September 12, 2011
MALCOLM BLUM, PLAINTIFF-APPELLANT,
POONAM AGARWAL, DEFENDANT, AND JUSTIN GILLMAN, ESQ., AND GILLMAN & GILLMAN, ESQS., DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-7480-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 28, 2011
Before Judges A. A. Rodriguez and C. L. Miniman.
Plaintiff, Malcolm Blum, appeals from the April 16, 2010 summary judgment dismissing all claims against his former client's bankruptcy lawyer, defendant, Justin Gillman, Esq. and his law firm Gillman & Gillman, LLC (Gillman firm). We affirm.
Defendant, Poonam Agarwal, was represented by several lawyers from different firms during the course of her contentious divorce from her husband. On August 23, 2003, Agarwal discharged Budd Larner, one of the law firms that represented her. Budd Larner obtained a judgment against her for $126,178.24 in legal fees.
Blum was subsequently representing Agarwal when her husband filed for bankruptcy and the divorce action was stayed pending the resolution of the bankruptcy proceeding. In February 2006, the stay was vacated by a bankruptcy judge.
On September 15, 2006, the matrimonial judge modified the dual judgment of divorce. The husband was ordered to pay: Agarwal's legal and expert fees consisting of $51,247.75 to Blum and $126,178.74 to Budd Larner. Blum contacted Budd Larner to request that the judgment against Agarwal be vacated based on the matrimonial judge's order that the husband pay Agarwal's legal fees. The husband appealed the judgment of divorce and Blum continued to represent Agarwal in the appeal.
On August 18, 2006, the bankruptcy judge permitted the Bankruptcy Trustee to sell some of the Agarwals jointly held real estate and ordered that the proceeds be held in escrow. Agarwal retained the Gillman firm to represent her in the bankruptcy proceedings in December 2006. Three weeks later, the Gillman firm informed Blum that it was Agarwal's lawyer in the bankruptcy proceeding.
Eight months later, on August 30, 2007, the bankruptcy judge ordered that the automatic stay does "not apply to any action taken by [Agarwal] to recover from non-estate property expert fees and attorney fees owed by the Debtor under the Modified Amended Dual Judgment of Divorce." In October 2007, the bankruptcy judge determined that certain surplus funds from foreclosure sales on rental properties were the property of Agarwal. Therefore, these funds were to be released to the Gillman firm and held in an escrow account pending further order from the court. Gillman passed this information to Blum.
The Gillman firm received a $147,491.56 check for the surplus funds. Gillman then informed Blum of this, noting that the "funds were to be held pending entry of an Order by any Court regarding the levy on those funds by Budd Larner as a levying creditor." Blum wrote Gillman that he had an attorney's lien against Agarwal that "exceeds $51,000.00." Gillman replied advising that "[i]f Budd Larner agrees to release its levy on those funds, any funds which are authorized by Agarwal may[ ]be released in a manner she determines subject to" a fee claim by the Gillman firm for approximately $8,000.
Around this time, Law Division Judge Donald S. Goldman signed an order directing the Gillman firm to disburse $58.996.62 to Budd Larner, $25,000 to Blum and $63,494.94 to Agarwal from the escrow account. The three parties consented to this order. On July 29, 2008, the Gillman firm distributed the funds to Budd Larner and Blum in accordance with the consent order and advised Blum that his firm would be distributing the remaining funds to Agarwal.
On November 14, 2007, the bankruptcy judge ordered that another property held jointly by the Agarwals could be sold and the proceeds held in escrow by the trustee. Later, the judge determined that Agarwal's interest in the property was $184,612.75. The bankruptcy trustee issued a check for this amount to the Gillman firm. Blum wrote to Gillman claiming that he just learned from Agarwal that the $184,612.75, less Gillman's fee, had been distributed to her. After Blum confirmed that he would no longer be representing Agarwal, he sent her a final bill for $58,452.12 and notified her of her right to fee arbitration.
She did not pay the fee. Blum filed this action seeking $58,452.12 from Agarwal and $51,257.75 from the Gillman firm.*fn1
Blum and Gillman each moved for summary judgment. The motion judge granted Gillman's motion dismissing Blum's action and issued a written opinion. The judge reasoned that summary judgment was warranted because Blum had not perfected his attorney's lien. Additionally, the judge dismissed Blum's claim against Gillman because Blum had failed to provide an affidavit of merit in a legal malpractice claim pursuant to the Affidavit of Merit Statute (AMS), N.J.S.A. 2A:53A-26 to -29.
Blum appeals contending that the judge erred by dismissing his complaint because Blum did not "perfect" the lien prior to disbursement of the funds. Blum argues that he had a valid lien that attached pursuant to N.J.S.A. 2A:13-5, and Gillman and his firm ignored the lien. Thus, the motion judge erred by dismissing his claim for failure to perfect his lien. We reject this contention.
N.J.S.A. 2A:13-5 "embodies the so-called charging lien that existed at common law, but it also expands the common law lien which had attached only to a judgment." Martin v. Martin, 335 N.J. Super. 212, 222 (App. Div. 2000) (citing Norrell v. Chasan, 125 N.J. Eq. 230, 236-237 (E. & A. 1939)). N.J.S.A. 2A:13-5 provides:
After the filing of a complaint or third-party complaint or the service of a pleading containing a counterclaim or cross-claim, the attorney or counselor at law, who shall appear in the cause for the party instituting the action or maintaining the third-party claim or counterclaim or cross-claim, shall have a lien for compensation, upon his client's action, cause of action, claim or counterclaim or cross-claim, which shall contain and attach to a verdict, report, decision, award, judgment or final order in his client's favor, and the proceeds thereof in whose hands they may come. The lien shall not be affected by any settlement between the parties before or after judgment or final order, nor by the entry of satisfaction or cancellation of a judgment on the record. The court in which the action or other proceeding is pending, upon the petition of the attorney or counselor at law, may determine and enforce the lien.
