Resolution Trust Corp. v. Elman

• Decision Date: 26 November 1991
• Docket Number: No. 126,D,126
• Parties: The RESOLUTION TRUST CORP., Plaintiff-Appellee, v. Leonard S. ELMAN; Berger, Steingut, Tarnoff & Stern, Defendants-Appellants. ocket 91-7448.
• Court: U.S. Court of Appeals — Second Circuit

Page 624

949 F.2d 624

60 USLW 2361

The RESOLUTION TRUST CORP., Plaintiff-Appellee, v. Leonard S. ELMAN; Berger, Steingut, Tarnoff & Stern,

Defendants-Appellants.

No. 126, Docket 91-7448.

United States Court of Appeals, Second Circuit.

Argued Sept. 12, 1991.

Decided Nov. 26, 1991.

Harvey Weinig, New York City (Robert M. Bursky, Berger Steingut Tarnoff & Stern, New York City, of counsel), for defendants-appellants.

Joseph J. Ortego, Uniondale, N.Y. (Rivkin, Radler, Bayh, Hart & Kremer, Uniondale, N.Y., Jodi Mignati, The Resolution Trust Corp., Norristown, Pa., Evan H. Krinick, Kevin McElroy, of counsel), for plaintiff-appellee.

Before KEARSE, MINER and McLAUGHLIN, Circuit Judges.

MINER, Circuit Judge:

Defendants-appellants Leonard S. Elman and Berger Steingut Tarnoff & Stern, the law firm of which Elman is a member (collectively, the "Firm"), appeal from an order of the United States District Court for the Southern District of New York (Wood, J.) granting a preliminary injunction in favor of plaintiff-appellee The Resolution Trust Corporation ("RTC"). The injunction ordered appellants to transfer to the RTC certain files ("Files") relating to appellants' former client, Central Federal Savings Bank ("Bank"). See The Resolution Trust Corp. v. Elman, 761 F.Supp. 245, 250 (S.D.N.Y.1991). Appellants contend that they possessed a valid attorney's retaining lien against the Files under New York law, and that the district court's issuance of an injunction that effectively destroyed their lien was without basis in federal law.

For the reasons that follow, we hold that the district court did not abuse its discretion in issuing the injunction.

BACKGROUND

The essential facts of this case are not in dispute. For some years, the Firm represented the Bank in connection with various matters, mostly mortgage foreclosures. On December 7, 1990, the United States Office of Thrift Supervision declared the Bank insolvent and appointed the RTC as receiver, pursuant to applicable statutory authority. See 12 U.S.C. § 1441a(b)(4) (RTC vested with all receivership powers of Federal Deposit Insurance Corporation set forth in 12 U.S.C. §§ 1821-23). At that time, the Files contained information on some 54 pending foreclosure actions being handled by the Firm on behalf of the Bank. The Firm then was owed by the Bank approximately $300,000 in legal fees and disbursements, an amount equal to certain funds of the Bank ("Funds") apparently held by the Firm.

On December 20, 1990, the RTC terminated the Firm's employment in all Bank matters on asserted conflict of interest grounds and requested that the Firm transfer the Files to the RTC's new counsel. The Firm refused to return the Files because of its asserted attorney's retaining lien; the lien was said to arise against the Files because the legal bills owed by the Bank had not yet been paid, despite submission by the Firm of those bills to the RTC in accordance with the RTC's instructions.

The RTC on February 8, 1991 brought an action for replevin of the Files in the district court. Judge Wood determined that the RTC had invoked the court's equitable powers and, accordingly, decided that a preliminary injunction would be an appropriate remedy in this case. See Elman, 761 F.Supp. at 248-50. Appellants did not seek from us a stay of the injunction pending this appeal, and have turned the Files over to the RTC as ordered.

DISCUSSION

Our standard of review for a preliminary injunction is whether the issuance of the injunction constituted an abuse of discretion by the district court. See Doran v. Salem Inn, Inc., 422 U.S. 922, 931-32, 95 S.Ct. 2561, 2567-68, 45 L.Ed.2d 648 (1975); Carew-Reid v. MTA, 903 F.2d 914, 916 (2d Cir.1990). Such an abuse of discretion typically consists of either applying incorrect legal standards or relying on clearly erroneous findings of fact. See International Bhd. of Boilermakers v. Local Lodge D129, 910 F.2d 1056, 1059 (2d Cir.1990).

