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United States District Court, S.D. New York

May 2, 2005.


The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge


Petitioner pro se Schiff Hardin LLP, as successor to Schiff Hardin & White (collectively, "Schiff Hardin"), brings this petition to fix and enforce an attorneys' charging lien against its former clients, respondents Rosewood Apartments Corp. ("Rosewood"),

Casden Properties Operating Partnerships, L.P., Casden Properties Sub LLC, XYZ Holdings LLC ("XYZ") and Alan Casden pursuant to Section 475 of the Judiciary Law of the State of New York. For the following reasons, we deny Schiff Hardin's petition to fix and enforce an attorneys' charging lien.


  In 1978, New Haven Plaza Associates ("NHPA" or "the partnership") was formed as a tax shelter for a number of high net worth individuals.*fn1 The partnership built the New Haven Plaza Apartments ("the Project"), a Section 8 subsidized housing project. Subsequent to the construction of the Project, Real Estate Associates Limited II ("REAL II") became the general partner of NHPA and designated its affiliate, Rosewood, as the replacement general operating partner.*fn2

  This action has its origin in a three-stage transaction that took place on December 30, 1998, in which REAL II sold its 85% stake in the partnership to Casden Properties Sub LLC, which in turn transferred the interest to an affiliated entity, Casden New Haven LLP. Rosewood then transferred its general partnership interest and the defendants' limited partnership interest to Casden New Haven LLP in exchange for shares in a Real Estate Investment Trust known as Casden Properties Operating Partnership ("the REIT"). The result of the transaction was that the defendants and Rosewood, who had collectively owned about 15% of the interest in the title to the property, instead owned 55,556 operating partnership units ("OPUs") in the REIT, which were the sole remaining asset of the partnership.

  In 1999, Rosewood brought a declaratory action seeking a judgment that its transfer of the Project was authorized and proper. Rosewood I. On June 11, 2001, we found the transfer was unauthorized because it "so fundamentally change[d] the character of the limited partners' investment that it [could not] be considered in furtherance of the partnership's stated purposes," and we granted summary judgment to defendants. Id., 2001 WL 649824 at *6.

  In September 2001, plaintiff agreed to substitute $268,000 in cash for the defendants' share of the OPUs held by NHPA. While defendants objected to the transaction because of its tax implications, on March 20, 2002, we declined to issue a preliminary injunction to prevent the cash transaction. Rosewood II, 200 F. Supp. 2d at 279-80. We also ordered an accounting to determine whether the defendants received the distributions due to them under the Partnership Agreement for the period before December 30, 1998, holding that defendants would prevail on their counterclaim for breach of fiduciary duty if the sum of the distributions due to them exceeded $268,000. Id. at 280. On July 16, 2003, on the eve of trial, the case was settled on the record and thereafter closed on the Court's docket.

  Apparently, the parties then agreed on different settlement terms; Rosewood's account of the actual settlement arrangements follows. Recall that as of the Rosewood I opinion, NHPA owned OPUs in the REIT and the REIT owned the Project. Following our ruling in Rosewood I, Rosewood earmarked $268,000 in cash on NHPA's books to substitute for the defendants' share of the OPUs. Declaration of Alan I. Casden ("Casden Decl.") ¶ 28. In April 2002, NHPA formally assigned the OPUs to The Casden Company. Id. ¶¶ 28, 36. In July 2003, the Project was owned by Apartment Investment and Management Company ("AIMCO"), which had acquired the REIT from XYZ in December of 2001. Casden Decl. ¶ 29. By virtue of that acquisition, the REIT OPUs assigned to The Casden Company had been converted into AIMCO OPUs in March, 2002. Id. ¶ 31.

  In order to effect a settlement, the parties unwound the transfer of the Project. AIMCO sold the Project to Anthony Alizio — a limited partner in NHPA and one of the Rosewood defendants. Id. ¶¶ 41-42. Alizio agreed, in turn, to settle the claims of the remaining defendant limited partners by paying $750,000 into NHPA for distribution to them. In exchange for their shares of the $750,000, those limited partners agreed to divest themselves of their interests in NHPA and forego claims to additional NHPA assets. Following the distribution of the $750,000, the parties agreed that NHPA would dissolve and all residual assets of NHPA, including the $268,000 pledged as substitution for the OPUs, would go to the general partner, Rosewood.

  When Rosewood brought this action, NHPA owned the OPUs and the REIT owned the Project. At the conclusion of settlement, the Project had been transferred from AIMCO to Anthony Alizio and $750,000 was transferred from him to NHPA to the other limited partners. The OPUs went from NHPA to The Casden Company, and the $260,000 Rosewood had pledged as substitution for the OPUs went back to Rosewood. In sum, the parties unwound the impermissible trade of the Project for the OPUs; Alizio supplied $750,000 to compensate the other limited partners for their shares in the Project; and Alizio bought the Project from AIMCO, presumably at a $750,000 discount for which the Casden entities somehow compensated AIMCO in order to facilitate settlement.

