The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge
The Shapiro Firm ("TSF") and Jonathan S. Shapiro, counsel for
defendants and counterclaimants Daniel Franchi and TLI, S.A. ("TLI"),
have submitted a petition to enforce a charging lien against their
clients and also against the plaintiff, Neartek, Inc. ("Neartek"). For
the reasons that follow, the petition is denied with respect to relief
sought against Neartek, and granted as to the claim against Mr. Franchi and TLI.
Neartek initiated this action in July 2002 claiming that Mr. Franchi,
its former President and Chief Executive Officer, had failed to repay a
loan for which Neartek was the guarantor. Mr. Franchi, together with TLI
as intervenor, counterclaimed, alleging that Neartek had wrongfully
engaged in a financing transaction without their consent. Thereafter,
Neartek moved to dismiss the counterclaims. However, the parties entered
into settlement discussions in the summer of 2003, and a decision on the
pending motion was deferred. These negotiations took place between the
principals and did not include the counsel who were appearing in this
action. (Declaration of Nigel Grierson dated Feb. 2, 2004 ("Grierson
Decl."), ¶ 2; Declaration of Jonathan S. Shapiro dated Jan. 20, 2004
("Shapiro Decl."), ¶ 9). For purposes of the negotiations, Mr.
Franchi, who lives in France, retained counsel there. (Grierson Decl.,
An agreement was reached in October 2003, and was executed on October
20. (Grierson Decl., ¶ 5; Declaration of Kurt Redfield dated Jan. 26,
2004 ("Redfield Decl."), ¶ 2). Pursuant to the terms of that
agreement, Neartek was to pay TLI $50,000. TLI and Mr. Franchi were to
return all shares of Neartek stock in return for warrants that could be exchanged for Neartek stock in the
future, and all claims and counterclaims would be dismissed. (Grierson
Decl., ¶ 4; Confidential Settlement Agreement and Mutual Release
("Settlement Agreement"), attached as Exh. B to Supplemental Declaration
of Jonathan S. Shapiro dated Feb. 9, 2004 ("Shapiro Supp. Decl."), ¶¶
1.0, 1.1, 1.2, 1.3).
Prior to the execution of the Settlement Agreement, Mr. Shapiro was
aware that negotiations were taking place between the principals, but
believed they were in the preliminary stages. (Declaration of Jeffrey A.
Simes dated Feb. 3, 2004 ("Simes Decl."), ¶ 5; Shapiro Supp. Decl.,
¶ 5). On October 16 or 17, 2003, however, counsel for Neartek alerted
Mr. Shapiro that the parties were close to settlement. (Shapiro Supp.
Decl., ¶ 6 & Exh. A). Shapiro responded with a letter that stated
In view of the fact that the principals have been
discussing settlement and, as you have informed
me, that it appears they may be close to a
resolution, I assume you and I will get involved
shortly to finalize and present the same to the
Court. Also, as is customary, any payment made by
your client or its affiliates and/or its insurance
carrier(s) in any potential settlement, should be
made to The Shapiro Firm, as attorneys for TLI,
S.A. and/or Daniel Franchi. My firm will then
distribute such funds to our client (s), upon
execution and exchange of settlement documents,
and satisfy any balances owed to my firm, to the
extent there are any balances at such time.
(Shapiro Supp. Decl., Exh. A). Neartek did not honor this request, but instead paid the $50,000 settlement amount directly to TLI
shortly after the agreement was signed. (Grierson Decl., ¶ 5;
Redfield Decl., ¶ 2). In December 2003, counsel for Neartek received
a copy of the executed Settlement Agreement and forwarded it to Mr.
Shapiro. (Simes Decl., ¶ 6). Mr. Shapiro, however, declined to file a
stipulation of dismissal as provided for in the agreement until his fees
had been paid. (Simes Decl., ¶ 6 & Exh. B). Apparently, he
relented after a telephone conference with the Court. (Simes Decl., ¶
Mr. Shapiro and TSF then submitted the instant petition. They contend
that Mr. Franchi and TLI owe them $100,084.90 in legal fees and $6,535.15
in disbursements. (Shapiro Decl., ¶ 12). Further, the petitionees
argue that they have a charging lien on the settlement proceeds pursuant
to § 475 of the New York Judiciary Law which may be enforced against
Neartek, since Neartek paid the settlement over to Mr. Franchi and TLI
without accounting for fees owed to the petitioners.
Neartek responds that because it acted in good faith, it cannot be
liable, and the petitioners' only recourse is against Mr. Franchi and
TLI. Neartek further maintains that the petitioners have not met the
prerequisites for establishing a charging lien because they have not
shown that they are unable to collect the fees directly from their clients. Neartek also argues that the
petitioners should be denied equitable relief because they came before
the Court with unclean hands, having improperly sought to delay execution
of the stipulation of dismissal.*fn1 Finally, Neartek seeks an award of
attorneys' fees for the work performed in responding to the instant
motion. A hearing on the petition was conducted on April 13, 2004.
