USTC ¶50,485] Centex-Landis Construction Co., Inc. v. United States of
America, et al
District Court, East. Dist. La., CIV.
Secs. 6321 and 6323 ]
Lien for taxes: Priority: Attorneys' fees: Interpleader action: Funds
on deposit: Failure to obtain judgment: Settlement agreement, validity
of.--Federal tax liens filed against a bankrupt construction company
seeking to recover delinquent employment taxes owed by a second company
had priority over an attorney's claim for fees with respect to
interpleaded funds deposited in a judicial registry. The attorney, who
did not obtain a judgment against the taxpayer for the fees, failed to
allege that his claim was perfected pursuant to state (
) law. Moreover, the filing of the petition that caused the taxpayer to
bring the interpleader action and that generated the deposited funds was
not tantamount to a settlement to which the attorney had a contractual
claim with priority over the tax lien.
Lien for taxes: Priority: Attorneys' fees: Interpleader action: Funds
on deposit: Failure to obtain judgment: Settlement agreement: Equitable
award.--Federal tax liens filed against a bankrupt construction
company seeking to recover delinquent employment taxes owed by a second
company had priority over an attorney's equitable claim for fees with
respect to interpleaded funds deposited in a judicial registry. The act
of filing a petition was insufficient to mandate an equitable award of
attorney's fees. The attorney did not obtain a judgment or settlement
that resulted in the creation of the interpleader fund. The fact that
the deposited funds benefited the government was irrelevant; there was
neither a judgment nor an agreement with the government stating that the
attorney was entitled to the fees.
ORDER AND REASONS
United States of America
filed a partial motion for summary judgment, asserting that it has
priority over certain creditors who are making claims to the funds in
the amount of $125,000, which have been placed in the registry of the
court by Centex-Landis Construction Co., Inc. (Centex). 1
STANDARD FOR SUMMARY JUDGMENT
judgment is proper when, viewing the evidence in the light most
favorable to the non-movant, "there is no genuine issue as to any
material fact and . . . the moving party is entitled to judgment as a
matter of law." Amburgey v. Corhart Refractories Corp., 936
F.2d 805, 809 (5th Cir. 1991); Fed.R.Civ.P. 56(c). If the moving party
meets the initial burden of establishing that there is no genuine issue,
the burden shifts to the non-moving party to produce evidence of the
existence of a genuine issue for trial. Celotex Corp. v. Catrett,
106 S.Ct. 2548, 2552 (1986). The nonmovant cannot satisfy his summary
judgment burden with conclusory allegations, unsubstantiated assertions,
or only a scintilla of evidence. Little v. Liquid Air Corp., 37
F.3d 1069, 1075 (5th Cir. 1994) (en banc). A fact is
"material" if its resolution in favor of one party might
affect the outcome of the lawsuit. Anderson v. Liberty Lobby, Inc.,
106 S.Ct. 2505, 2510 (1986). An issue is "genuine" if the
evidence is sufficient for a reasonable jury to return a verdict for the
If the opposing party bears the burden of proof at trial, the moving
party does not have to submit evidentiary documents to properly support
its motion, but need only point out the absence of evidence supporting
the essential elements of the opposing party's case. Saunders v.
Michelin Tire Corp., 942 F.2d 299, 301 (5th Cir. 1991).
contends that it filed its Notice of Federal Tax Lien prior to the
defendants and that the "first in time" principle grants
priority to the
against all of the other creditors named in this motion. The
argues that the competing creditors were not judgment lien creditors at
the time the first federal tax lien was recorded; therefore, the
has priority to the funds.
States supports the motion for summary judgment with uncontroverted
documentary evidence that Imagine Construction, Inc. has outstanding
payroll taxes (Form 941 FICA) for the first, second, third, and fourth
quarters of 1995; outstanding payroll taxes (Form 940 FUTA) for 1993 and
1995; and outstanding Annual Return of Withheld Federal Income Tax (Form
945) for 1995.
