Meighan v. American Grass Twine Co.

• Decision Date: 30 April 1907
• Docket Number: 290.
• Citation: 154 F. 346
• Parties: MEIGHAN et al. v. AMERICAN GRASS TWINE CO.
• Court: U.S. Court of Appeals — Second Circuit

154 F. 346

MEIGHAN et al. v. AMERICAN GRASS TWINE CO.

No. 290.

United States Court of Appeals, Second Circuit.

April 30, 1907

John A Garver and Shearman & Sterling, for appellants.

G. W Murray, Charles P. Howland, and Howland, Murray & Prentice for appellee.

Before WALLACE, LACOMBE, and TOWNSEND, Circuit Judges.

WALLACE Circuit Judge.

This is an appeal from a decree dismissing the bill of complaint in an equity suit brought by the complainants to enforce a lien for their services as attorneys upon certain moneys in the hands of the defendant, the American Grass Twine Company. The decree was ordered upon sustaining a demurrer to the bill of complaint.

By a statute of this state (Code of Civil Procedure, Sec. 66, as amended in 1879), from the commencement of an action 'the attorney who appears for a party has a lien upon his client's cause of action * * * which attaches * * * to the proceeds thereof in whosesoever hands they may come. ' This lien is an equitable one, and may be enforced by a suit in equity against the client or any party holding the proceeds, and cannot be affected by any settlement between the parties to the action. Peri v. N.Y.C. Ry. Co., 152 N.Y. 521, 46 N.E. 849; Fischer-Hansen v. Brooklyn Heights R. Co., 173 N.Y. 492, 66 N.E. 395. This court has recently had occasion to consider this statute in Re Baxter & Co. (decided February 28, 1907) 154 F. 22. Under these decisions it is plain that the bill of complaint sets forth a good cause of action in equity, and the demurrer thereto should not have been sustained by the court below, if the lien sought to be enforced by the complainants was upon a cause of action of the client for whom they appeared. It appears that they prosecuted nine actions brought by Watkins, a stockholder of the defendant corporation, against certain directors of that corporation who had participated in the declaration and payment of unlawful dividends to stockholders, made before Watkins became a stockholder; the dividends having been declared and paid out of the capital, and not out of earnings. The corporation having refused to take any action to secure the restoration of these illegal dividends, the nine suits were brought by Watkins, in behalf of himself and all other stockholders of the corporation, to compel the directors to account for and pay over to the corporation the amount of these dividends by which its capital had been impaired. Shortly after the beginning of these actions, and 'as a result thereof,' as the demurrer admits, the directors who were the defendants therein paid directly to the corporation the sum of over $642,000.

It is argued that the cause of action in these suits was not that of Watkins, the plaintiff therein, but was that of the corporation. Theoretically this is true, but in a substantial and legitimate sense it is not true. If the directors instead of paying this money to the corporation, had paid it into the hands of the complainants, the attorneys who brought the actions, is there any fair doubt that these attorneys would have had a lien upon it, and that they would not have been under any duty to pay it over to the corporation without satisfaction of their lien? If it had been paid into court, is there any fair doubt that the court would not have allowed it to be paid out without...