Opinion
DOCKET NO. A-1182-13T4
07-15-2014
JULIETTE BRESNAHAN, Plaintiff-Appellant, v. JAMES BRESNAHAN, Defendant-Respondent. IN THE MATTER OF BUDD LARNER, P.C., Respondent.
Patrick T. Collins argued the cause for appellant (Franzblau Dratch, attorneys; Mr. Collins, on the brief). Steven M. Segalas argued the cause for respondent James Bresnahan (Damiano Law Offices, attorneys; Mr. Segalas, on the brief). David Scott Mack argued the cause for respondent Budd Larner, P.C. (Budd Larner, P.C., attorney; Mr. Mack, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Ashrafi and Leone.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Morris County, Docket No. FM-14-165-10.
Patrick T. Collins argued the cause for appellant (Franzblau Dratch, attorneys; Mr. Collins, on the brief).
Steven M. Segalas argued the cause for respondent James Bresnahan (Damiano Law Offices, attorneys; Mr. Segalas, on the brief).
David Scott Mack argued the cause for respondent Budd Larner, P.C. (Budd Larner, P.C., attorney; Mr. Mack, on the brief). PER CURIAM
Respondent Budd Larner, P.C. (the Firm) initially represented plaintiff Juliette Bresnahan in divorce litigation with defendant James Bresnahan. After withdrawing, the Firm obtained an attorney's lien on funds that were subsequently allocated to defendant in the settlement. Plaintiff appeals from the denial of her motion to attach the lien instead to property she obtained in the settlement. We reverse and remand.
I.
In July 2009, plaintiff signed a retainer agreement for the Firm to bring the divorce action. Shortly thereafter, defendant transferred $666,339.31 to his brother John Bresnahan, the executor of the estate of Vincent Bresnahan and the attorney-in-fact for Claire and Michael Bresnahan. Defendant later certified that the funds came from his parents as part of their estate planning.
The parties disputed whether those funds were subject to inclusion in the marital estate and in equitable distribution. The Family Part entered a consent order transferring those funds to the attorney trust account of John Bresnahan's attorney, Vincent P. Celli, Esq. (the Celli account). The court barred withdrawals from those funds absent consent or order of court.
Over the fifteen months the Firm represented plaintiff, it billed her $161,421.97, of which she paid $61,662.15. In November 2010, the Firm moved to withdraw, and requested a lien against plaintiff for $99,759.82 plus interest under the Attorney's Lien Act, N.J.S.A. 2A:13-5 (the Act).
On January 12, 2011, the Family Part acknowledged the Firm's withdrawal, and ordered plaintiff to deposit $99,759.82 in escrow in the Firm's attorney trust account. The court stated the escrow would continue until the fee-lien claim was resolved in a plenary hearing. The hearing still has not occurred.
Thereafter, the Firm moved to compel plaintiff to deposit the $99,759.82 into escrow. On May 24, 2011, the motion judge instead ordered that "[t]he sum presently held in the [Celli account] shall be preserved to the extent of the Petitioner's lien which is $99,759.82." The court enjoined the parties from "dissipating, distributing, transferring, or otherwise affecting the Lien," and enjoined plaintiff "from in any way diminishing or otherwise adversely affecting the Lien through any means" including settlement. The court denied the Firm's request for advance notice of any possible settlement.
On February 5, 2012, plaintiff and defendant entered into a matrimonial settlement and separation agreement. The agreement granted plaintiff the marital home, which had equity in excess of $630,000; her business Happy Hybrid Hounds; the $94,089 balance of one of defendant's retirement accounts; her Keough account with a value in excess of $115,000; a life insurance policy with cash value of $12,775; 50% of one of defendant's pensions; and permanent alimony of $105,000 for 2013 with $75,000 annually thereafter.
The agreement also provided that defendant "shall retain the balance of the [Celli] account . . . free and clear of any interests of Wife." The parties agreed that "the account represents funds that are stipulated to be 'exempt' from equitable distribution between the parties, and shall therefore not be subject to any claim by Wife or her prior or current counsel." The agreement provided that the $382,261.01 balance shall be immediately released to defendant, and that this term was "of the essence." The agreement further provided that, "[p]rior to the entry of a Judgment of Divorce from Bed and Board, the parties shall obtain an order from the Court respecting the release of the hold that has been placed on same in favor of Wife's former counsel, during the pendency of Wife's claim against said account."
That day, defendant's counsel telephoned and wrote the Firm's counsel to convey the terms of the agreement. He enclosed a proposed consent order to release the funds in the Celli account, vacate the portion of the May 24, 2011 order imposing the lien, and retain the lien as to plaintiff. On February 6, 2013, the Family Part entered a consent judgment of divorce from bed and board incorporating the agreement.