Notice of Federal Tax Lien was filed on
February 5, 1996
for the Form 941 taxes for the second quarter of 1995. The outstanding
liability for this period, as of
March 27, 2000
, is $236,100.43. On
November 5, 1996
, the Internal Revenue Service served a Notice of Levy on Centex for the
outstanding tax liabilities of Imagine and directed Centex to turn over
to the Internal Revenue Service any property or rights to property that
it was obligated to pay Imagine up to the total amount of $424,675.08.
August 21, 1997
, the Internal Revenue Service served a Notice Of Levy on Centex for the
outstanding tax liabilities of Imagine and directed Centex to turn over
any property owed to Imagine up to the total amount of $560,549.68. On
June 25, 1999
, Centex filed a complaint for interpleader and deposited $125,000 in
the registry of the court.
None of the
defendants dispute that the
filed its Notice of Federal Tax Lien prior to the other creditors or
that the amount of the first Notice of Federal Tax Lien exceeds the
$125,000 deposited in the registry of the court. The sole opposition to
the motion was filed by counsel for Imagine, who argues that he is
entitled to attorney's fees for his representation of Imagine and that
is not entitled to priority against his claims. He seeks $19,440.90 plus
15% of the amount deposited into the registry of the court.
Revenue Code establishes "a lien in favor of the
upon all property and rights to property, whether real or personal"
belonging to a taxpayer who does not pay taxes owed to the
. 26 U.S.C. §6321. The federal tax lien arises at the time of the
assessment and attaches to all property or property rights the taxpayer
holds or subsequently acquires. See Texas Commerce Bank-Fort Worth,
N.A. v. United States [90-1 USTC ¶50,155], 896 F.2d 152, 161 (5th
Cir. 1990); 26 U.S.C. §6322. "State law controls in determining
the nature of the legal interest . . ., but federal law controls the
consequences attaching thereto." United States v. J.T. Hubbell
[63-2 USTC ¶9724], 323 F.2d 197, 200 (5th Cir. 1963). "Federal tax
liens do not automatically have priority over all other liens. Absent
provision to the contrary, priority for purposes of federal law is
governed by the common-law principle that 'the first in time is the
first in right.' " United States v. McDermott [93-1 USTC ¶50,164],
113 S.Ct. 1526, 1528 (1993).
law governs the relative priority of federal tax liens." Feiler
v. United States [95-2 USTC ¶50,448], 62 F.3d 315, 316 (9th Cir.
1995). "The purpose of section 6323(b) is to assist, with a
'superiority,' certain interests whose lien is actually later in time
than filing of the federal tax lien." Capuano v. United States
[92-1 USTC ¶50,163], 955 F.2d 1427, 1433 (11th Cir. 1992). Section
6323(b)(8) accords a "superiority" to liens for attorney's
fees under certain conditions:
Protection for certain interests even though notice filed. Even
though notice of a lien imposed by section 6321 has been filed, such
lien shall not be valid. . . .
Attorneys' liens. With respect to a judgment or other amount in
settlement of a claim or of a cause of action, as against an attorney
who, under local law, holds a lien upon or a contract enforceable
against such judgment or amount, to the extent of his reasonable
compensation for obtaining such judgment or procuring such settlement,
except that this paragraph shall not apply to any judgment or amount in
settlement of a claim or of a cause of action against the United States
to the extent that the United States offsets such judgment or amount
against any liability of the taxpayer to the United States.
concedes that, Imagine has not obtained a judgment against Centex, and
he does not allege that he has a perfected attorney's lien under
Louisiana law, Counsel argues that Imagine's action in filing a petition
against Centex caused Centex to file the interpleader action; therefore,
the funds placed into the registry of the court are the equivalent of a
settlement to which counsel has a contractual claim that outranks the
United States tax lien. The court finds that section 6323(b)8) does not
apply because the mere filing of a petition against Centex is not
tantamount to a settlement and does not accord counsel a
asserts that his action in generating the deposited funds benefitted the
and that he should be awarded attorney's fees for providing that
benefit. In support of his argument, counsel relies on United States
v. Kamieniecki [67-1 USTC ¶9133], 261 F.Supp. 683 (D.N.H. 1966), in
which the district court allowed an attorney's lien on the basis of
equitable principles analogous to the doctrine of unjust enrichment.