After the enactment of N.J.S.A. 2A:13-5, we noted that the statute did not set out a specific procedure for determining and enforcing an attorney's lien. H. & H. Ranch Homes, Inc. v. Smith, 54 N.J. Super. 347, 353 (App. Div. 1959). We then set out the following procedure:
The attorney should make application to the court, as a step in the proceeding of the main cause, by way of petition, which shall set forth the facts upon which he relies for the determination and enforcement of his alleged lien. The petition shall as well request the court to establish a schedule for further proceedings which shall include time limitations for the filing of an answer by defendants, the completion of pretrial discovery proceedings, the holding of a pretrial conference, and the trial. The court shall, by order, set a short day upon which it will consider the application for the establishment of a schedule. A copy of such order, together with a copy of the petition, shall be served upon defendants as directed by the court. The matter should thereafter proceed as a plenary suit and be tried either with or without a jury, in the Law Division . . . [Ibid.]
In addition Rule 1:20A-6, titled "Pre-Action Notice to Client," states in pertinent part that:
No lawsuit to recover a fee may be filed until the expiration of the 30 day period herein giving Pre-Action Notice to a client; however, this shall not prevent a lawyer from instituting any ancillary legal action. . . . The notice shall specifically advise the client of the right to request fee arbitration and . . . that if the client does not promptly communicate with the Fee Committee secretary and file the approved form of request for fee arbitration within 30 days after receiving pre-action notice by the lawyer, the client shall lose the right to initiate fee arbitration. The attorney's complaint shall allege the giving of the notice required by this rule or it shall be dismissed.
In Cole, Schotz, Bernstein, Meisel & Forman, P.A. v. Owens, 292 N.J. Super. 453, 459 (App. Div. 1996), we held an attorney's lien invalid when that plaintiff "moved for the imposition of a lien instead of filing a complaint or giving Pre-Action Notice."
Blum points to two cases where attorneys had liens against the proceeds of cases that were settled prior to those attorneys' actions to enforce the liens. See James v. Harris, 42 N.J. Super. 468, 470 (Law Div. 1956); Guernsey v. Young, 49 N.J. Super. 339, 340 (Ch. Div. 1958). Blum cites these cases in support of the proposition that parties who make payments from the proceeds of litigation are themselves subject to liability when an attorney has claimed a lien against such proceeds.
However, in James and Guernsey, the issue was whether an attorney's lien was valid when it was asserted after a judgment or settlement had occurred in the underlying matter. See James, supra, 42 N.J. at 470; Guernsey, supra, 49 N.J. Super. at 340. Neither case addresses the issue of whether an attorney claiming fees must perfect the lien prior to the distribution of the proceeds from the underlying action to establish liability for the party distributing the funds. Rather, in these cases, the courts merely decided that the conclusion of proceedings in the underlying matter does not preclude an attorney from seeking to enforce a lien.
The Supreme Court addressed the same issue in Musikoff v. Jay Parrino's the Mint, L.L.C., 172 N.J. 133, 141 (2002). In holding that attorneys are not required to file a petition prior to the conclusion of the underlying matter, the Court's decision in Musikoff is consistent with the earlier cases. Id. at 142. Such a "construction is consistent with [the Court's] everyday sense of the Act's purpose, which is to protect unpaid attorneys in this setting." Id. at 141. The Court in Musikoff, further noted that the "main focus of the Act's last sentence is on the court and its explicit authority to 'determine and enforce the lien'" and that the "focus suggests that the drafters were more concerned with identifying the forum in which the lien petition would be evaluated and enforced than with limiting the period during which the petition could be filed." Ibid. (quoting N.J.S.A. 2A:13-5).
Blum also cites Musikoff in support of the proposition that the statute protects attorneys under "circumstances where the lien-holder cannot obtain a 'perfected' lien." Blum's reliance on Musikoff is misplaced. The facts of this case differ from those in Musikoff because Blum had ample time to perfect his lien. The judgment of divorce ordering the husband to pay Blum's fees was issued on September 15, 2006. The bankruptcy judge issued the order granting Agarwal relief from the automatic stay on August 30, 2007. The bankruptcy trustee did not issue the $184,612.75 check to respondents until July 2, 2008. During this time, Blum was aware that Budd Larner had a judgment for counsel fees arising from the same matter, "but that he had no judgment against Agarwal for the services he rendered in the divorce proceeding nor had he perfected a lien against funds due her in accordance with the procedures specified in H & H Ranch, supra, 54 N.J. Super. at 353." Thus, Blum had sufficient time to perfect his lien against funds due Agarwal and was aware that there was a competing interest in any funds recovered from Agarwal's husband. "This does not leave Blum without a remedy. He has a judgment against the husband on which there is a principal balance due of $26,247.75 that he may collect from the bankrupt estate and a judgment against Agarwal for $58,215.68."
Blum also contends that the judge erred by ruling that the claim by Blum was a legal malpractice action, and therefore, subject to the AMS. Both parties to the appeal agree, and we concur that the Blum-Gillman dispute is not a legal malpractice action. Therefore, we do not address Blum's contention. We merely note that there is no attorney-client relationship between Blum and Gillman and therefore no duty of care owed by Gillman to Blum. In short, the AMS has no application to this case.