Defendant later certified as follows. He spoke with the Firm's counsel prior to the entry of the judgment and confirmed that releasing the funds would not be an issue because plaintiff retained the marital home with equity of $630,000. Shortly thereafter, plaintiff offered to enter into a consent order restraining her from transferring or encumbering the marital home pending resolution of the lien. The Firm's counsel refused to release the funds without other acceptable security, namely liquid funds.
On March 12, 2013, defendant filed a motion to direct Celli to release the $99,759.82 to defendant pursuant to the agreement, and to vacate the May 24, 2011 order insofar as it pertained to those funds. On May 13, 2013, the motion judge denied defendant's motion, stating that the January 12 and May 24, 2011 orders had "denied the same relief sought by Defendant," and that relief was thus barred by the "law of the case" doctrine.
On July 8, 2013, plaintiff filed a motion to transfer to her residence the Firm's lien on the $99,759 remaining in the Celli account. Plaintiff certified that "the funds in Mr. Celli's account had all originated with defendant's parents"; that the current situation was "completely unfair" to defendant"; that he was threatening legal action against her; and that her home had at least $57 5,00 0 in equity. Defendant filed a cross-motion seeking reconsideration of the May 13 order, and release to defendant of the funds in the Celli account. Alternatively, defendant moved to compel plaintiff to liquidate her IRA funds to fully reimburse him, or to vacate the agreement and relist the matter for trial.
On September 24, 2013, the motion judge denied plaintiff's application to transfer the lien to her house. The court also denied defendant's requests. The court ordered that plaintiff's application for release of the funds in the Celli account would be granted on condition that plaintiff deposited $99,759 into the Firm's attorney trust account within fourteen days.
We granted plaintiff's motion for leave to appeal.
II.
As the motion judge recognized, "[t]he crux of the issue is that it is the Defendant's property that is being held for a liability owed by the Plaintiff." The Firm concedes that no New Jersey case authorizes an attorney's lien on property obtained in settlement by the client's opponent. We must determine whether that result is permitted under the Act. "[W]e do not pay special deference to [a family court's] interpretation of the law." D.W. v. R.W., 212 N.J. 232, 245 (2012). We must hew to that de novo standard of review.
The Act was passed in 1914 "to codify and expand the common law charging lien." Musikoff v. Jay Parrino's The Mint, L.L.C., 172 N.J. 133, 138, 141 (2002). The Act currently provides that an attorney appearing for a party instituting an action "shall have a lien for compensation, upon his client's action, cause of action, [or] claim." N.J.S.A. 2A:13-5. The attorney's lien "shall contain and attach to a verdict, report, decision, award, judgment or final order in his client's favor, and the proceeds thereof in whosoever hands they may come." Ibid. "The lien shall not be affected by any settlement between the parties before or after judgment or final order[.]" Ibid.
"However, the attorney's lien can only become affixed to his client's interest" in the proceeds of settlement. Montefusco Excavating & Contracting Co. v. Cnty. of Middlesex, 82 N.J. 519, 527 (1980). In Montefusco, a contractor sued the county and received a settlement check. Id. at 522. However, the contractor had not paid its laborers and materialmen, who had been paid by a surety. Ibid. The Court held that the contractor's "attorneys' charging lien would therefore not exist since the fund would not belong to [the contractor], but to its materialmen and laborers or their subrogee," the surety. Id. at 527.
"An attorney's lien is merely a right in the attorney to a lien on any judgment recovered for the attorney's client." Cole, Schotz, Bernstein, Meisel & Forman, P.A. v. Owens, 2 92 N.J. Super. 453, 460 (App. Div. 1996). Even where an attorney "has obtained a pre-judgment lien on assets," if "there is no recovery" by the client of those assets in the divorce action, "there is nothing to which the attorney's lien can attach." Id. at 460-61. Thus, in Cole, we held that the lien of the wife's counsel did not apply to the marital home, even though the wife retained it after the divorce, because she "owned the property before the divorce action was filed" and "[h]er husband was not asserting a claim to it." Ibid. Therefore, she "would not be 'recovering' the property in the divorce action." Ibid.
Furthermore, "[t]he lien created by this statute attaches only to funds available to the parties at the time of the final disposition of the case." Sauro v. Sauro, 425 N.J. Super. 555, 577 (App. Div. 2012), certif. denied, 213 N.J. 389 (2013). In Sauro, the family court, concerned about the spouses' intent to exhaust their assets through excessive litigation, created a college fund for the children and a training fund for the plaintiff. Id. at 560. The plaintiff's attorney, who had obtained an attorney charging lien against the plaintiff's future equitable distribution award, argued creating those funds "improperly diminished the value of the asset to which its attorney charging lien" was attached. Id. at 560, 572. "Because plaintiff did not recover the funds at issue," we held that those funds "were not 'available' to plaintiff at the time of final disposition," and thus there was "nothing for [the attorney] to recover." Id. at 575, 577.
