Industry Network v. Armstrong

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

4-25-1995

Industry Network v Armstrong
Precedential or Non-Precedential:

Docket 94-5132

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Recommended Citation
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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 94-5132 and 94-5164

THE INDUSTRY NETWORK SYSTEM, INC.

V.

ARMSTRONG WORLD INDUSTRIES, INC.

STEVEN M. KRAMER,
Appellant

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civil Action No. 84-03837)

Argued December 1, 1994

Before: HUTCHINSON and NYGAARD, Circuit Judges
and SEITZ, Senior Circuit Judge

(Opinion filed April 25, 1995)

STEVEN M. KRAMER, ESQUIRE (Argued)
Steven M. Kramer & Associates
150 West 56th Street
65th Floor
New York, NY 10019
Attorney for Appellant

JAMES M. LEE, ESQUIRE (Argued)
Crummy, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, NJ 07102-5497
Attorney for Appellee
Industry Network System

KEVIN P. RODDY, ESQUIRE
Milberg, Weiss, Bershad, Hynes & Lerach
355 South Grand Avenue
Suite 4170
Los Angeles, CA 90071
Attorney for Appellee
Industry Network System

EDITH K. PAYNE, ESQUIRE
Stryker, Tams & Dill
Two Penn Plaza East
Newark, NJ 07105
Attorney for Appellee
Armstrong World Industries

MARTIN LONDON, ESQUIRE
CAMERON CLARK, ESQUIRE
JEH C. JOHNSON, ESQUIRE
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attorney for Appellee
Armstrong World Industries

CARL A. SOLANO, ESQUIRE
ARLIN M. ADAMS, ESQUIRE (Argued)
Schnader, Harrison, Segal & Lewis
1600 Market Street
Suite 3600
Philadelphia, PA 19103
Attorneys for Appellee
Armstrong World Industries

OPINION OF THE COURT

NYGAARD, Circuit Judge

Appellant Steven M. Kramer is an attorney who

represented The Industry Network System, Inc. and Elliot Fineman

in the underlying litigation, an antitrust case against Armstrong

World Industries. After the first trial, in which his clients

prevailed, Mr. Kramer ceased to represent both plaintiffs.1 The
1
. There is a dispute between Kramer and his former clients
whether he was discharged or withdrew. The district court made
no finding on this point, but the circumstances of how the
relationship was severed are not significant to our decision.
issues that culminate in this appeal arise from the severance of

that relationship. Kramer believes he is entitled to a lien to

ensure that his fees will be paid and argues that the district

court failed to recognize a lien. He appeals from three orders

of the district court: the order dated January 21, 1994,

compelling Kramer to turn over his files to the substituted

counsel; the order dated February 8, 1994, denying

reconsideration of its January 21st order; and the order dated

February 25, 1994, denying Kramer's February 16, 1994 motion for

an attorney's lien pursuant to New Jersey statutory law. These

matters are now before us for review pursuant to the appellant's

notice of appeal filed March 7, 1994.2 Kramer represented

himself in the district court and does so again before us. We

will affirm.

Kramer sets forth three issues in his opening brief to

this court: (1) whether the district court refused to recognize

an attorney's lien, to which Kramer contends he is entitled for

defending his client from counterclaims, and erred for holding

him in contempt when he refused to surrender his files to

substituted counsel; (2) whether the district court should have

insisted that Kramer be paid before new counsel replaced him; and

2
. Kramer also filed another handwritten, nonetheless legible
notice of appeal on March 30, 1994 in which he appealed "the
orders of March 30, 1994, holding him in contempt, denying
emergency stay, and the January 21st and February 25th orders,
and the orders denying recusal and all related orders." Since he
fails to pursue the stay order, it is abandoned. The balance of
the issues in the handwritten "notice of appeal" are subsumed in
the earlier notice of appeal.
(3) whether the district judge should be disqualified from

hearing any matter concerning him.3 We note that, to the extent

Kramer raised other issues in the text of his briefs to this

court, but failed to first raise them in the "Statement of

Issues" section of his opening brief, those issues are waived.

