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March 12, 1991


The opinion of the court was delivered by: Kimba M. Wood, District Judge.


Plaintiff the Resolution Trust Corporation ("RTC") in its capacity as receiver and successor in interest to Central Federal Savings Bank, FSB ("Central Federal") brings this action by way of an order to show cause seeking an order from the court requiring defendants Leonard Elman and Berger, Steingut et al. (collectively "the Firm") to turn over files relating to defendant's representation of Central Federal before the RTC took over the bank as receiver. The firm cross-moves to dismiss pursuant to F.R.Civ.P. 12(b)(7) or, alternatively to join Central Federal as an indispensable party pursuant to F.R.Civ.P. 19(a)(1).


Defendants represented Central Federal for many years in a number of matters, primarily foreclosure actions. On December 7, 1990, the RTC informed the firm that Central Federal had been closed and that the Office of Thrift Supervision had appointed the RTC receiver for the bank. On December 20, 1990, the firm learned from the RTC that the RTC had retained new counsel to act on Central Federal's behalf and that the firm was being replaced in all actions in which it had represented Central Federal. At that time, the firm had 54 pending matters involving Central Federal. The RTC requested the firm to send its files on the pending Central Federal matters to the law firms that the RTC had hired to replace defendants. Defendants refused to comply with this request until their fees were paid, arguing that the files were subject to a common law retaining lien. Since that time the parties have attempted to resolve this billing dispute, albeit without success. The RTC claims that it needs the files to begin working on the pending foreclosure actions and that the continued delay on the part of the firm in turning over the necessary files only serves to reduce the chances of the bank's creditors (including the firm) ever receiving full payment. The firm responds that any delay is due largely to the RTC's own dilatory processing of the firm's submitted bills.


As a threshold matter, we address the question of subject matter jurisdiction. The court's jurisdiction to decide this matter rests on 12 U.S.C. § 1441a(l)(1), which provides that "any civil action, suit, or proceeding to which the Corporation*fn1 is a party shall be deemed to arise under the laws of the United States, and the United States district courts shall have original jurisdiction over such action, suit, or proceeding."

The firm asserts that two different liens protect its interests in receiving payment from the RTC. The first is statutory in nature, and gives the attorney who appears for a party a lien on his client's cause of action that attaches to any judgment the client may obtain. N.Y.Jud.Law § 475 (McKinney 1983). The second type of lien the firm claims, and the more important for purposes of this action, is the retaining lien. This lien exists at common law and aims at preventing a client from failing to pay the fees he owes for services rendered. People v. Keeffe, 50 N.Y.2d 149, 428 N.Y. So.2d 446, 449, 405 N.E.2d 1012 (1980). The lien entitles the attorney to retain all files and papers in his possession involving the attorney's representation of the client until the client has paid its account in full. Id.; Trendi Sportswear, Inc. v. Air France, 146 Misc.2d 111, 549 N.Y.S.2d 561, 562 (N.Y.Civ.Ct.1989). It is dependent only upon the attorney's continued possession of those files. New York courts have repeatedly recognized the common law retaining lien and held that a court may not force an attorney to turn over client files held as security for payment of a justly assessed fee without determining the value of the attorney's fee and ensuring that the client either pays the fee or posts adequate security. E.g., Yaron v. Yaron, 58 A.D.2d 752, 396 N.Y.S.2d 225, 226 (1st Dep't 1977); Artim v. Artim, 109 A.D.2d 811, 486 N.Y. So.2d 328, 329 (2d Dep't 1985); The Mint Factors v. Cedar Tide Corp., 133 A.D.2d 222, 519 N YS.2d 27, 28 (2d Dep't 1987).

Here, there is little doubt that the firm has a valid retaining lien on the Central Federal files in its possession. If this case involved the typical scenario in which the issue of a retaining lien arises, one involving two private parties and in which a client changed counsel before the end of litigation, the court's role would be straightforward and its conclusion different. The presence of the RTC as a party, however, and the fact that Congress has established an intricate framework within which the RTC must operate in resolving the affairs of insolvent banks like Central Federal distinguishes this case from those defendants rely upon.