Steven Kamieniecki was hired to demolish a building owned by Gertrude
Gladstone. During demolition, an outer wall caved in, and additional
cleanup and repair work was required.
sued Kamieniecki in state court under a negligence theory, and
Kamieniecki, through retained Attorney Richard Leonard, filed a
cross-action to recover for the extra work required for cleanup and
May 26, 1964
, the Superior Court of Hillsborough County, New Hampshire entered a
verdict in favor of Kamieniecki and against
in the amount of $4,368.62. The
filed a civil action to enforce its tax liens against the amount due to
. Attorney Richard Leonard filed an attorney's lien to recover fees,
costs, and 1/3 of the interest that accrued until the judgment was
satisfied. The district court found as follows:
efforts of Attorney Richard Leonard caused the creation of the fund on
deposit in the Registry of this court. Were it not for his efforts the
fund, against which the federal tax lien has been successfully asserted,
would not exist. Although it is a rare situation in which a court should
exercise its discretion in awarding an attorney's fee out of a fund such
as this, I rule that this is one of those very rare cases where
equitable considerations compel the awarding of compensation.
at 691. The court relied on the Fifth
Circuit's decision in Hubbell, an interpleader action in which
claimed the proceeds of a state court judgment in favor of the taxpayer.
[63-2 USTC ¶9724], 323 F.2d at 198. In Hubbell, the government
had made assurances to the court that the attorneys "would be taken
care of" because the fund claimed by the
was created by the efforts of and at the expense of the appellees and
This case is
not one of the rare cases in which equitable consideration mandates the
award of attorney's fees. Unlike Kamieniecki, counsel for Imagine
did not obtain a judgment or settlement that resulted in the creation of
the fund on deposit in the registry of this court; and, unlike Hubbell,
there is neither a judgment nor an agreement with the
that counsel is entitled to the fees. The only litigation associated
with the creation of the fund is the act of filing a petition against
there are no genuine issues of material fact concerning the priority
lien and the amount of the tax lien and the
is entitled to partial judgment as a matter of law as to the creditors
addressed in this motion.
HEREBY ORDERED that the
United States of America
's partial motion for summary judgment is GRANTED. (Document
The United States moves for summary judgment against the following
defendants: Pak Wrap Mail Center, Inc., Iron Workers Mid-South Pension
Fund, Iron Workers Welfare Fund, Mid-South Workers Direct Contribution
Fund, Iron Workers Local 58, Iron Workers Local 58 Apprenticeship Fund,
Cement Masons Local 567 Pension, Welfare and Apprenticeship Funds,
Cement Masons Local Union No. 567 and Vacation Fund, Louisiana and
Mississippi Carpenters Regional Council Pension, Welfare and
Apprenticeship Funds, Louisiana and Mississippi Carpenters Regional
Council and Vacation Fund, Louisiana Laborers Health and Welfare Fund,
Construction and General Laborers Local Union No. 689, Laborers Local
689 Training Fund, Laborers National Pension Fund, Worknet 2000, Inc.,
Concrete Accessories and Supply Co., Inc., Topp Knotch Personnel and
Consulting, Inc., Imagine Construction, Inc., Carpenters District
Council of New Orleans and Vicinity Pension Fund, Carpenters District
Council New Orleans and Vicinity Health and Welfare Fund, Carpenters
District Council of New Orleans and Vicinity Apprenticeship Fund,
Louisiana Worker's Compensation Corporation, Joseph R. Panno, Jerry T.
Webb, and Gats Masonry, Inc. The only defendant not subject to the
motion for summary judgment is the State of
, Department of Labor, Office of Employment. Further, Bank One,
, N.A. (BankOne) has no claim to the money in the registry of the court,
and Centex has been discharged from liability to BankOne for any monies
due from Centex to Imagine in this action.
