Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
1-27-2006
In Re: Bernea Smith
Precedential or Non-Precedential: Non-Precedential
Docket No. 02-4356
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-4356
In Re: BERNEA SMITH,
Debtor
FRIEDMAN & ASSOCIATES,
Appellant
v.
DEBORAH DEL NOBILE TANENBAUM
BERNEA SMITH; ALLSTATE INDEMNITY COMPANY
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 02-cv-02354)
District Judge: Honorable Anne E. Thompson
Argued September 11, 2003
Before: ALITO, BARRY and AMBRO, Circuit Judges
(Opinion filed: January 27, 2006)
Paul J. Maselli, Esquire (Argued)
Maselli, Warren & Lanciano
600 Alexander Road
Princeton, NJ 08540
Attorney for Appellant
Jay L. Lubetkin, Esquire
Henry M. Karwowski, Esquire (Argued)
Shoshana Schiff, Esquire
Booker Rabinowitz Trenk
Lubetkin Tully DiPasquale & Webster
100 Executive Drive, Suite 100
West Orange, NJ 07052
Attorneys for Appellee
OPINION
AMBRO, Circuit Judge
Chapter 7 bankruptcy liquidations are intended to clear accumulated claims to
permit debtors a fresh start. Some claims linger longer than anyone could anticipate, in
part because determining the validity of the claim yo-yos through layers of appeals. This
is such a case. Involving a claim for an attorney’s lien, this appeal has already been the
subject of three Bankruptcy Court and two District Court opinions. For the reasons
stated, we affirm.
I. Facts and Procedural History
Bernea Smith filed a voluntary pro se petition under Chapter 7 of the United States
Bankruptcy Code on December 28, 1998. Smith did not disclose as an asset of her estate
an action against her insurance carrier, Allstate Indemnity Company, to recover an
underinsured motorist claim for injuries from an automobile accident. Friedman &
2
Associates1 represented Smith in that personal injury action. Friedman alleges he was not
informed by Smith of her bankruptcy filing. In any event, shortly after her Chapter 7
filing, Smith settled with Allstate for the policy limit of $85,000. When payment
occurred one month later, approximately $26,000 of the settlement went to Friedman
pursuant to a pre-petition contingency fee agreement. This post-petition settlement and
payment also were not disclosed timely to the Bankruptcy Court, and thus they were
consummated without its required approval.
As a result of her questioning of Smith at the first meeting of creditors, the Trustee
requested information of Friedman (principally about a matter unrelated to the Allstate
automobile accident claim) that ultimately led her to suspect a failure to disclose assets.
When Friedman proved uncooperative,2 the Trustee issued a subpoena to his firm for all
files relating to Smith. Friedman did not move to quash the subpoena, but instead his
office sent to the Trustee a letter indicating Smith’s desire to dismiss her bankruptcy case,
though one day later Friedman produced Smith’s files to the Trustee. That file revealed
the June 1995 automobile accident resulting in litigation in which Friedman’s firm had
represented Smith in her personal injury action. Friedman subsequently revealed as well
1
We are informed the firm has since disbanded, and its claim we presume resides with
Friedman himself. Hence we refer to him alone.
2
Friedman’s office, in response to a letter from the Trustee requesting information
about claims Smith may have, merely responded that “Mrs. Smith’s workers’
compensation cases are pending.” Friedman’s brief to us claims that his office was
unaware that Smith had filed for bankruptcy, this despite the fact that the letter of the
Trustee to Friedman’s office would leave little doubt.
3
that (i) in January 1999 (after Smith had filed the previous month for Chapter 7
protection), she agreed to settle the personal injury action for the payment by Allstate of
$85,000, and (ii) in February 1999 Friedman’s firm received and disbursed the proceeds
of the settlement ($56,367.923 to Smith and $26,383.96 to Friedman’s firm pursuant to
the contingency fee agreement).4
As a result of all this, in January 2000 the Trustee brought an action in the
Bankruptcy Court against Smith, Friedman, and Allstate. She sought, among other
things, to void the settlement as a post-petition act lacking Court approval and to order
Friedman to pay to Smith’s bankruptcy estate all fees his firm received from the
settlement.
The Trustee moved for summary judgment. The Bankruptcy Court (per Judge
Kathryn C. Ferguson) entered an order on June 20, 2000, granting the Trustee’s motion,
thereby voiding the settlement and ordering Friedman to disgorge within three days to
Allstate5 the settlement proceeds he received.
3
At her continued meeting of creditors in August 1999, Smith acknowledged that she
had spent the majority of her portion of the settlement proceeds.
4
These sums leave an unexplained gap of approximately $2,250.
5
The Court did this deliberately, as in its Order it crossed out “the Trustee” and inserted
in the Judge’s own hand “Allstate Insurance Co.” Presumably the reason the Court did
this was because the Trustee sought to void the settlement rather than to order that the
monies be paid to Smith’s bankruptcy estate. While this makes little sense (remember,
$85,000 was the policy limit and it had already been paid out), perhaps (and we can only
speculate) the reason was that Smith had already dissipated most of the settlement
proceeds paid to her, and the Trustee somehow thought that voiding the settlement made
Allstate liable yet again for the sum.