As a threshold matter, it is well-settled that a district court may
assume jurisdiction over a fee dispute that arises out of a pending
matter. See Joseph Brenner Associates, Inc. v. Starmaker
Entertainment, Inc., 82 F.3d 55, 58 (2d Cir. 1996); Cluett,
Peabody & Co. v. CPC Acquisition Co., 863 F.2d 251, 256 (2d Cir.
1988); Silva Run Worldwide Ltd. v. Gaming Lottery Corp., No. 96
Civ. 3231, 2000 WL 502864, at *2 (S.D.N.Y. April 27, 2000). This is a
particularly appropriate case in which to exercise jurisdiction since the
fee dispute stems directly from the procedure by which the case was
settled and since I am familiar with the background of the dispute. With respect to the merits, the decision of the Honorable John F.
Keenan, U.S.D.J., in ALPA S.A. Agroindustrial Alemano v. ACLI
International, Inc., No. 82 Civ. 6136, 1990 WL 48066 (S.D.N.Y. April
10, 1990), provides a useful template. In ALPA, as here, the principals
negotiated a settlement directly between themselves. Plaintiff's counsel,
Pavia & Harcourt ("P&H"), first learned of the agreement when it
received a proposed order of dismissal from defendant's counsel. P&H
then requested that defendant's counsel deliver to it the settlement
proceeds because the plaintiff still owed P&H a substantial amount of
fees. The settlement amount, however, had already been wired to the
plaintiff in Switzerland. Id. at *1. Although P&H
repeatedly tried to contact its client, the plaintiff never responded.
Id. at *2. Accordingly, P&H sought to recover its fees from
both its client and from the defendant. The court held that the charging
lien could be enforced against the client but not against the defendant.
Id. at *1, 4.
Applying New York law, Judge Keenan noted first that "when a cause of
action is honestly settled, without the consent or knowledge of the
plaintiff's attorney, the plaintiff's attorney's lien is transferred to
the settlement proceeds." Id. at *3 (citation omitted). In this
case, as in ALPA, the settlement proceeds have been transferred
to the petitioners' client. Here, Mr. Shapiro and TSF have established that they provided services to
Mr. Franchi and TLI for which they have not been paid that are valued in
excess of $50,000. (Pet. Exhs. 1, 2, 3, 3a, 4, 4a, 6, 6a). Although Mr.
Franchi sent a letter to TSF dated March 30, 2004 disputing the balance
owed (Pet. Exh. 25), neither he nor TLI appeared at the hearing on the
fee issue, despite having been provided notice. The petitioners therefore
have a valid lien of $50,000 enforceable against the settlement proceeds.
APLA dictates a different result with respect to Neartek. The
first factor that Judge Keenan relied on in denying recovery against the
settling defendant was that "[t]he facts do not indicate that defendant
or its counsel was at all aware of the dispute between plaintiff and
P&H regarding the unpaid portion of P&H's fees and expenses."
Id. The same is true here. Nigel Grierson, the director of
Neartek with whom Mr. Franchi negotiated, had no knowledge of any dispute
between Mr. Franchi and TSF, but merely assumed that Mr. Franchi had
engaged additional French counsel to assist in the negotiations as a
matter of convenience since he lives in France. (Grierson Decl., ¶¶ 6,
7). And, while the knowledge of Neartek's counsel is also appropriately
imputed to the client, counsel, too, was unaware of the dispute. Mr.
Shapiro merely requested that the settlement be paid to his firm for distribution to his clients and so that he could "satisfy any
balances owed to [his] firm, to the extent there are any balances at such
time." (Shapiro Supp. Decl., Exh. A). Even now, Mr. Shapiro acknowledges
that this language "doesn't mean there's a fee dispute." (Tr. at
The second factor relied upon by Judge Keenan in ALPA was
that "there are no facts to indicate that the defendant fraudulently or
collusively induced the plaintiff to settle. . . ." Id.
Likewise, in this case there is no evidence that Neartek colluded with
Mr. Franchi to achieve a better settlement by removing TSF from the
Next, Judge Keenan distinguished cases in which New York courts
permitted plaintiffs counsel to recover their fees from the defendant
after the plaintiff had left the jurisdiction without compensating its
attorneys. He noted that in those cases, "the aggrieved attorneys were
unaware of the settlement discussions and were thus taken by surprise and
given no opportunity to protect their rights." Id. at *4. By
contrast, plaintiff's counsel in ALPA, like TSF here, "was fully aware of
the principal to principal discussions, yet made no provision for the
payment of its outstanding fees." Id. And, in ALPA as well as
in the instant case, unlike in those cases cited by plaintiff's counsel
in ALPA and by TSF here, the court has jurisdiction over ...