Wolf v. Sherman

• Decision Date: 30 August 1996
• Docket Number: No. 95-CV-825.,95-CV-825.
• Parties: William B. WOLF, Jr., et al., Appellants, v. Peter R. SHERMAN, et al., Appellees.
• Court: D.C. Court of Appeals

682 A.2d 194

William B. WOLF, Jr., et al., Appellants, v. Peter R. SHERMAN, et al., Appellees.

No. 95-CV-825.

District of Columbia Court of Appeals.

Argued January 30, 1996.

Decided August 30, 1996.

Roger D. Luchs, Washington, DC, for appellants.

Douglas E. Fierberg, Washington, DC, for appellees.

Before WAGNER, Chief Judge, and STEADMAN and FARRELL, Associate Judges.

STEADMAN, Associate Judge:

This case involves a dispute between two creditors, both of whom claim a lien on escrowed funds of their mutual debtor. One creditor is the appellee law firm,¹ which is the escrow holder and claims to have an attorneys' lien on the funds. The competing creditor is the appellant investment partnership,² which claims to have a lien on the funds pursuant to a creditor's bill suit brought to enforce a judgment in appellant's favor against the debtor.

The appellant asserts that the attorneys' lien on the funds is invalid because (1) such a lien can arise only where the client has no personal liability for payment of the attorneys' fees and the sole source of payment is the property upon which the lien is claimed; and, in any event, (2) such a lien cannot be created upon funds held in escrow by an attorney.³ Appellant also asserts that the trial court had an obligation to examine the reasonableness of both the attorneys' fees agreement and the amount of the fees themselves, which the trial court refused to do.

The trial court granted summary judgment for the appellee. We affirm.

I.

For purposes of this appeal, the relevant facts are undisputed and may be briefly stated as follows. William S. Bergman & Associates, Inc. ("WSBA") was the tenant of appellant partnership Midcity Investment Company ("Midcity"). WSBA defaulted under the lease. In 1990, Midcity obtained a judgment for $67,383.90 (plus interest and costs) against WSBA, the bulk of which it was unable to collect.

In June 1991, a jury returned a verdict in excess of $100,000 in WSBA's favor in litigation against a former employee, William R. Dyer. Following an extended series of post-verdict matters, the trial court entered a final judgment on the verdict in July 1993. Pending the appeal of that judgment, in October 1994 a "Consent Order and Agreement Staying Execution" was entered, whereby Dyer placed $80,000 in escrow with WSBA's law firm, Sherman, Meehan & Curtin, P.C. ("SMC"). The funds therein were to be disbursed in accordance with the outcome of the appeal. In April 1995, we affirmed the judgment in favor of WSBA in all respects.⁴

In December 1994, however, after learning of the pending lawsuit by its debtor, WSBA, against Dyer, Midcity had instituted what it terms a creditor's bill suit against SMC to cause the funds in the escrow account to be paid to Midcity in the event WSBA prevailed on appeal. SMC asserted in its answer that it had a "common law and contractual lien" on the escrowed funds. A 1992 fee agreement between WSBA and SMC expressly provided that SMC would have a lien on any funds recovered as a result of WSBA's suit against Dyer and that with respect to work on the Dyer appeal, SMC would charge 125% of its normal hourly rates. SMC moved for summary judgment, claiming that it had an attorneys' lien on the escrowed funds. Midcity filed a cross-motion for summary judgment, asserting that as a matter of law no attorneys' lien existed. The trial court entered summary judgment in favor of SMC, and Midcity took the appeal now before us.

II.

Although defined in various ways, a valid lien for purposes of this opinion may be viewed as a "qualified right of property which a creditor has in or over specific property of his debtor, as security for the debt or charge or for performance of some act." BLACK'S LAW DICTIONARY 832 (5th ed. 1979). The creditor with a valid lien generally has a claim upon the property superior to unsecured creditors and to junior lienholders upon the same property, but subordinate to the like interests of prior lienholders.

Liens may arise in several ways. Certain liens arise by statute, independently of the intent of the parties, as in the case of a mechanic's lien, D.C.Code § 38-101 (1990 Repl.), or real property tax lien, D.C.Code § 47-1312 (1990 Repl. & 1996 Supp.).⁵ At the opposite extreme are express liens created by express agreement of the parties. Mortgages or deeds of trust with respect to real property, D.C.Code §§ 45-701 to -720 (1996 Repl.), and Article 9 security interests with respect to personalty, D.C.Code §§ 28:9-101 to -507 (1996 Repl.), are common express liens.⁶ Liens that arise by operation of the common law⁷ apart from statutes, notably equitable liens, occupy a middle ground. Broadly speaking, equity may impose a lien to effectuate some underlying agreement between debtor and creditor or in other circumstances where justice requires. See, e.g., M.M. & G., Inc. v. Jackson, 612 A.2d 186, 191 (D.C.1992) (equitable lien for value of improvements made by bona fide purchaser to property conveyed by forged deed).