United States of America
, Appellant v. Fidelity-Philadelphia Trust Company, Frank F. Truscott,
George D. Kline, Samuel Kagle, Appellees
U. S. Court of Appeals, 3rd Circuit, No. 71-1277, 459 F2d 771, 5/2/72,
Rev'g an unreported District Court decision
[Code Sec. 6323]
Tax liens: Priority: Attorney's lien: State law: Pennsylvania:
Federal law: Choateness: Equitable considerations.--Three attorneys
for the sellers of an auto agency were not entitled to priority over
federal tax liens on an escrow fund in the taxpayer-bank. They had no
lien under state law (
), since they were not required to look to the fund, rather than to
their clients, for payment and since they did not have actual possession
of the fund when it was in the bank. Also, they did not have a choate
lien under federal law, since its precise amount was not established
prior to perfection of the federal liens. Further, the attorneys were
not entitled to reasonable fees on equitable principles, since the fund
was not created through litigation but through a business transaction.
Department of Justice,
, D. C. 20530, for appellant. Samuel Kagle, 1232 Bankers Securities
, for appellees.
MCLAUGHLIN, VAN DUSEN and ALDISERT, Circuit Judges.
of the Court
This appeal by
the government from an order of the district court awarding $5,000 to
attorney claimants from an escrow fund requires us to decide whether the
claimants had perfected an attorney's lien under
law and were, therefore, entitled to priority over a federal tax lien.
brought an action in the district court seeking to enforce a 1964 levy
on an escrow account in the Fidelity-Philadelphia Trust Company, held in
the names of Samuel Kagle and Frank Truscott, Attorneys, for the benefit
of O'Brian Buick, Inc., or Carl H. O'Brian and/or Miriam O'Brian, his
wife. In 1961, a delegate of the Secretary of the Treasury made an
assessment of $116,158.67 for 1947, 1948, and 1949 corporate income
taxes against O'Brian Buick, Inc., and in 1963, an assessment of
$83,423.89 for 1951, 1952, and 1953 personal income taxes, penalties and
interest against the O'Brians. It was alleged that there was some
$22,000.00 in the account. Named with the bank as defendants were
Truscott, Kagle and Attorney George D. Kline, because they had asserted
a claim to a portion of the funds as attorneys' fees.
The funds on
deposit represented proceeds from a 1956 sale of the assets of O'Brian
Buick, Inc., whose stock was owned by Carl O'Brian and Jules DeHaan.
Because the sellers were in disagreement over the proposed distribution
of the proceeds, the purchaser imposed as a condition to the sale the
creation of an escrow account in the names of Attorneys Truscott and
Kline representing O'Brian, and Attorney Myron Jacoby representing
DeHaan. After the account was opened, Kagle succeeded Jacoby as DeHaan's
In their brief
filed in this court, appellees assert:
legal services for which claim is made consisted of negotiations with
respective clients as to conflicting claims; adjustment of claims of
creditors, including accountants; and the preservation of corporate
records in a center city office for use by accountants and the
respective parties and for the use and benefit of agents of The Internal
Revenue Service who were investigating the affairs of O'Brian and
court found for the lawyer claimants:
answer to the question of when the attorney's lien became choate is not
crystal clear. There is no doubt as to the identity of the lienors, nor
the identity of the property subject to the lien, but there is no direct
evidence on the record which sets a specific date that the $5,000 fee
was agreed upon. However, there is considerable testimony which gives a
strong indication that an agreement as to this fee was reached in the
early stage in the matters which eventually led to these proceedings . .
. it is apparent that an agreement had been reached as to the fee to be
paid as early as 1956 or 1957. As such, they have established a choate
lien which has priority over the federal tax lien.
a blend of strong evidence that this attorney's lien was choate prior to
the attachment of the government's tax lien, together with the equitable
principles analogous to the doctrine of unjust enrichment compel this
court to rule that the fair and reasonable value of these attorneys'
services be paid out of the fund in question.
court concludes that the fair and reasonable value of these attorneys'
services is $5,000.