In Nagle v. Alspach, 8 F.3d 141, 143 (3d Cir. 1993), we held that

if an appellant lists an issue in his "Statement of Issues" and

thereafter fails to pursue it in the "Argument" portion, we

consider it abandoned. Likewise, if he fails to raise an issue

in his "Statement of Issues," but argues the point in the body of

his brief, we will consider it waived. See also Lunderstadt v.

Colafella, 885 F.2d 66, 78 (3d Cir. 1989) (citing Fed. R. App. P.

28(a)(3) and (5), which require appellant's brief to contain a

"statement of issues presented for review" and, in its argument,

"the contentions of the appellant on the issues presented"); 16

Charles A. Wright, Federal Practice and Procedure § 3974, at 421

(1977 & Supp. 1994, at 690) (issues must be raised in both the

"Issues" and the "Argument" sections of the brief); accord Kost

v. Kozakiewicz, 1 F.3d 176, 182-83 & n.3 (3d Cir. 1992).

I.

The underlying case was filed by Network and Elliot

Fineman, Network's majority shareholder, against Armstrong,

3
. We note that, to the extent Kramer argues issues in the text
of his brief, other than those first raised in the "Statement of
Issues," under the circumstances of this case, we will exercise
our discretion to treat these matters as waived. See Nagle v.
Alspach, 8 F.3d 141, 143 (3d Cir. 1993) and Fed. R. App. P.
28(a)(3), (a)(6).
alleging antitrust, tortious interference and breach of contract

claims. After a jury verdict in favor of plaintiffs, the

district court granted Armstrong's motions for JNOV and for a new

trial. Fineman v. Armstrong World Indus. Inc., 774 F.Supp. 225

(D.N.J. 1991). Fineman v. Armstrong World Indus., Inc., 980 F.2d

171 (3d Cir. 1992), cert. denied, 113 S. Ct. 1285 (1993). In the

second trial, the jury awarded no damages to Network. This

verdict has been appealed and is now pending before another panel

of this court.

Kramer ceased to represent Fineman and Network between

the first and second trials. Kramer refused, however, to turn

his files over to Network's new attorneys. After Network sought

an order compelling Kramer to relinquish the files, Kramer moved

to recuse the trial judge, and, in a separate motion Kramer

requested, inter alia, that, before he relinquish his files,

Network be required to post a bond to guarantee payment for his

services. The district court ordered Kramer to relinquish his

files, allowed Network to substitute new counsel but did not

require that Network post a bond or pay Kramer. Industry Network
System, Inc. v. Armstrong World Indus., Inc., No. 84-3837 (D.N.J.

Jan. 21, 1994) (unpublished order). Later, the district court

denied Kramer's motion to recuse. Industry Network System, Inc.

v. Armstrong World Indus., Inc., No. 84-3837 (D.N.J. Feb. 14,

1994) (unpublished opinion).

Kramer then filed a motion contending that he was

entitled to a statutory attorney's lien for work done defending

the plaintiffs from Armstrong's counterclaims. The district
court also denied this motion. Industry Network System, Inc. v.

Armstrong World Indus., Inc., No. 84-3837 (D.N.J. Feb. 25, 1994)

(unpublished opinion). Following an order by the district court

holding Kramer in contempt of its orders requiring him to

relinquish his files, Kramer obeyed.

II.

A. Attorney's Lien

Kramer claims that defending Network against

Armstrong's counterclaims entitles him to a fee and a lien to

secure payment of it. He avers that all predicates to his claim

are satisfied because his fee is not contingent upon Network's

success in its antitrust case against Armstrong, and hence the

jury's verdict for Network on the counterclaims, which was not

contested on appeal, is for all purposes final. We conclude that

the issue is ripe for review but is without factual or legal

support. We will affirm.

