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IN RE PATHE NEWS

December 4, 1967

In the Matter of PATHE NEWS, INC., Debtor. In Proceedings for Arrangement


The opinion of the court was delivered by: BRYAN

FREDERICK van PELT BRYAN, District Judge:

 This is a petition to review an order of the Referee in Bankruptcy in a Chapter XI proceeding. The order dismissed an application of petitioners Messrs. Rembar & Zolotar, a firm of attorneys at law, to enforce their attorney's lien for services against allowed claims payable by the debtor to three creditors under a plan of arrangement which had been confirmed but not consummated. The dismissal was on the ground that after the plan had been confirmed the Bankruptcy Court no longer had jurisdiction to grant the relief sought. The sole question presented is whether under the circumstances here the Bankruptcy Court had power to grant such relief.

 For purposes of this review the allegations of the petition must be taken to be true. In substance they are as follows:

 Petitioners Rembar & Zolotar rendered extensive services to Barnett Glassman (Glassman), Jack London Productions, Inc. (London), and Zenith Factors, Inc. (Zenith) creditors of the debtor in the Chapter XI proceedings. Such services included the prosecution of the respective claims filed by these creditors, representation of them at hearings on objections to their claims, the necessary legal work in connection therewith and representation on other phases of the Chapter XI proceedings. Glassman's claim was allowed in the sum of $38,589, of which $12,500 was subordinated to the claims of general creditors. The London claim was allowed in the sum of $65,146, and the Zenith claim in the sum of $6,814. The sum of $5,298 remains due and owing to Rembar & Zolotar for the services so rendered. On January 3, 1966 Rembar & Zolotar served a notice of their attorney's lien in this sum upon the Debtor and their attorneys, upon Hawkins, Delafield & Wood and upon other parties in interest, and a demand that the lien be satisfied out of any monies or property to which Glassman, London and Zenith might become entitled in connection with their claims by reason of any arrangement or otherwise.

 On August 22, 1966, a proposed arrangement which had been pending for some time and which had undergone substantial revisions, was confirmed by order of the Referee.

 Under the terms of the arrangement unsecured creditors received 15% of their claims. No deposit was made to cover the 15%. The plan provided for monthly payments to the creditors' designee for distribution on a pro rata basis. However, the claims of petitioner's clients, Glassman, London and Zenith were subordinated to the claims of other creditors and no payment is to be made thereon until the terms of the arrangement have been fully consummated and other creditors have been paid in full. Article IX of the plan provided that "the court shall retain jurisdiction pursuant to Sections 357(7) and 368 of the [Bankruptcy] Act."

 A week after the plan was confirmed Rembar & Zolotar petitioned the Referee for the enforcement of their attorney's lien in the amount alleged to be due pursuant to § 475 of the New York Judiciary Law, McKinney's Consol.Laws, c. 30, against the claims of Glassman, London and Zenith allowed in the Chapter XI proceedings and any fruits of the arrangement to be received by these clients. In addition to the three creditor clients the petition named the debtor, two other corporations alleged to have entered into a settlement agreement with the creditor clients and the law firm of Hawkins, Delafield & Wood as respondents. Hawkins, Delafield & Wood answered the petition claiming an attorney's lien of their own for services rendered to these creditors other than in the Chapter XI proceedings and asserting want of jurisdiction in the Bankruptcy Court over the subject matter of the petition. The debtor appeared and took a largely passive role. The three creditor clients appeared by counsel but did not file an answer to the petition.

 The Referee held that once the arrangement had been confirmed the Bankruptcy Court had no jurisdiction to enforce the attorney's lien of Messrs. Rembar & Zolotar against the claims of these creditors allowed in the Chapter XI proceedings for services rendered to them which resulted in such allowance. The Referee was of the view that jurisdiction was lacking because "there is no fund or res in the possession of the Bankruptcy Court or subject to its control to which the lien asserted by petitioners could attach." Whether the Referee was correct in so holding is the only question presented on this petition to review.

 Section 475 of the New York Judiciary Law provides:

 
" Attorney's lien in action, special or other proceeding.
 
From the commencement of an action, special or other proceeding in any court or before any state, municipal or federal department, except a department of labor, or the service of an answer containing counterclaim, the attorney who appears for a party has a lien upon his client's cause of action, claim or counterclaim, which attaches to a verdict, report, determination, decision, judgment or final order in his client's favor, and the proceeds thereof in whatever hands they may come; and the lien cannot be affected by any settlement between the parties before or after judgment, final order or determination. The court upon the petition of the client or attorney may determine and enforce the lien."

 An attorney who prosecutes a proof of claim in a bankruptcy proceeding in this district has the attorney's lien given by Section 475 for the services he has rendered in connection with that claim. In re McCrory Stores Corp., 19 F. Supp. 691 (S.D.N.Y.1937); In re Baxter & Co., 154 F. 22 (2d Cir. 1907); In re United Cigar Stores Co. of America, 9 F. Supp. 149 (S.D.N.Y.1934). "The filing of a proof of claim is 'the commencement of an action or special proceeding,' from which time the lien attaches." In re McCrory Stores Corp., supra, 19 F. Supp. at p. 693. By the same token if services are rendered in the prosecution of a claim already filed the attorney's lien attaches from the time such services commence.

 Thus in the proceedings at bar Rembar & Zolotar had a lien for the services they rendered in the prosecution of the claims of Glassman, London and Zenith in this Chapter XI proceeding which accrued and attached as the services were rendered. See Markakis v. The S. S. Mparmpa Christos, 267 F.2d 926 (2d Cir. 1959). Such lien came into being by operation of law and continued to be attached to the claims of these creditors when they were allowed. Notice of the lien and demand for satisfaction had been served upon the debtor and other parties in interest more than six months prior thereto. The lien for services rendered was valid and subsisting at the time the arrangement was confirmed. The lien was already in force and effect at the time the plan was confirmed and the allowed claims of these creditors were subject to such lien at that time and remained so thereafter.

 Thus petitioners are not seeking to establish their lien in these proceedings. The lien was already established. What the petitioners are seeking here is the ...


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