When a lien
under state law has acquired sufficient substance and has become so
perfected as to defeat a later arising or later filed federal tax lien
is a matter of federal law. United States v. Pioneer American Ins.
Co. [63-2 USTC ¶9532], 374
84, 88 (1963); United States v. Acri [55-1 USTC ¶9138], 348
211, 213 (1955). Under federal law a state lien is "perfected in
the sense that there is nothing more to be done to have a choate
lien--when the identity of the lienor, the property subject to the lien,
and the amount of the lien are established."
[54-1 USTC ¶9191], 347
81, 84 (1954).
A federal tax
lien is a perfected, choate lien on the date the lien arises. United
States v. Security Trust & Savings Bank [50-2 USTC ¶9492], 340
, supra. The lien arises at the time of assessment and continues
until the liability is satisfied or becomes unenforceable. 16 U. S. C.
§6322. Here it was uncontroverted that assessment was made on
December 1, 1961
, on the corporation, on
November 9, 1962
, on Mr. O'Brian, and on
June 14, 1963
, on both O'Brians. The priority of a lien created by state law depends
upon the time it attached to the property and became choate. Thus, to
obtain priority over the federal lien, it became the burden of the
attorney claimants to prove (1) they had a lien under Pennsylvania law,
and (2) that it was perfected prior in time to the 1961, 1962, and 1963
recognizes two types of attorneys' liens: a charging lien and a
retaining lien. To establish a charging lien "it must appear (1)
that there is a fund in court or otherwise applicable for distribution
on equitable principles, (2) that the services of the attorney operated
substantially or primarily to secure the fund out of which he seeks to
be paid, (3) that it was agreed that counsel look to the fund rather
than to the client for his compensation, (4) that the lien claimed is
limited to costs, fees or other disbursements incurred in the litigation
by which the fund was raised and (5) that there are equitable
considerations which necessitate the recognition and application of the
charging lien." Recht v. Urban Redevelopment Authority of
599, 608, 168 A. 2d 134, 138-139 (1961).
The record is
far from clear as to the precise role played by the attorneys in
attending their principals during the negotiations leading up to the
sale. Mr. Kline testified:
met with Mr. Frankel [the purchaser], and we met with Mr. Jacoby
[DeHaan's attorney], and we met with various sales managers of the
various Buick agencies, one of which was the Wilkie Buick Agency, but
there were two other Buick agencies, the representatives of which were
going down there.
a matter of fact, Mr. O'Brian and I talked to all of them and took them
over to the O'Brian Buick place to show them this stuff. It went on like
that afternoon after afternoon and evening after evening.
did you actively participate in the negotiations that led to and
culminated in the sale of the various assets which were involved in the
did, Mr. Kagle.
we were given notices, when Mr. O'Brian was given notice that the
franchise had been rescinded by General Motors, then we had to look for
customers to buy the assets, meetings with Mr. McLaughlin who
represented--Mr. McLaughlin was general manager of the Buick Division in
the eastern district and he recommended certain people to us. We had to
interview them. We had to take them to
. I drove my car to
with these various people. They went over the assets, went over the
lifts (sic). They went over the--the mechanical aspects of the agency.
They took inventories.
had to stay there at night and took an inventory of the tires, of the
different parts of an engine, of a Buick engine, exhausts.
will never forget there was a question of how many carburetors there
were there and they had to be all recounted four times and I had to be
Even if this
established the claim of Truscott and Kline, this testimony does not
justify the claim of Mr. Kagle who said:
I do not have any personal knowledge of the status of the parties prior
to my advent into this transaction which was sometime in May of 1956,
which was after the proceeds were sold and the fund was created.
to my intervention, Myron Jacoby represented Mr. DeHaan.
there is nothing in the record to indicate that Mr. Kagle succeeded to
Mr. Jacoby's interest, his claim must be predicated upon services
performed after the fund was created.