As Judge Spatt recently wrote, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C.A. § 1821(d), "provides a detailed regulatory framework so as to restore the financial integrity of the thrift industry's deposit insurance fund and to 'provide funds from public and private sources to deal expeditiously with failed depository institutions.'" Circle Industries v. City Federal Savings Bank, 749 F. Supp. 447, 451 (E.D.N.Y.1990) (quoting P.L. 101-73, 103 Stat. 183, § 101(8)). To further this stated goal, FIRREA established an administrative mechanism for adjudicating claims. 12 U.S.C.A. §§ 1821(d)(5)-(14). Pursuant to this statutory mechanism, the RTC, in its role as receiver for a failed bank, may accept or reject all or part of a claim. Id. at § 1821(d)(5)(D). If the claimant is unhappy with the outcome of the initial claim review procedure, she may request either an administrative review in accordance with the statute, or file suit on that claim and obtain a de novo judicial review of the RTC's initial determination. Id. at § (d)(6). In addition, the statute provides for expedited determination of claims by the RTC in certain instances. Id. at (d)(8).

In its papers, the firm focuses largely on the state law applicable to attorney's liens. The firm contends that the court cannot order it to transfer its files without first requiring payment of its fees or posting of a bond, as the New York courts have repeatedly held in the private litigation context. Following the procedures outlined in these New York cases would require some type of inquiry by the court into the value of the services the firm provided to Central Federal and the RTC; in essence, the court would have to ascertain the value of the firm's claim. The problem with applying this procedure to the RTC in this case is that the claim adjudication process Congress erected in FIRREA is exclusive. As the statute makes clear,

  no court shall have jurisdiction over — (i) any
  claim or action for payment from, or any action
  seeking a determination of rights with respect to,
  the assets of any depository institution for which
  the [RTC] has been appointed receiver, including
  assets which the [RTC] may acquire from itself as
  such receiver.

12 U.S.C.A. § 1821(d)(13)(D)(i). The statutory claim process is mandatory for all creditors of insolvent banks. Circle Industries, 749 F. Supp. at 455. The statute does not grant a right to bypass this administrative claim mechanism to any specific group of creditors. The firm has submitted its claim to the RTC. Until that process has run its course, this court cannot rule on defendant's claim for fees.

The RTC relies heavily on a recent decision by Judge Debevoise in the District of New Jersey, FDIC v. Shain, Schaffer & Rafanello, Civil No. 91-177, tr. of oral op. (D.N.J. January 18, 1991), to bolster its attempt to compel the firm to turn over its files. In Shain, the FDIC, like plaintiff in this case, sought return of legal files from a law firm that had performed legal services for a bank for which the FDIC had been appointed receiver. As in this case, the lawyers asserting the lien in Shain had submitted their bills to the agency's administrative review process. Judge Debevoise acknowledged that the firm had a retaining lien on the relevant files, but ordered the firm to turn over the relevant legal files to the FDIC nonetheless, in spite of that lien. The court held that because the papers sought by the FDIC had no inherent value, the indebtedness of the law firm to the bank should be viewed as a general creditor's claim and not a secured claim. Id. at 45-46. Based on this classification of the law firm's claim, the court found that to allow the law firm "to receive payment in full at this time would put it in a position vis-a-vis other creditors which the statute does not contemplate." In supplemental papers, the firm argues that it stands in a different position than the law firm creditor in Shain, and that this difference renders the Shain holding inapposite here. Unlike the situation with the law firm in Shain, defendants point out, defendants in this case have in their possession sufficient bank funds to satisfy the firm's claim against the bank.*fn2 The retention of these funds means that the firm is now a secured creditor to the full extent of the amounts owed to it. The firm contends that as a result, the rationale that the Shain decision relies upon does not apply to this case — the firm does not obtain an unfair advantage over other creditors if it is paid out of the monies in its possession.

As the RTC's supplemental papers point out, the question of whether the firm's retaining lien attaches to the bank funds in the firm's possession is more complicated than the firm suggests. According to the RTC, the firm holds Central Federal monies only in escrow. Supplemental Affidavit of Raymond Sullivan at ΒΆ 5. It is not clear whether the firm's retaining lien attaches to such funds. This question, however, is not before the court, and its resolution is not essential to the court's decision. Even assuming arguendo that the firm's possession of money held in escrow for Central Federal renders the firm a secured creditor, thus distinguishing the facts of this case from the situation in Shain, the distinction is not dispositive. Judge Debevoise's holding in Shain does not rely solely on the unfairness of giving the law firm priority over other creditors in a situation where the insolvent bank is unlikely to be able to pay all of its creditors. Rather, underlying the entire decision is the notion that whatever the ultimate fate of the law firm's claims, those claims must be addressed in the context of the claims procedure established ...

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