The matters before us on appeal have been unduly

complicated by appellant. His theory on why he is entitled to a

fee and an attorney's lien, for example, has been evolving

throughout the proceedings, from a quantum meruit request for

$3.2 million in fees to compensate him for an alleged 8,000 hours

of work; to a retaining lien for his defense to counterclaims;4

4
. Kramer states in his brief that he spent "seven years of work
in successfully defending the multi-million dollar
counterclaims." He modified this contention downward at oral
argument to "defending the $400,000 counter-claims." Neither
estimate, however, is material to our decision except to note the
labile nature of Kramer's contentions.
to a charging lien based upon the New Jersey Statutes Annotated

(upon which he based the motion that the district court denied on

February 25, 1994, which is one of the orders Kramer specified in

his notice of appeal); to a fee based upon a bankruptcy order

authorizing him to represent Fineman in bankruptcy; and at oral

argument he contended for the first time that he is entitled to a

lien under unspecified bankruptcy laws. Throughout his

arguments, Kramer seems to conflate the terms "fees" and "liens."

They are two different matters. With respect to a lien, we have

before us on appeal only whether the district court adequately

protected Kramer's retaining lien or erred by denying him a

statutory charging lien.

It is axiomatic, of course, that Kramer must show that

he is or will become entitled to a fee before he is entitled to a

lien. When pressed by the court at oral argument for the fee

agreement or other basis entitling him to a fee for defending the

counterclaims, Kramer referred the court to Supplemental Appendix

page 29. This, as the court then pointed out, is only an order

denying him a fee and deeming the district court's referral of

jurisdiction with respect to fees withdrawn. Nevertheless,

Kramer then argued that by authorizing the debtor-in-possession

Fineman to employ him as his antitrust attorney, the bankruptcy

court created the obligation to pay him a fee.

There are several problems with Kramer's contentions.

First, Fineman, who was the debtor-in-possession, signed the

Application only in his individual capacity, and any fee Kramer

has earned is from the bankrupt estate for preserving its assets,
not from the parties to the underlying litigation.5 Under the

Bankruptcy Code, an attorney for a debtor-in-possession is

entitled to be paid only in accordance with an agreement filed

with the court. 11 U.S.C. § 328. But the Code does not entitle

the attorney to a lien -- and for good reason. Section 503(b) of

the Code allows reasonable compensation for an attorney as an

administrative expense of the estate and § 507(a)(1) gives the

expense priority. A lien, however, is neither authorized by the

Code nor necessary.

Second, Kramer's argument is disingenuous at best and

deceptive at worst. As debtor-in-possession, Fineman applied to

the bankruptcy court with full knowledge of and assistance by

Kramer, to have Kramer appointed "under the terms and conditions

set forth in the annexed affidavit of proposed antitrust

counsel." Kramer, in his "Affidavit of Proposed Special Counsel

for Debtor-in-Possession," which he submitted with the

Application to the Bankruptcy Court, averred,

I have rendered to debtor professional services in

connection with the within action and in accordance

with a retainer agreement memorialized by letter

attached hereto as Exhibit A...In connection with this

retention I shall assist the Debtor-in-Possession in

resolving all issues in the [underlying litigation] and

5
. Fineman withdrew from the litigation after the first trial,
and is no longer a party.
 shall try the case to conclusion or settlement as is

necessary.

(emphasis added). Moreover, Kramer concludes his affidavit,
I am unable to estimate the time for completion of
these services. This case involves a prosecution of a
complex anti-trust case and inasmuch as my application
will be based on a contingency agreement set forth in
Exhibit A the amount of time necessary is not
applicable under these circumstances.

(emphasis added).6

Kramer contends that his right to a fee, hence his

right to a statutory lien, is for the "hours he spent." Yet from

his own sworn words, his fee is "based upon the contingency

agreement set forth in Exhibit A." This contingency agreement,

which is signed by both Kramer and Elliot Fineman individually,

provides that Kramer
shall receive 36% of any and all sums
recovered, whether by settlement or judgment.
Recovery shall be defined as all monies
recovered, including damages, treble damages,
and counsel fees paid by defendant pursuant
to statute.

In sum, Kramer agreed to represent the debtor-in-

possession on "all issues" for a fee that was contingent upon

Fineman's success in the antitrust case and not, as he has

argued, based upon a hourly sum for time spent or in quantum

6
. In the Appendix Kramer filed on appeal, he supplied the court
with neither his Affidavit nor Elliot Fineman's Application.
Inasmuch as Kramer's entire argument on appeal, by his own
account, depends upon the bankruptcy court's order, it is
difficult for the court to view Kramer's act of omitting these
documents, so damaging to his argument and so critical to our
review and decision, as other than deliberate.
meruit. Because Fineman recovered nothing, and indeed did not

participate in the second trial, the condition precedent to

Kramer's right to a fee -- a verdict in the antitrust case in

Fineman's favor -- has not occurred, and the entire basis of

Kramer's counterclaim lien theory collapses. On this record he

simply is not entitled to either a fee or a lien.