The principles requiring rejection of the attorney's liens in Montefusco, Cole, and Sauro are applicable here. Plaintiff did not obtain the asset to which the Firm sought to attach the lien, namely the funds in the Celli account, because, as in Montefusco, another party had a superior claim to that asset. As in Cole and Sauro, the asset was ultimately determined not to be subject to equitable distribution, and thus not available to plaintiff as a result of the divorce litigation.
The Firm notes that, unlike the husband in Cole, plaintiff here through the Firm did make a claim to the asset on which a lien was sought. However, unlike the wife in Cole who retained the marital home on which a lien was sought, plaintiff here did not obtain the funds in the Celli account. See Sauro, 425 N.J. Super. at 575, 577. Moreover, merely making a claim to an exempt asset does not justify an attorney's lien upon it if the asset's owner "was not at serious risk of losing it." Cole, supra, 292 N.J. Super. at 461.
Indeed, the Firm's attempt to attach a lien to an asset recovered by its client's opponent strays even further from the longstanding justification for attorney's liens. "The purpose of the attorney's charging lien is to prevent the attorney from being deprived of a fee after having performed legal services which result in the client obtaining something of value." Cole, supra, 292 N.J. Super. at 461; see Norrell v. Chasan, 125 N.J. Eq. 230, 236 (E. & A. 1939). The Firm cannot claim that the asset was obtained by the client as a result of its services when the asset is instead obtained by the client's opponent.
The Firm's counterarguments are unavailing. The Firm insists that it complied with all procedural requirements for the lien. However, "[a]s with all equitable remedies, the lien is not mechanically imposed upon a mere showing of procedural compliance." Sauro, supra, 425 N.J. Super. at 574.
The Firm argues that it perfected its lien against the funds in the Celli account. This argument misapprehends the nature of an attorney's lien. "[T]he statutory lien is only an inchoate right, vesting only after a final judgment [or settlement] has been entered[.]" Id. at 574. "'Under the statute, the lien attaches to the judgment, decision, award, etc., in gross, not to specific assets.'" Id. at 575 (quoting Martin v. Martin, 335 N.J. Super. 212, 225 (App. Div. 2000)). Although the lien attaches to "the proceeds" the client receives in a judgment or settlement, regardless of "in whosoever hands they may come," N.J.S.A. 2A:13-5, the funds here were not proceeds plaintiff received in the settlement. Because the attorney's lien vested only upon plaintiff's proceeds once settlement occurred, this case is distinguishable from the case the Firm cites, Freda v. Commercial Trust Co., 118 N.J. 36, 46 (1990), which held that a commercial mortgage lien on a home was not extinguished by the transfer of the home to the wife in a divorce.
See Martin, supra, 335 N.J. Super. at 223-24 (noting that pre-settlement orders "purport[ing] to establish charging liens in specific amounts and on specific property, if that property 'accrues' to the former client," are "premature because no judgment had yet been entered."
The Firm contends its lien on the funds in the Celli account cannot be extinguished by settlement, citing the Act's language that "[t]he lien shall not be affected by any settlement between the parties before or after judgment or final order." N.J.S.A. 2A:13-5. The Firm misconstrues the purpose of this language. At common law, a charging lien attached only to a judgment. See Musikoff, supra, 172 N.J. at 139. The Act broadened the common-law lien to attach to "'a verdict, report, decision, award, judgment or final order in his [or her] client's favor.'" Ibid. (quoting N.J.S.A. 2A:13-5). The Act's settlement language principally allows the lien to attach also to "the proceeds of litigation that are produced by a settlement without a judgment." Horowitz v. Weishoff, 318 N.J. Super. 196, 206 (App. Div. 1999), opinion corrected on recon., 346 N.J. Super. 165 (App. Div. 2001); see Musikoff, supra, 172 N.J. at 140-42.
"The statute's reach, however, is not unlimited." Schepisi & McLaughlin, P.A. v. LoFaro, 430 N.J. Super. 347, 355 (App. Div. 2013) (citing Musikoff, supra, 172 N.J. at 139). Nothing in the statutory language allows an attorney's lien to attach to assets allocated to a client's opponent in a non-fraudulent settlement.