The common law as applied in the District of Columbia recognizes two distinct types of liens applicable to a claim against a client for attorneys' fees: the "retaining lien" and the "charging lien." The retaining lien attaches to property of the client in the possession of the attorney and entitles the attorney to retain possession of that property until the fee is paid.⁸ See Lyman v. Campbell, 87 U.S.App.D.C. 44, 45-46, 182 F.2d 700, 701-02 (1950). The "charging lien" arises when an attorney obtains a judgment or decree for a client, and has been characterized as "`merely a claim to the equitable interference by the court to have that judgment held as security for his debt the attorneys' charges against the client.'" Id. at 46, 182 F.2d at 702 (quoting Barker v. St. Quintin, 12 M. & W. 441 (1844)). Unlike the retaining lien, the charging lien is not dependent on possession. Id.

The District's rule on charging liens is narrower than the English common law rule. Lyman, supra, 87 U.S.App.D.C. at 46, 182 F.2d at 702. In order for a charging lien to attach in this jurisdiction, "it is indispensable that there exist between the client and his attorney an agreement from which the conclusion may reasonably be reached that they contracted with the understanding that the attorney's charges were to be paid out of the judgment recovered."⁹Elam, supra note 5, 598 A.2d at 1169 (quoting Pink v. Farrington, 67 App.D.C. 314, 316, 92 F.2d 465, 467, cert. denied, 302 U.S. 741, 58 S.Ct. 143, 82 L.Ed. 572 (1937)). A charging lien does not depend upon an agreement that the attorney shall have a lien upon the judgment; in fact, only in the absence (or inadequacy) of an express lien does the question of a possible equitable lien arise. 1 SPEISER § 2.33.

Equitable liens, like other forms of equitable relief, are generally premised upon the unavailability of other adequate remedy. See generally District of Columbia v. Wical Ltd. Partnership, 630 A.2d 174, 184 (D.C.1993); Marshall v. District of Columbia, 458 A.2d 28, 29 (D.C.1982). In the attorneys' fees context, the charging lien may protect the attorneys' claim of compensation in certain circumstances. This does not, however, foreclose the making of an express agreement between the attorney and client to create a lien upon specific property of the client as security for the payment of attorneys' fees. Bluxome St. Assoc. v. Fireman's Fund Ins. Co., 206 Cal.App.3d 1149, 254 Cal. Rptr. 198, 201 (1988). An express lien may grant rights beyond those created by operation of law through the charging lien. Kodenski v. Baruch Oil Corp., 5 Misc.2d 809, 161 N.Y.S.2d 301, 303-04 (N.Y.Sup.Ct.1957). The client may subject other property presently owned by it to the lien or the client may, instead or in addition, create an express lien upon any judgment that the attorney obtains for the client. Attorneys and clients should be no different from any other creditors and debtors in this regard. "An express agreement between an attorney and his client that the attorney shall have a lien on property recovered for his services may be given effect." SPEISER § 2.33.

Almost a century ago the Supreme Court of the United States, in a case arising from this jurisdiction, recognized that an attorney is free to create an express lien against a recovery by an attorney for a client. Mackall v. Willoughby, 167 U.S. 681, 17 S.Ct. 954, 42 L.Ed. 323 (1897). In Mackall, an attorney and his client agreed that in consideration of the attorney's continuing to defend two separate law suits and pursuing a third, the attorney would be entitled to a fee equal to fifty per cent of any recovery, but in no event less than $5,000, and further agreed that the attorney "shall have a lien therefor upon said judgment and property as may be recovered." Id. at 683-84, 17 S.Ct. at 955. The case did not involve a contingent fee agreement and the fee secured by the lien apparently related to services already performed as well as those to be performed. Id. at 684, 17 S.Ct. at 955. The client as plaintiff recovered no money, but as defendant was partially successful in retaining ownership of the property at issue. Id. at 686-87, 17 S.Ct. at 955-56. The Supreme Court affirmed the decision of the Court of Appeals of the District of Columbia imposing an attorneys' lien for $5,000 upon the real property retained,¹⁰ enforcing the lien in accordance with its interpretation of the express agreement of the parties. Id. at 687-88, 17 S.Ct. at 956.

Here, SMC bases its claim upon this principle of an express lien. SMC invokes the explicit language of its Retainer Agreement with WSBA, entered into after the trial court judgment in WSBA's favor:

We have agreed to continue to represent you in the Dyer appeal under the following terms and conditions: (1) It is understood and agreed that Sherman, Meehan & Curtin, P.C. shall have a lien against and shall be entitled to be paid from any sums that are recovered or awarded by way of

...