account was created when the purchaser of the corporate assets insisted
as a condition of the sale that the proceeds be held by respective
counsel until conflicting claims of their clients were resolved. The
sole purpose of the account was to preserve the fund pending resolution
of the conflicting claims of Jules DeHaan and Carl O'Brian.
claimants presented sufficient evidence to establish they had created
the fund, there is no testimony in the record that there was any
agreement between the parties and their clients that they could look to
the fund for their fee. As stated in Recht, supra, 168 A. 2d at
further examination of the record fails to disclose any indication,
averment, or conclusion that there was any agreement between Attorney
Nicklas and Recht that counsel would look to the fund for his
compensation. The only statement in the record in that regard is the
finding and conclusion of the court below that the fee claimed by
Attorney Nicklas for his services was just and reasonable. An agreement
to look to the fund for compensation is essential to the recognition of
a charging lien and this requirement is not satisfied by a finding of
the court that the fee or amount claimed is just and reasonable.
is testimony from claimant Truscott 1
that, at least at one time, they did not look to the fund for payment:
since I knew of the overhanging tax claim of the Government, I thought
all payments, including the accountants' payment, in order to have a
fund as large as I could get to effect a compromise settlement, and I
thought that we should not diminish it by taking our fees, as the
result of which we have not been paid a five-cent piece.
I had known what the Government would do or has done now, we would have
paid ourselves at the same time as payment was made to Carl O'Brian and
DeHaan. But I felt that since there was the overhanging claim, since we
were dealing with the Government, since Mr. Kline was actively seeking a
compromise settlement, we should not reduce the fund by taking a fee.
One of the
prerequisites to establishing a charging lien is an agreement that the
attorney will look to the fund rather than to the client for payment. Recht,
supra, 168 A. 2d at 138-139. Here, the only testimony bearing on any
indication, averment or conclusion that the claimants looked to the fund
for payment is, at best, unpersuasive, and, at worst, militates against
them. We find, therefore, that these claimants did not meet the
requirements for a valid charging lien under
retaining lien 2
in Pennsylvania "is dependent upon possession by the
attorney and binds only money, papers or other property in his hands. Harris
124, 128, 186 A. 92." Silverstein v. Hirst, 376
536, 103 A. 2d 734 (1954). This principle was reiterated in Cuomo v.
Pennsylvania R. R., 157 F. Supp. 358, 359 (W. D. Pa. 1957):
the law of
, the lien of an attorney for the payment of services has been limited
to documents or money in their possession belonging to clients in
connection with the proceedings in which the services were rendered. In
order that the lien might attach it was necessary that the
subject-matter should come into actual possession of the attorney. Laplacca
v. Philadelphia Rapid Transit Co., 265
304, 108 A. 612.
contend that an attorney's account in a bank is tantamount to actual
possession, reasoning that although the relationship between the bank
and depositor is debtor and creditor, Gartner v. Cassatt, 313 Pa.
491, 169 A. 889 (1933), it is the attorney who is the creditor, not the
principal for whom the attorney is agent. Sherts v. Fulton National
Bank of Lancaster, 342
337, 21 A. 2d 18 (1941). However, persuasive this argument may be on
evaluating the rights of a bank vis-a-vis the agent or principal, it
nevertheless fails to meet the nagging problem of actual possession.
There exists an essential difference between actual possession and the
right to possession. There is no question that bank customers have a
right to possession of an amount equal to the funds deposited by them.
In this context, funds as reflected by a deposit of currency may be
compared to fungible goods. On demand, or in accordance with its
regulations, the bank will issue a check or will present currency on the
order of its depositor. However, there is nothing in the relationship of
the bank and depositor requiring the bank to return the exact specie
which was deposited. Furthermore, the reality is that most banking
transactions are by check, and, insofar as the bank is concerned,
"possession" of depositor's funds is merely a computer entry
on a bookkeeping ledger.
is also invited to the common law lien for work done on personalty. It
is indispensible that the person claiming such a lien in
have an independent and exclusive possession of the personalty. Fitzgerald
v. Elliott, 162
118, 29 A. 346 (1894); 5 P. L. Encyc. §20, Possession of Bailed
Property at 90.
We find there
was no actual possession of the funds by the attorneys, and,
accordingly, hold they did not meet the requirements for a retaining
III. Even were
we satisfied that the minimum requirements of an inchoate retaining or
charging lien had been established under
law, there still remains the question of whether it was perfected into
the status of a choate lien in order to merit priority under federal
law. Although the claimants may have proved two of the three
requirements imposed by federal law to legitimate a state lien--identity
of the lienor and the property subject to the lien--we are not convinced
there was sufficient proof that the precise amount of the lien was
established prior to the perfection of the federal tax liens of 1961,
1962, and 1963. Unless the lien was so perfected, it can enjoy no
court found that it had become perfected on the basis of Mr. Truscott's
testimony that services reflected by this claim had ripened and matured
"at the same time as payment was made to Carl O'Brian and
DeHaan," apparently in 1956. Clearly, however, this theory runs
counter to that advanced by Attorney Kline:
had many, many conferences, lot of time spent, as I say, in perpetuating
this fund, not only in effectuating it, but in protecting it, and I
feel, sir, in view of all these circumstances, that the time spent, the
correspondence, letter writing, the checks drawn on the fund to pay
immediate expenses, and in settling the claims of the two
accountants--namely, Mr. Levin and Mr. Fratkin--who each claimed $5,000,
in settling the both claims for $5,000, sir, time and effort went into
that, time and effort went into defense of claims of creditors against
view of that and the time spent we feel that the sum of $5,000 is most
reasonable as counsel fee for both Mr. Truscott--for Mr. Truscott, Mr.
Kagle and myself, sir.
approach, adopted by the district court, also runs counter to the basic
argument pressed by brief in this court; i. e., that the $5,000
fee represented services for "negotiations with respective clients
as to conflicting claims; adjustment of claims of creditors, including
accountants; and the preservation of corporate records in a center city
office for use by accountants and the respective parties and for the use
and benefit of agents of The Internal Revenue Service who were
investigating the affairs of O'Brian and DeHaan." Thus, the theory
accepted by the district court, that the fee was for negotiating the
sale of the business, cannot be reconciled with the testimony of Kagle
and Kline that the fee was based, in part, for services rendered in
creating and protecting the fund and settling the claims against it.
In addition to
the contradictions inherent in the testimony of the claimants, the
procedure employed by the district court in its adjudication is in
itself inconsistent with its conclusion that the amount of the fee--the
amount of the lien necessary to perfect the claim into a choate state
lien--was fixed prior to 1961, 1962, and 1963. At two critical junctures
the court disclosed that it was fixing "the fair and reasonable
value of these attoneys' services." Indeed, it declared: "The
court concludes that the fair and reasonable value of these attorneys'
services is $5,000."
the setting by the court in 1971 of "a fair and reasonable value of
the services" of the attorney claimants is the unspoken premise
that the amount of the fee was not fixed prior thereto. Appellees cannot
have it both ways. Either the fee was fixed in amount prior to this
time, or it was not. If it was fixed, then there was no necessity for
the court to enter into a determination of its reasonableness. The
reasonableness of a fee as reflected by the lien is irrelevant to the
determination of whether a lien has been established, Recht, supra,
168 A. 2d at 139. If it became necessary to fix a fee on the strength of
claimants' own testimony that this was a reasonable charge for services
rendered, then this in itself is evidence that no specific amount for
the fee was fixed prior to the district court's adjudication. Moreover,
it is inconsistent to say the lien became choate in 1956 or 1957 and in
the next breath, referring to equitable principles, declare that the
claim was justified in part because the attorneys "expended
considerable time in maintaining this fund for a period in excess of
for our consideration is an alternate ground utilized by the court in
making the award. The court stated that "equitable principles
analagous to the doctrine of unjust enrichment compel the court to award
them a reasonable attorney's fee for their services in establishing and
maintaining the fund." The court found that "the legal
services rendered by these attorney-defendants substantially and
materially contributed to the creation of this fund. Likewise, they
expended considerable time in maintaining this fund for a period in
excess of eight years."
reliance on United States v. Hubbell [63-2 USTC ¶9724], 323 F.
2d 197 (5th Cir. 1963); United States v. Kamiencki [67-1 USTC ¶9133],
261 F. Supp. 683 (D. N. H. 1963) and Sprague v. Ticonic Nat. Bank,
161 (1939) was misplaced.
a federal tax lien had been lodged against a painting subcontractor, who
thereafter assigned to his general contractor an unliquidated contract
claim he had against a housing authority for extra work performed. The
subcontractor testified that although the government knew of his claim,
it "pointed out they could not represent me or assist me in any
way." The contractor then prosecuted the claim to a successful
judgment. The court held that the contractor and its attorneys were
entitled to an "amount of reimbursement equitably due . . . for
creating the fund for the benefit of the government." 323 F. 2d at
the attorney prepared a petition for declaratory judgment in a state
court and successfully carried it through the New Hampshire Superior
Court and then to the New Hampshire Supreme Court. The Superior Court
decreed an attorney's fee in his favor. In the district court proceeding
which determined the priority of liens, the court found that although
the fee did not qualify as a bona fide lien under state law, the
attorney was entitled to a fee approximating that set by the state
court, because of his efforts in creating the fund through litigation
services describing "this [as] one of those very rare cases where
equitable considerations compel the awarding of the compensation."
261 F. Supp. at 691.
faced with the limited issue of whether a federal court sitting in
equity had the power to award attorney's fees as part of costs in a test
case, ancillary to other litigation, the Court held that "such
allowances are appropriate only in exceptional cases and for dominating
reasons of justice." 307
cases runs a common thread: a fund reduced to judgment as a result of
litigation services rendered by the claimant lawyers for the benefit of
others. In the case at bar, there was no litigation associated with the
creation of the fund. We have searched the record and find no evidence
that Truscott or Kline obtained the buyer who ultimately purchased the
assets of the corporation. Indeed, their testimony is starkly limited to
vague generalizations of accompanying and counseling O'Brian during the
We perceive a basic distinction between legal services which create or
produce a fund by means of litigation and those services which attend a
business transaction in which the fund comes into being by the transfer
of a client's stock certificates to a buyer in exchange for cash. We
express no view on what would have been the effect of testimony
indicating that the attorney claimants in fact produced the purchaser
for their seller clients. Moreover, extremely significant is the fact
that Mr. Kagle, one of the attorney claimants, began his representation
after the sale was consummated, and the escrow accounts opened. There is
no evidence in the record that he succeeded to the interest of DeHaan's
former attorney, Mr. Jacoby.
always a significant factor in deciding the equities, there is nothing
in the record to indicate that the attorney claimants will be, or were,
precluded from pressing their claims directly against their clients or
the estates thereof. Recht, supra, 168 A. 2d at 140.
of the district court will be reversed.
George D. Kline was asked:
Q. Now do you
subscribe to the statements which have been made by Mr. Truscott as you
have read to the Court with respect to his participation in this
transaction involving this fund?
A. I certainly
Described as a possessory lien, Restatement, Security §62(b).
A sample of the obscure and indistinct nature of this testimony is the
examination of one claimant, Mr. Kline. Direct examination by the other
claimant, Mr. Kagle:
are you prepared to express a reasonable judgment as to the time in
point of hours that was devoted to you personally to the operation of
I am prepared to tell you.
Approximately how many hours were devoted to it by you, personally?
me, personally? I would say, Mr. Kagle, at least a hundred hours or
more, a hundred to two hundred hours. It meant not only meetings during
the day, afternoon-afternoon, but it meant meetings at night."
Q. Now, of
those 100 to 200 hours you have estimated you have spent, how much of
this was before the actual sale? Can you break it down roughly into how
much was before the actual sale of the business and how much after?
A. So I would
say that in creating this fund there were--there was over one hundred
hours spent in that alone.