  Robert J.A. Zito has represented Rosewood, the REIT, and Casden Properties Sub LLC throughout this litigation, but only joined petitioner Schiff Hardin on March 3, 2003. Petitioner claims it is owed $293,251.44 for legal services rendered in this case. On February 4, 2005, Schiff Hardin filed a petition to fix and enforce an attorneys' charging lien against respondents pursuant to Section 475 of the Judiciary Law of the State of New York. In addition to naming the plaintiff and third-party defendants it represented in Rosewood, petitioner names XYZ and Alan Casden, who it claims controlled and were responsible for those parties. Petitioner therefore seeks a lien on the $268,000, as well as on the OPUs what went from NHPA to The Casden Company.


  N.Y. Judiciary Law § 475 provides:

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 a 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.
  The principle underlying an attorney's lien is that "[the attorney's] services have aided in creating the value to which the lien attaches." Matter of the Petition of Gertrude M. Jones, 76 Misc. 331, 333, 136 N.Y.S. 819, 820 (Sup.Ct. Nassau Co. 1912). The charging lien, therefore, "is not a general lien. It is a specific lien in the subject matter of the controversy," and when a court decides against the plaintiff's claim, "there is nothing to which the lien could attach." Id.

  Furthermore, in order to establish a lien under Section 475, ". . . there must be asserted a claim which can eventuate in there being proceeds payable to, or assets recoverable by, the client as a result of the efforts of the attorney. Hence, merely defending against a claim, without seeking any affirmative recovery, does not enable the attorney to obtain the protection of the statute." United Oriental Bank v. 450 West 31st Street Owners Corp., 155 Misc.2d 675, 676, 589 N.Y.S.2d 390, 390 (Sup. Ct. New York Co. 1992) (collecting cases).

  Finally, when "the attorneys have defended or protected their client's interest and property without obtaining an affirmative recovery, they are not entitled to a lien on property that their client retains." Insurance Company of Hannover, Inc., v. Latino Americana de Reseguros, S.A., 868 F. Supp. 520, 527 (S.D.N.Y. 1994) (citing Ekelman v. Morano, 251 N.Y. 172, 176 (1929), Desmond v. Socha, 38 A.D.2d 22, 24, 327 N.Y.S.2d 178 (3d Dept. 1971)). See also Petition of Rosenman & Colin v. Richard, 850 F.2d 57, 61 (2d Cir. 1988) ("An attorney who merely defends or protects his client's interest in property without obtaining an affirmative recovery is not entitled to a lien on the property that his client retains."). In Rosenman, a client contended that her attorneys could only enforce a charging lien against her affirmative recovery in the underlying lawsuit, while the firm argued that the lien was enforceable against the money and property she "retained pursuant to the judgment in that lawsuit." Id. (emphasis added). The Second Circuit concluded that the lien was enforceable only in the amount of the client's affirmative recovery in the underlying lawsuit. Id.

  Rosewood brought an action seeking a declaratory judgment that it was authorized, on behalf of NHPA, to transfer the Project. Complaint at 6. Rosewood also sought judgment that the value of the Project was $5.4 million, that the OPUs were worth $1,000,008, and that the consideration received by NHPA, the plaintiff, and the defendants was fair and reasonable. Id. The purpose of seeking these later judgments was to establish that the transfer adequately compensated the limited partners and so was consistent with Rosewood's fiduciary duty to them.

  In the declaratory judgment action, we were called upon to decide whether Rosewood was authorized to trade the partnership's ownership interest in the Project for shares in an REIT. The declaratory judgment action could not have resulted in a monetary judgment for or against Rosewood, and our opinions in the case simply declared Rosewood's obligations under the partnership agreement. Unlike a personal injury case where a party can recover compensatory damages, or a breach of contract action where a party can recover consequential damages, Rosewood's declaratory judgment action could not have resulted in a judgment yielding money or property against which a lien could be attached. See Jones, 76 Misc. at 333.

  Not only was Rosewood's action one in which it could not have recovered damages, but we also granted summary judgment against the claim. We determined that the Partnership Agreement did not authorize Rosewood to effectuate the 1998 transaction, but did authorize Rosewood to sell the property so long as the limited partners received fair value for their interests. Our decision that the exchange of the Project for the OPUs was unauthorized effectively mooted Rosewood's other requests for declaratory relief. The only remaining claims after our Rosewood I opinion were the defendants' counterclaims. Thus, after June 11, 2001, Rosewood was not seeking any affirmative recovery from the defendants, so there are no proceeds against which petitioner, whose representation began in 2003, can assert an attorneys' charging lien. See United Oriental Bank, 155 Misc.2d at 676.

  Petitioner nonetheless characterizes the settlement as a "windfall" for respondents under which they "went from being exposed to a potential liability of some $4 million to being the recipient of the OPUs and cash which are estimated to be worth some $2.5 million in total." Petitioner's Reply Memorandum at 9. However, an attorney's charging lien does not attach to potential liabilities which the attorney avoids for his client. To hold otherwise would allow an attorney to circumvent the rule CONCLUSION

  For the foregoing reasons, we deny Schiff Hardin's petition to fix and enforce an attorneys' charging lien.*fn3


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