United States District Court, S.D. New York
May 2, 2005.
ROSEWOOD APARTMENTS CORPORATION, Plaintiff,
PETER ROBERT PERPIGNANO, LEONARD EISENBERG, IRVING EISENBERG, ANTHONY ALIZIO, and JOSEPH ALIZIO, Defendants and Third Party Plaintiffs, v. CASDEN PROPERTIES OPERATING PARTNERSHIPS, L.P. and CASDEN PROPERTIES SUB LLC, Third Party Defendants. SCHIFF HARDIN LLP, Petitioner, v. ROSEWOOD APARTMENTS CORPORATION, CASDEN PROPERTIES OPERATING PARTNERSHIPS, L.P., CASDEN PROPERTIES SUB LLC, XYZ HOLDINGS LLC, and ALAN CASDEN, Respondents.
The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge
MEMORANDUM AND ORDER
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.
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
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
IT IS SO ORDERED.