Opinion
Decided June 9, 1930.
Attorney and client — Lien on client's papers for attorney's expenditures, services and costs — Court's inherent power to summarily proceed against attorney circumventing orderly receivership — Summary order refused against attorneys claiming funds produced by them — Section 1711, General Code.
1. Attorneys have lien on client's papers in their possession for their expenditures and services and also for general balance due on costs.
2. Court has inherent power to act summarily on clear professional aggression by attorneys to circumvent orderly procedure of receivership.
3. Where attorneys in good faith claimed funds produced by their services and received from third party, for services rendered client, client's receiver held not entitled to summary order against attorneys (Section 1711, General Code).
ERROR: Court of Appeals for Cuyahoga county.
Messrs. Bulkley, Hauxhurst, Jamison Sharp, for plaintiff in error.
Messrs. Henderson, Quail McGraw, for defendants in error.
This cause is here on error to the court of common pleas of Cuyahoga county, where the court, upon the hearing of a motion for a summary order, filed in a suit by the Guardian Trust Company against the H.A. Stahl Properties Company, to foreclose a mortgage upon an issue of $1,700,000 in bonds and a first mortgage and collateral trust agreement securing the issue, held that the order be refused on the ground that there was no showing of bad faith, but, on the contrary, that good faith was concededly established. The structure of the decision was constituted in substance, of the following facts:
The receiver was appointed in connection with the legal proceedings above noted, and not in an independent suit of a plenary nature which would give the parties against whom the order was directed their day in court upon the question as to the title to the draft and money in question, by way of attorney's lien.
The attorneys had not only performed legal services for the H.A. Stahl Properties Company over a term of years, but had by their legal efforts produced the money in question, which was about $11,132.95, while the amount due for professional services earned was about $20,000. On July 22, 1929, the suit for foreclosure was filed; the intervening pleading of petitioners was filed July 23, 1929; the draft for the above amount was delivered to the National Surety Company, through and by the local agent, to Krueger Pelton, the attorneys in question, as payees, July 24, 1929; on the same day, the draft was delivered to the Guardian Trust Company by Krueger Pelton, and entered on the passbook by the trust company as a deposit in this institution, in the name of the firm, and on the same day the receiver was appointed; on July 25, 1929, the receiver qualified; on July 27, 1929, the Guardian Trust Company, New York City correspondent, collected the draft from the National Surety Company and thereupon notified the Guardian Trust Co. thereof, and thereupon the money was credited on the books of the company to Krueger Pelton, in conformity to the credit in the passbook, as a deposit made July 24, 1929, the draft being payable on its face to Krueger Pelton, attorneys, and the draft being given in full payment of the claim; prior to the receivership the attorneys named notified in writing the H.A. Stahl Properties Company that the draft so received had been applied toward the payment of their claim, as noted, for fees for legal services as above set forth.
Section 1711 of the General Code is the basis for the application for the summary order in the foreclosure proceedings, and, among other things, it provides as follows:
"Such attorney at law receiving money for his client, and refusing or neglecting to pay it when demanded, shall be proceeded against in a summary way, on motion," etc.
After the refusal of the court to issue summary process to the attorneys, exceptions were taken, and thus we have before us the legal propriety of the procedure, and, as this is the only question submitted, the merit or validity of the claim is not before us for review.
Under the authorities there is no question that attorneys have a lien upon their client's papers, and documents in their possession, for their expenditures and services rendered in the client's behalf, and also for a general balance due on account of costs, and on this doctrine the attorneys plant their case, and insist that, under the record, no summary order has any legal structure upon which to rest. Longworth v. Handy, 2 Disn., 75, 13 Dec. Rep., 47, referring to Section 1711 of the General Code, says:
"We have no doubt that the proceeding to amerce is so far penal in its character, as that it does not apply to a case where the attorney has a bona fide claim upon the fund collected, or acts in good faith in refusing to pay it over. * * * The statute undoubtedly contemplates a case where the duty of the attorney to pay over is clear."
In 2 Ruling Case Law, 1063-1066, we find that general authority coincides with the Longworth case, supra, as will be seen by the following excerpt from Section 154:
"It has been held that the general or retaining lien of the attorney on papers, money, etc., in his hands exists not only for all costs, charges, and disbursements due him in the particular cause in which they come into his possession, but also for the costs and the amount due him for other professional business and employment in other causes."
The same doctrine is laid down in In Re Paschal, 77 U.S. (10 Wall.), 483, 19 L. Ed., 992, and in 2 Kent's Commentaries (14th Ed.), page 640.
In 6 Corpus Juris, under "Attorney and Client," page 785, Section 395, it is stated that the attorney's lien "includes ordinary legal documents of the client in the possession of the attorney, and notes, bonds, or money collected by the attorney." And reference is made to the case of Christy Liggett v. Douglas, Wright, 485, and to Fargo Gas Light Coke Co. v. Greer, 18 C.C., 589, 10 C.D., 164.
In the instant case the lien upon the draft and fund arises from the situation disclosed by the record, that the fund represented a draft of the surety company to the order of the attorneys. The draft, and therefore the fund, does not issue from the H.A. Stahl Properties Company, from its assets depleted by the draft either before or after the qualifying of the receiver. The draft issues from a third party, and is given in full discharge of the indebtedness and claim against such party. Had the attorneys with the connivance of the H.A. Stahl Company taken the money from the general assets, the lower court might have hesitated upon the question of good faith. If there appeared in the record some flagrant act of counsel, the tendency of which was deliberately to thwart the effect of the receivership, and thus to obstruct the administration of justice, then the claim of bad faith could well be made. Were the court, from the record, cognizant of some clandestine or surreptitious act on the part of the attorneys to circumvent orderly procedure with respect to the receivership, then it might be claimed that, even in the foreclosure suit, a summary order might issue because of the inherent power of the court to act upon a clear professional aggression. When it arises from the record that in good faith an issue has been raised as to the conflicting rights to the possession of property, a summary order could have no other effect than to deprive a party of his day in court, and the record in this case, in our judgment, shows that there unmistakably projects from the case an issue that must be tried in an independent action wherein the whole field of controversy may be traversed in order justly to decide the case, and the reason is obvious, for the deciding element is that it have good faith for its foundation; and it must be borne in mind that the effect of a summary order in case of good faith might result in irreparable loss arising from a shift in the possession of the fund in question from the claimants to the general assets of the receiver.
The involuntary surrender of property pending a judicial determination, which would be the result of a summary order in the instant case, would reverse the status quo, and thus relieve the attorneys named of the advantage which they now have by virtue of the legal situation, and would transfer it to the receiver, who would merge it with the general assets, and this new situation would create an added burden upon the present possessors of the funds, supplemented by deprivation of the protection of the constitutional provision as to due process. From such a situation is revealed the reason for the holding that in cases like the one at bar summary process shall not be transformed into a quasi judgment, where the contention is impregnated with good faith — especially so in the case at bar, where bad faith is not charged, but good faith conceded.
In line with our reasoning, the general rule as to the rights of receivers to a summary order as against conflicting rights is 23 Ruling Case Law, page 60, Section 66, which we quote:
"The general rule is well established that a receiver cannot ordinarily, through summary proceedings, take into custody property found in the possession of strangers to the record claiming adversely, and if he does so he will be liable individually therefor. The principles upon which the cases announcing this rule generally rest are that the receiver merely stands in the place of, and has no greater rights than, the party over whose property he has been appointed receiver; that everyone is entitled to his day in court; and that summary proceedings are not suitable to try conflicting claims to title. The proper course to pursue in cases where a receiver desires to obtain possession of property in the hands of a stranger to the suit, claiming adversely, is either for the receiver to bring an action against the third party, or for the plaintiff to make him a party to the suit and have the receivership extended as to him. Contempt proceedings are not appropriate."
Counsel in his able and exhaustive brief for plaintiffs in error relies upon the case of Bien v. Robinson, Recr., (1908), 208 U.S. 423, 28 S. Ct., 379, 52 L. Ed., 556, but the distinction between this citation and the case at bar has been noted above. To repeat it, the Bien case fund came directly on check from the general assets, and thus it became obvious that there was an assault made on the body of the property, and did not involve facts such as in the instant case produced a fund which had never assimilated with the general assets. This distinction is vital and controlling even though in certain other respects there are similarities.
Thus holding, the judgment of the common pleas court is hereby affirmed.
Judgment affirmed.
VICKERY, P.J., and LEVINE, J., concur.