The standard for issuing a preliminary injunction is well-settled in this Circuit, and was correctly stated by the district court. The party seeking the injunction must demonstrate (1) irreparable harm should the injunction not be granted, and (2) either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits and a balance of hardships tipping decidedly toward the party seeking injunctive relief. See, e.g., Plaza Health Laboratories, Inc. v. Perales, 878 F.2d 577, 580 (2d Cir.1989). As Judge Wood also accurately noted, we have not applied the more lenient standard of "serious questions going to the merits and a balance of hardships," instead of the "likelihood of success on the merits" standard, when the preliminary injunction is sought by a government agency such as the RTC, see SEC v. Unifund SAL, 910 F.2d 1028, 1039-40 (2d Cir.1990), and she appropriately noted that it was inappropriate to apply the more lenient standard in the present case, especially since there had been no briefing or argument as to the status of the RTC when it acts as a receiver.

A. Probability of Success on the Merits

Under New York law, a retaining lien entitles an attorney to keep, as security against payment of fees, all client papers and property, including money, that come into the attorney's possession in the course of employment, unless the attorney is discharged for good cause. See People v. Keeffe, 50 N.Y.2d 149, 155-56, 428 N.Y.S.2d 446, 449, 405 N.E.2d 1012, 1015 (1980). It is settled state law that a court cannot order the client's property transferred elsewhere until and unless (i) the court determines (or the parties agree to) the value of the attorney's services and (ii) the client either pays or posts adequate security Were state law to govern, we likely would conclude on the facts of this case that the right to the Files is with the Firm. But state law alone does not govern the underlying dispute over possession of the Files. At issue instead is a federal statute that superimposes a new arrangement over the state law scheme, and alters what would otherwise be the respective rights and duties of the parties. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183 (1989) (codified as amended in scattered sections of 12 U.S.C.) provides an administrative scheme for adjudicating claims, such as those of the Firm, against the institution for which the RTC has become receiver.

                to cover that amount.   See Robinson v. Rogers, 237 N.Y. 467, 469-74, 143 N.E. 647, 647-49 (1924);  Mint Factors v. Cedar Tide Corp., 133 A.D.2d 222, 223, 519 N.Y.S.2d 27, 28 (1987)
                

As receiver, the RTC has the power to disallow "any claim by a creditor or claim of security, preference, or priority which is not proved to the satisfaction of the [RTC]." See 12 U.S.C. § 1821(d)(5)(D). This decision generally must be made within six months of the making of the claim. See id. § 1821(d)(5)(A). If the claim is disallowed by the RTC, the claimant may request an administrative review of that decision, or file "a suit on such claim" in federal district court. See id. § 1821(d)(6). We have confirmed recently that the statute means just what it says, and, accordingly, that a claimant must first present its case to the RTC under the administrative procedure erected by FIRREA before seeking relief in the federal courts. See Circle Indus., Div. of Nastasi-White, Inc. v. City Fed. Sav. Bank, 931 F.2d 7, 8 (2d Cir.1991). Until such time as the claim is disallowed by the RTC, "no court shall have jurisdiction over ... any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the [RTC] has been appointed receiver, including assets which the [RTC] may acquire from itself as such receiver." 12 U.S.C. § 1821(d)(13)(D)(i).

New York courts frequently require the posting of security to justify transfer of papers that are subject to a retaining lien. See Robinson, 237 N.Y. at 472-74, 143 N.E. at 649; Steves v. Serlin, 125 A.D.2d 780, 781-82, 509 N.Y.S.2d 666, 667 (1986). We too might countenance a similar security requirement by the district court were this simply a matter between attorney and client. This is not such a matter. As Judge Wood accurately pointed out, recognition of the state law rights asserted by appellants as to the fixing of the amount of security would have involved the district court in reviewing claims that under FIRREA must be reviewed first by the RTC. See Elman, 761 F.Supp. at 247. Moreover, we note that FIRREA specifically prohibits ordering the RTC to post a bond as receiver. See 12 U.S.C. § 1822(a).

The plain language of FIRREA simply does not allow a federal court to recognize at this stage the rights and interests asserted by appellants. Put more bluntly, the stark reality of FIRREA is that for purposes of the underlying dispute here, the Firm does not have a retaining lien. Accordingly, the RTC would appear entitled to the Files in the same way that the Bank itself would be entitled to the Files were no monies owing. See 12 U.S.C. § 1821(d)(2)(A) (RTC as successor to all rights, titles, powers, privileges and assets of the failed institution); see also id. § 1821(d)(2)(B)(i) (RTC to take over all assets of the failed institution).

Nor are we the only authority to reject, on the basis of a statutory analysis substantially similar to that undertaken here, the types of arguments made by appellants. See FDIC v. Shain, Schaffer & Rafanello, 944 F.2d 129 (3d Cir.1991); Circle Indus., Div. of Nastasi-White, Inc. v. City Fed. Sav. Bank, 749 F.Supp. 447 (E.D.N.Y.), aff'd, 931 F.2d 7 (2d Cir.1990). Whether the analysis is categorized as implicating subject matter jurisdiction, the doctrine of exhaustion, or the supremacy of federal law over conflicting state law, the outcome of this dispute, on these facts and We find it significant that in Coit Independence...