But Kramer is wrong in his other arguments as well. He

relies upon our decision in Novinger v. E.I. duPont de Nemours &

Co., Inc., 809 F.2d 212 (3d Cir.), cert. denied, 481 U.S. 1069

(1987), in which we held that the district court was required to

affirmatively protect an attorney's retaining lien before

requiring that he relinquish his files. His reliance, however,

is misplaced because Novinger was decided under Pennsylvania law.

Under New Jersey law, as in Pennsylvania an attorney

will lose a retaining lien by voluntarily relinquishing files to

substituted counsel. In New Jersey, however, an attorney will

not lose the lien if the files are given to substituted counsel

under compulsion of a court order. In Frenkel v. Frenkel, 599

A.2d 595 (N.J. Super. Ct. 1991), counsel for plaintiff likewise

refused to give case files to substituted counsel until his fees

were paid by plaintiff. The court held that a "conflict between

the withdrawing attorney and the former client should not be

allowed to delay the underlying action." Id. at 598. It

concluded that a withdrawing attorney's common law retaining lien

"[was] not relinquished" when it obeyed the court's order to turn

them over. Id.; accord Brauer v. Hotel Assoc., Inc., 192 A.2d
831, 835 (N.J. 1963).
 The situation is no different here. When Kramer was

ordered by the court to relinquish his files, he had no choice

but to do so. His retaining lien was and is protected, as the

district court explicitly recognized. Industry Network, Inc., v.

Armstrong, No. 84-3837, slip. op. at 10 (D.N.J. Jan. 21, 1994)

(unpublished opinion):

At issue today is not whether Mr. Kramer should

voluntarily turn over the files, thereby destroying his

retaining lien. Rather, the issue is whether the court

should order Mr. Kramer to turn over the files

involuntarily, a step which would preserve Mr Kramer's

lien rights.

Kramer unnecessarily exposed himself to contempt by his

disobedience, and without any foundation in the law he appealed

the surrender order.

Kramer also incorrectly asserts that the district court

erred by denying his February 16, 1994 motion in which he

requested a statutory charging lien for the work done defending

the counterclaims. First, the motion was entirely redundant

because he was already protected by his common law retaining

lien. But, more fundamentally, he relied in his motion upon

N.J.S.A. § 2A:13-5, which provides:
After the filing of a complaint or third-
party complaint or the service of a pleading
containing a counterclaim or cross-claim, the
attorney or counsellor at law, who shall
appear in the cause for the party instituting
the action or maintaining the third-party
claim or counterclaim or cross-claim, shall
have a lien for compensation, upon his
client's action, cause of action, claim or
 counterclaim or cross-claim, which shall
contain and attach to a verdict, report,
decision, award, judgment or final order in
his client's favor, and the proceeds thereof
in whosesoever hands they may come.

The district court held that this statute was limited on its face

to attorneys who initiate claims and "confers no rights

whatsoever upon an attorney in his capacity as the representative

of a party successfully defending a claim of another party."

Industry Network System, Inc. v. Armstrong World Indus., Inc.,

No. 84-3837, slip op. at 3 (D.N.J. Feb. 25, 1994) (unpublished

opinion). We agree.

The plain language of N.J.S.A. § 2A:13-5 grants a lien

to an attorney for affirmatively pursuing his client's "action,

cause of action, claim or counterclaim or cross-claim." Rather

than providing a lien for all services performed by an attorney,

the state legislature took pains to list those specific services

to which the lien applies, but it did not include the defense to

a defendant's counterclaims. And Kramer has neither cited to us

nor have we found any New Jersey case that interprets this
statute otherwise. At least one case, however, recognizes the

plain language of the statute as a barrier to the same argument

that Kramer now makes. See Wilde v. Wilde, 184 A.2d 758 (N.J.