The Act "does not take away the right of parties to settle their litigations, neither does it alter the conclusive effect of such a settlement when honestly made." Levy v. Public Serv. Ry. Co., 91 N.J.L. 183, 185 (E. & A. 1918). "[T]he cause of action belongs to the plaintiff and he is free to compose his differences with respect thereto vis a vis the defendant without the consent of the attorney, provided he be guilty of no fraud." Fuessel v. Cadillac Bar Corp., 63 N.J. Super. 430, 436 (App. Div. 1960) (citations omitted), certif. denied, 34 N.J. 65 (1961). The Act does, however, ensure an attorney can still collect a lien if the client "settled without the attorney's knowledge," Frankel v. Frankel, 274 N.J. Super. 585, 590 (App. Div. 1994), or engaged in "'clandestine or collusive settlements,'" Musikoff, supra, 172 N.J. at 142. Moreover, as the Firm points out, a defendant who makes settlement payments directly to a settling plaintiff without notice to the attorney does so "'at his peril.'" Id. at 143; see, e.g., Ferraro v. City Hall Garage, 94 N.J.L. 209, 210 (E. & A. 1920). That is not, however, the issue before us.
Here, defendant certified that, before the agreement was incorporated into a judgment or payments were made, he gave notice to the Firm of the agreement and its provision concerning the funds in the Celli account. Both parties certified their willingness to transfer the Firm's lien to the assets that plaintiff received in the settlement. Nonetheless, the Firm claims that the parties engaged in a knowing and calculated attempt to defraud it from collecting its fees from the funds. However, the Firm proffers no evidence of fraud, particularly regarding the parties' conclusion that the funds were exempt. Thus, their resulting agreement that the funds shall "not be subject to any claim by" the Firm, while not binding on the Firm or the courts, is not violative of public policy.
The Firm asserts the parties improperly tried to circumvent the above-mentioned January 12 and May 24, 2011 orders. We will assume those orders were properly entered under our case law, which provides that, "'[a]s necessary, the trial judge may restrain or place in escrow those assets on which an attorney's lien might be imposed.'" Levine v. Levine, 381 N.J. Super. 1, 9 (App. Div. 2005) (quoting Martin, supra, 335 N.J. Super. at 225). However, the funds in the Celli account ceased to be assets on which an attorney's lien might be imposed once they had been allocated to defendant in a non-fraudulent settlement. Further, as the agreement and orders required, the parties sought permission from the motion court to release the funds. In any event, we do not read the May 24, 2011 order enjoining plaintiff from "diminishing or otherwise adversely affecting the Lien" through settlement as forbidding the parties from settling where there were adequate substitute assets to which the lien could attach.
Here, plaintiff received substantial assets in the settlement, which exceeded in value the amount of the lien. As set forth above, the lien can attach only to those proceeds of settlement. The court failed to recognize that limitation in its September 24, 2013 order refusing to release the lien on defendant's funds in the Celli account unless plaintiff deposited $99,759 into the Firm's attorney trust account.
Although the assets plaintiff received in settlement are not as liquid as the funds in the Celli account, an attorney's lien is not a guarantee of the most liquid assets. Rather, it attaches only to the assets actually received by the client in the judgment or settlement. In any event, the Act's "enforcement [is] subject to equitable considerations." Sauro, supra, 425 N.J. Super. at 574. We see no equities justifying the Firm's insistence that its lien attach to assets obtained by its client's opponent in a non-fraudulent settlement.
Finally, the Firm claims that a second order filed May 24, 2011, denied a previous cross-motion by plaintiff to release the funds from the Celli account. However, the second order addressed different issues, namely plaintiff's requests that the court make the Firm deposit into escrow the fees she had previously paid to the Firm and award her counsel fees. Thus, the September 24, 2013 order being appealed addresses plaintiff's first motion to release the lien on the funds in the Celli account and to transfer the lien to her own property.
For that reason, and because the settlement agreement allocating the funds to defendant constituted a crucial change in circumstances, we find inapposite to plaintiff the motion judge's reliance in the May 13, 2013 order on the law of the case to deny defendant's request to release the funds. See N.J. Div. of Youth & Family Servs. v. J.D., 417 N.J. Super. 1, 24 (App. Div. 2010). Equally inapplicable to plaintiff are the requirements for reconsideration included in the judge's September 24, 2013 statement of reasons.
Defendant, though supporting plaintiff's appeal, has not himself appealed, so we need not review whether his motions were properly denied.
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Accordingly, we reverse the September 24, 2013 order to the extent it denied plaintiff's motion to transfer the lien to her own property. We remand for the trial court promptly to release the funds in the Celli account to defendant, determine the proper application of the lien to the assets plaintiff received under the agreement, and schedule a proceeding to resolve the Firm's claim for fees against plaintiff, who has rejected fee arbitration.
Reversed and remanded for further proceedings. We do not retain jurisdiction.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION