Opinion
44100/04.
Decided July 12, 2005.
Amelia Dweck for Morris, Duffy Alonso Faley, New York City, for defendant GEICO Insurance Company. Scott Sherman of Sherman Basichas, LLP, New York City for plaintiff.
When an insurance company settling a personal injury case is on notice that the plaintiff's prior attorney had a lien on the settlement proceeds, what is its obligation to that attorney when issuing the settlement check? This case requires that the Court answer this question in the hopefully unusual circumstance where the successor attorney absconded with the entire proceeds of the check for attorneys' fees, even though the check was payable to both attorneys.
The facts concerning the underlying personal injury case are not in dispute. Kseniya Golovina, an infant, was involved in a motor vehicle accident on August 16, 1999. Her mother retained the plaintiff Sherman Basichas, LLP (Sherman) to represent the child in a personal injury action. In or about May 2000, defendant Simon Shakhanov (Shakhanov) was substituted for Sherman as plaintiff's attorney, and the two attorneys reached an agreement that the amount of Sherman's fee would be determined by the court at the conclusion of the case. In February 2002, GEICO and Shakhanov agreed to settle the action for $80,000. Shakhanov then submitted an infant compromise order, without informing the Court that Sherman was entitled to receive a portion of the attorneys' fees. Accordingly, Judge Alice Fisher Rubin entered an Infant Compromise Order dated February 26, 2003, directing that GEICO "pay the sum of $80,000 in settlement of the infant's claim herein, that out of said sum there be paid to Simon Shakhanov Associates, P.C., attorneys for the infant, the sum of $26,640 in full settlement of the attorneys claim for compensation and services."
Once the infant compensation order had been signed, GEICO's adjuster, Arleen Keifetz, issued a check for $26,640.00 payable to Shakhanov and Sherman, and mailed it to Shakhanov. Shakhanov then endorsed the check on behalf of both himself and Sherman, without Sherman's authorization, and appropriated the funds for his own use. Sherman then applied to the court for an order determining his portion of the fee. On December 3, 2003, Judge Jack Battaglia directed Shakhanov to pay to Sherman 50% of the attorneys' fee, or $13,120.00, together with interest from March 6, 2003. Sakharov failed to do so. On August 9, 2004, Sakharov was suspended from the practice of law.
Sherman commenced this action against GEICO and Shakhanov in July, 2004. Sherman alleges that GEICO violated its duty to protect Sherman's statutory lien, and is, as a result, liable to Sherman for the share of the attorneys' fees awarded to it by Judge Battaglia.
Sherman also seeks relief against Shakharov, but in view of Shakharov's apparent disappearance, those claims are likely to be futile.
Now, GEICO moves to dismiss plaintiff's complaint for failure to state a cause of action, or, in the alternative, for summary judgment. It argues that it discharged any duty to Sherman by advising it of the settlement before issuing the check, and by then issuing the check made payable to both attorneys. It further argues that it could not have foreseen that Shakhanov would endorse the check fraudulently, and that, as a result, it is not liable for the subsequent appropriation of the funds by Shakhanov. Since GEICO asks the Court to consider facts outside the complaint on both branches of its motion, the Court will treat its entire motion as a motion for summary judgment.
Plaintiff cross moves for summary judgment on the ground that GEICO violated its statutory duty to Sherman by failing to protect its statutory lien. Consequently, plaintiff maintains that GEICO is indebted to it for the amount which it should have received from Mr. Shakhanov.
To establish that it discharged its duty to plaintiff, GEICO attaches to its moving papers portions of its "policy log," purporting to constitute a log of all telephone communications related to the underlying personal injury action. Through the affirmation of its counsel, GEICO seeks to establish that the "policy log" is a business record on which the Court can properly rely in deciding its motion for summary judgment. However, counsel is not competent to establish that the "policy log" is a business record, as she lacks personal knowledge of her client's business practices. Since defendant has failed to establish that the "policy log" is a business record, the Court cannot consider it in support of defendant's motion for summary judgment. (see CPLR 3212; Bowers v. Merchants Mut. Ins. Co., 248 AD2d 1005, 1006 [4th Dept 1998]; cf. DeLeon v. Port Auth. of NY N.J., 306 AD2d 146 [1st Dept 2003]; First Interstate Credit Alliance, Inc. v. Sokol, 179 AD2d 583, 584 [1st Dept 1992]).
On the other hand, to the extent that the "policy log" contains admissions against GEICO's interest, the Court can consider those portions of it in support of plaintiff's cross motion for summary judgment, since "the admissions by a party of any fact material to the issue are always competent evidence against him, wherever, whenever or to whomsoever made." ( Reed v. McCord, 160 NY 330, 341). Consistent with that, the Court will consider and rely on the "policy log" to conclude that Ms. Keifetz knew, as of August 2, 2000, that Sherman had a lien on the proceeds of the personal injury claim; that she received a letter from Sherman, in February 2002, reminding GEICO of its lien; and that, on February 28, 2003, Ms. Keifetz issued the check for the attorneys' fees in the amount of $26,640.00, made payable to both attorneys and mailed it to Shakhanov, without speaking to Sherman and certainly without obtaining Sherman's consent. I specifically decline to find that Ms. Keifetz called Sherman on February 28, 2003 to advise it about the settlement check, since that is not an admission and plaintiff has failed to establish that the policy log comes within any other exception to the hearsay rule.
GEICO argues that plaintiff's claim is deficient as a matter of law because plaintiff has failed to state a cause of action in negligence. While that may be true, it is irrelevant, since plaintiff's claim against GEICO is not for negligence but rather for breach of its duty to Sherman under Judiciary Law § 475. (Schneider, Kleinick, Weitz, Damashek Shoot v. City of New York, 302 AD2d 183, 186 [1st Dept 2002]). For the reasons set out below, the Court finds that plaintiff stated a cause of action against GEICO under Judiciary Law § 475, and has proven it.
The facts in Schneider are in many respects similar to those in the case at bar. In that case, Schneider, Kleinick, Weitz, Damashek Shoot (Schneider) brought a personal injury action against the City of New York on behalf of a client. Its client then retained new counsel, Jordan and Frederick (Jordan). Immediately after the substitution of counsel, Schneider advised the City of its retaining lien. Later, the City advised Schneider first that the parties were negotiating a settlement, and then that an infant compromise order had issued which did not include a provision for payment of a portion of the fee to Schneider. Consistent with the infant compromise order, the City paid the entire attorneys' fee to Jordan. Schneider brought on a motion to determine the amount of its fee. The Court first directed Jordan to hold the attorneys' fee in escrow, and then directed it to pay 80% of the fee to Schneider. Jordan did not do so, and Schneider sued the City for its portion of the fee.
The Appellate Division, reversing the trial court, entered summary judgment for Schneider. After doing an exhaustive analysis of the history of Judiciary Law § 475 and the case law interpreting it, the Court concluded that the City had paid the attorneys' fee to Jordan at its own "peril," since "a defendant who has knowledge of a plaintiff's attorney's lien is under an affirmative duty to protect the lien, and if he fails to do so, he is liable for the reasonable value of that attorney's services to his client" (Schneider, Kleinick, Weitz, Damashek Shoot v. City of New York, 302 AD2d at 190 citing Sehlmeyer v. Universal Oven Co., 118 AD2d 692, 694 [2nd Dept 1986]). The Court reaches the same result here.
Essentially, the Schneider Court held that, in order to state a cause of action under Judiciary Law § 475, the plaintiff law firm must prove that it has a charging lien on the proceeds of a lawsuit; that the lawsuit was resolved favorably, leading to the creation of a fund; that a determination has been made as to the portion of the fund due to the plaintiff law firm; that defendant is on notice of the lien; and that the amount due to the plaintiff law firm has not been paid. In this case, Sherman adequately stated each of these elements in its complaint. Moreover, GEICO's moving papers acknowledged that each of these facts had been established; that is, that Sherman commenced the lawsuit on behalf of Ms. Golovina; that it advised GEICO of its lien; that the case was settled; that Judge Battaglia awarded 50% of the attorneys' fees to Sherman and that Sherman has not been paid. Accordingly, I find that Sherman has made out a prima facie case for summary judgment.
GEICO asserts several arguments in support of its claim that judgment should be entered in its favor. First, it argues that its adjuster telephoned the plaintiff's attorney to advise it of the settlement before issuing the check. The Court rejects this argument for two reasons. First, as set forth above, GEICO has failed to establish by proof in admissible form that Ms. Keifetz telephoned Sherman before issuing the check. Secondly, even if she had made a telephone call, that would not absolve GEICO of liability. The attorney for the City in Schneider had indisputably called the plaintiff law firm, but the Court held that it was still liable.
Secondly, GEICO argues that it could not have foreseen Shakhanov's fraudulent endorsement of the check, so it cannot be held liable. That is not correct. If Sherman had agreed that GEICO could discharge the lien by sending Shakhanov a check payable to both Sherman and Shakhanov, then GEICO would be in a very different position, since it is a defense to a claim under Judiciary Law § 475 that the lien was discharged with the plaintiff's consent. ( Schneider, 302 AD2d at 188, citing Fischer-Hansen v. Brooklyn H.R. Co., 173 NY492, 502 [1903]). But in this case, GEICO has failed to prove that Sherman consented to the payment to Shakhanov. Consequently, it was obligated to retain funds to pay Sherman and remains liable to it for the amount of attorneys' fees which the Court has awarded to it.
Third, GEICO argues that Sherman "received payment on the lien but his signature was illegally forged." This is a remarkable argument. If one of GEICO's customers claimed that it had properly mailed a check to GEICO but the check was intercepted in the mail and illegally forged, would GEICO agree that it had "received payment" since the check was properly made out to it? Yet that is precisely the argument that GEICO is making here. Sherman has certainly not yet "received payment."
Finally, GEICO argues that Sherman may have a cause of action against GEICO's bank for cashing the fraudulently endorsed check. However, the cases cited by GEICO do not hold that the payee of a forged check has a claim against the bank. Rather, the cases it cites, Putnam Rolling Ladder Co. v. Manufacturers Hanover Trust Co., ( 74 NY2d 340) and Avila v. Bank of Am. Nat'l Trust Sav. Ass'n, 826 F Supp 92 (SD NY 1993) both hold that a customer has a cause of action against its bank for paying a forged check. Consequently, these cases support the imposition of liability on GEICO since it, unlike Sherman, has a remedy against its bank.
Consequently, I find that GEICO has neither established its right to summary judgment, nor rebutted Sherman's prima facie case.
Accordingly, summary judgment shall enter in favor of plaintiff and against defendant GEICO in the amount of $13,120.00, with interest at 9% from March 6, 2003.