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Lasser Hochman, LLC v. Forman

03-4109 (U.S. Dist. Ct. D. N.J. 2004) (Unpublished)

ATTORNEYS; FEES; RETAINING LIEN—A retaining lien covers fees on all matters, even where the lien is asserted against property related to only a portion of those matters.

A law firm provided legal services to an individual, including handling ongoing litigation over a business matter. The individual filed for bankruptcy, and another attorney was appointed the trustee of the bankruptcy estate, replacing the original law firm. At the time the individual filed for bankruptcy, he owed the firm over $70,000 in legal fees; $49,811.66 of which was related to the pending litigation. The trustee then filed a motion to compel the firm to turn over its litigation files. The firm responded by asking the bankruptcy court to recognize that it had a retaining lien under common law and a statutory charging lien under N.J.S.A. 2A:13-5. The bankruptcy court granted the trustee’s motion and ordered the firm to surrender the files. However, the turnover order expressly acknowledged that the firm had a valid statutory charging lien in the amount of $49,811.16 against any judgment or settlement recovered by the trustee in the litigation. The order further allowed for the lien to include billings for matters other than the ongoing litigation.

The litigation ultimately settled for $150,000. When the trustee moved to approve the settlement, the original law firm filed a cross-motion seeking payment of the $70,000 in legal fees that it was owed. The trustee opposed the cross-motion claiming that the original law firm was seeking to recover fees that were unrelated to the litigation. The bankruptcy court held that a charging lien applies only to services rendered in a particular cause of action. As to the retaining lien, the court held that the original law firm had a valid retaining lien for unpaid legal services rendered to the debtor, and that involuntary turnover of the litigation files did not negate that lien. According to the Court, a retaining lien covers fees for services rendered on all matters, even when the lien is asserted against property related to only a portion of those matters. Thus, the value of a retaining lien is not necessarily the full amount owed for services incurred, and the value of a retaining lien is often elusive because the property subject to the lien generally has no market value. Even though it reviewed several valuation methods, the Court concluded that it did not have to determine what method of valuation to use because “the files at issue were not subject to turnover.” It found that since the trustee had not requested the files unrelated to the litigation and had asserted no interest in them, the retaining lien on those files remained in effect but had no value. Thus, the court ordered the trustee to pay the original law firm only its fees for the transferred litigation.

On appeal, the firm asserted that its retaining lien attached to the litigation files not to the unrelated matters. The District Court agreed. By concluding that the firm’s retaining lien had no value because the trustee had not requested and had no interest in the files concerning the non-litigation cases, the bankruptcy court apparently viewed the retaining lien as attaching to all files except the litigation files. This contradicted the bankruptcy court’s express recognition that a retaining lien “covers fees for services rendered on all matters, even when the lien is asserted against the property related to only a portion of those matters.” Accordingly, the Court found that because the bankruptcy court had incorrectly assumed that the original law firm’s retaining lien did not attach to the litigation files, it did not conduct a proper valuation of the lien. For that reason, the Court remanded the case back to the bankruptcy court for a determination of the value.

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