Super. 1962) (questioning the propriety of defense counsel's

claim that he should be entitled to a lien under § 2A:13-5 for

successfully defending his client's title to property). We

decline to contravene the plain language of the statute and read

new rights into it.
 For all of the foregoing reasons, the district court's

order of January 21, 1994 and its order of February 8, 1994

denying reconsideration will be affirmed.

B. Substitution of Counsel

Kramer argues that New Jersey law required the district

court to refuse substitution of new counsel for him in the

underlying case until it required Network to pay him or to post a

bond. This argument, too, is without support. Kramer relies

only upon St. John the Baptist Greek Catholic Church v. Gengor, 2

A.2d 337, (N.J. Ch. 1938). He contends that the district court

"simply ignored that authority." And that, "[h]ad it not done

so, the orders in which appellant has been in contempt would

never have been entered." (Appellant's brief p. 27).

There are a number of problems with Kramer's

contentions here as well. First, as we have shown by his own

sworn statement, he is not yet entitled to be paid a fee.

Second, St. John does not support Kramer's position. Indeed, the

court in St. John said specifically that "the petition for

substitution will not be granted until the liens have been

satisfied." Id. at 339 (emphasis added). When Kramer was before

the district court his right to a fee was not ripe, nor is it now

because the primary contingency has not yet happened. His

retaining lien simply could not be satisfied when the district

court ordered him to surrender his files because it could not
then be quantified. Inasmuch as we have held that the district

court properly denied Kramer's petition for the lien he requested

under N.J.S.A. § 2A:13-5, this argument fails as well.

Finally, New Jersey law contradicts Kramer's argument.

Under Frenkel, Kramer is protected by his retaining lien. Hence,

should a court at some time determine that Kramer is entitled to

a fee, "there has not been a voluntary surrender of possession

which would extinguish [his] common law retaining lien. On the

contrary, the lien is not relinquished." Id. at 598. Kramer

simply had no right to withhold the files as he did. We conclude

that the district court properly allowed substitution of counsel

without ordering immediate payment of some arbitrary amount of

fees or requiring that plaintiffs post bond.

C. Recusal of Trial Judge

At oral argument Kramer limited his recusal request to

matters dealing specifically with his right to fees.7 There is,

however, no indication that Judge Bissell has any matter

pertaining to Kramer's fee before him. Therefore, Kramer's

request that Judge Bissell recuse himself from hearing matters

relating to fees is simply not ripe for review. Should the

conditions precedent to Kramer's fee occur, the matter would then

still be in the first stage between him and his ex-client. If

7
. Kramer did not appeal from the district court's denial of his
earlier motion for recusal, and we denied a petition by Kramer
for a writ of mandamus to disqualify the trial judge from hearing
any matter related to this case in which Kramer is involved.
Industry Network System, Inc., v. Armstrong World Indus., Inc,
No. 94-5183 (3d Cir. Apr. 22, 1994) (unpublished order).
his ex-client refuses to pay and Kramer believes he has a

legitimate claim, he may opt to present the issue before a court.

And to hypothesize further, if that issue should come before

Judge Bissell; if Kramer still believes that Judge Bissell will

not fairly adjudicate his claim and asks him to recuse; if Judge

Bissell should refuse to recuse; and finally, if Kramer is

dissatisfied with any fee order and elects to appeal that order,

then he has an appealable order. But the record reflects nothing

of the sort now. His appeal on this issue, as he has limited it,

is premature.

III.

In sum, the issues before us, reduced to their essence,

are whether the district court failed to protect Kramer's

retaining lien; erred by denying Kramer a charging lien under the

N.J.S.A.; and, whether the trial judge erred by not recusing

himself from matters involving Kramer's entitlement to a fee.

Inasmuch as we have determined that Kramer's retaining lien is

protected by New Jersey common law, and that on this record he is

entitled neither to a fee nor a statutory charging lien, we will

affirm the district court's orders of January 21, February 15 and

25, 1994, and its order holding him in contempt. We will dismiss

the appeal to the extent it challenges the district court's

refusal to recuse.