an equally important third interest—effective judicial administration. The conflict between the withdrawn attorney and the former client should not be allowed to delay the underlying action. In attempting to move the underlying action forward and accommodate these competing interests, the court should not interfere unnecessarily in the dispute between the lawyer and client. The fee dispute is something the lawyer and client should work out in the proper state forum. See Upgrade, 410 N.E.2d at 162, 43 Ill.Dec. at 162 (attorney entitled to summary disposition in state court fixing the value of his services so that such amount can be paid or adequately secured). We perceive no federal jurisdiction, at least in this diversity case, to entertain the dispute. See Kanzelberger v. Kanzelberger, 782 F.2d 774, 777 (7th Cir. 1986) ("the federal courts are obliged to police the constitutional and statutory limits on their jurisdiction"). Therefore, the aim should be to provide access to the documents necessary to the underlying action without prejudicing the rights of either party to a controversy we have no authority to resolve.

As a starting point, we agree with the ABA Committee that

a proper sense of regard for the nature of the profession, and for the Model Code ..., should lead a lawyer to evaluate his financial interest in light of the interests of the client when he is making a decision to invoke an attorney's lien to which he may be entitled under law.

* * * * * *

Mere existence of a legal right does not entitle a lawyer to stand on that right if ethical considerations require that he forego it. For instance, EC2-23 exhorts lawyers to forego a legal right to "... sue a client for a fee unless necessary to prevent fraud or gross imposition by the client." The same standard should be applied in determining whether or not to exercise an attorney's lien.

Informal Op. 1461.

The opinion goes on to provide guidelines for attorneys to apply the fraud or gross imposition standard in deciding whether to invoke a retaining lien.

The application of the fraud or gross imposition standard requires the lawyer to evaluate his or her interests against interests of the client and of others who would be substantially and adversely affected by assertion of the lien. The lawyer should take into account 1 the financial situation of the client, 2 the sophistication of the client in dealing with lawyers, 3 whether the fee is reasonable, 4 whether the client clearly understood and agreed to pay the amount now owing, 5 whether imposition of the retaining lien would prejudice the important rights or interests of the client or of other parties, 6 whether failure to impose the lien would result in fraud or gross imposition by the client, and 7 whether there are less stringent means by which the matter can be resolved or by which the amount owing can be secured. Even though a lawyer may be justified in declining to devote further time and expense

...