4
Despite this, the procedural “fun” had hardly begun. Rather than turning over to
Allstate his portion of the settlement proceeds, Friedman filed a counterclaim on June 26,
2000, seeking a declaration that he possessed a “statutory and common law lien in the
attorney file and in the proceeds of the claim of Ms. Smith to the extent of the percentage
of Friedman’s contingency fee.” This was followed a few days later by a motion for
reconsideration of the June 20 order granting summary judgment in favor of the Trustee.6
In early September 2000 the Bankruptcy Court denied Friedman’s motion for
reconsideration and again ordered his firm to disgorge immediately its portion of the
settlement proceeds. It is no surprise that Friedman had yet to do so.7
In February 2001 the Trustee filed a motion for summary judgment with respect to
Friedman’s counterclaim. The Bankruptcy Court (this time through Judge Stephen A.
Stripp) ruled in favor of Friedman by holding that he had a “valid, first priority lien
against the estate’s cause of action against [Allstate] presently pending in the Superior
Court of New Jersey . . . .”
Did this end matters? Of course not. After a motion for reconsideration by the
6
Allstate soon thereafter joined the parade by filing a cross-motion for enforcement of
the order compelling disgorgement.
7
To complicate this state of affairs, the Trustee determined that Friedman had a conflict
and could no longer pursue the personal injury action on behalf of Smith against Allstate.
At the Trustee’s request the Bankruptcy Court entered a order authorizing the retention of
Baer, Arbeiter, Ploshnick, Tanenbaum & Weiss as the Trustee’s special litigation counsel
in Smith’s personal injury action. As nothing can be simple in this case, the Tanenbaum
in this firm is the husband of the Trustee.
5
Trustee was denied, she appealed to the District Court. The Court in January 2002
entered an order remanding the matter to the Bankruptcy Court “because of the failure to
give [the Trustee] notice and the opportunity to respond before the grant of summary
judgment to [Friedman].”
Back in the Bankruptcy Court, Judge Ferguson again presided. Friedman filed a
motion for summary judgment on his counterclaim, relying on the argument that Judge
Stripp’s decision constituted the “law of the case.” Not missing a beat, the Trustee cross-
moved for partial summary judgment in her favor. The Bankruptcy Court in March 2002
granted the Trustee’s motion and denied that of Friedman. Judge Ferguson concluded
that she was not constrained by the law-of-the-case doctrine8 because an exception to that
doctrine applied—that the decision of Judge Stripp was clearly erroneous. She then
proceeded to hold that Friedman did not have a valid common law retaining lien or a
statutory attorney’s lien (also known as a charging lien).
It was now Friedman’s time to appeal to the District Court, and he did so.
Interestingly, Friedman argued first that the June 2000 order of Judge Ferguson erred by
voiding the settlement with Allstate and requiring him to disgorge his portion of the
settlement proceeds to Allstate. He, of course, also appealed from Judge Ferguson’s
March 2002 decision denying him either a common law or a statutory lien on the
8
As Judge Ferguson noted, this means that “when a court decides upon a rule of law,
the decision should continue to govern the same issues in subsequent stages in the same
case.”
6
bankruptcy estate’s cause of action on those settlement proceeds he now holds.
After briefing and oral argument, the District Court ruled as follows.
(1) The Bankruptcy Court did not err in its June 20, 2000 order when it granted the
Trustee’s motion to overturn the post-petition settlement between Smith and Allstate for
her pre-petition personal injury and ordered Friedman to disgorge to Allstate the
settlement proceeds he was holding.
(2) The Bankruptcy Court also did not err in its March 4, 2002 determination that
Friedman did not have either a common law or a statutory lien against (presumably) the
proceeds of the settlement or the proceeds of the claim of Smith against Allstate. As for
the settlement, it was now void. As for the lien claimed pertaining to Smith’s still-extant
claim, Friedman, by transferring Smith’s files to the Trustee upon her demand, forfeited
the right to assert a common law retaining lien because his transfer was nonetheless
“voluntary.” A valid statutory lien did not exist because “Friedman had not taken steps to
perfect [his] lien pre-petition.”
(3) The Court added that it would be inequitable “to conclude that an attorney
who performs the settlement of his . . . client’s case post-petition without the knowledge
of the Trustee . . . retains a lien in the future proceeds of the claim.”
To recap, we have three Bankruptcy Court decisions (June 2000 and March 2002
of Judge Ferguson sandwiching a June 2001 decision of Judge Stripp) and two District
Court opinions dealing with the approximately $26,000 that an attorney claims he has as a
lien for his services. In addition to differing interpretations of New Jersey law pertaining
7
to statutory and common law attorney’s liens, we are visited with procedural issues
involving, inter alia, what Friedman’s appeal covers and the law of the case.
II. Discussion
Friedman’s principal argument is that he has a valid perfected statutory and
common law lien with respect to the proceeds of Smith’s cause of action against Allstate
and, so far as we can glean, a common law lien in Smith’s files involving the Allstate
claim even though he relinquished control of them. He appends to these arguments a
perfunctory contention that Judge Ferguson somehow entered summary judgment sua
sponte in favor of Allstate and against Friedman when she ordered disgorgement of
Friedman’s attorney’s fees to Allstate in June 2000 even though Allstate had not moved
for summary judgment. He also argues that Judge Ferguson’s March 2002 decision
violated the law-of-the-case doctrine when she granted summary judgment to the Trustee
after Judge Stripp had already denied summary judgment on the same issue. For the
reasons noted below, resolution of the latter two issues makes unnecessary any decision
on the merits.
A. Appeal from the June 20, 2000 Order
As to the June 20, 2000 order, the Trustee contends that our Court has no
jurisdiction over the appeal from it, as Federal Rule of Bankruptcy Procedure 8002(a)
provides, inter alia, that a “notice of appeal shall be filed . . . within 10 days of the date of
the entry of the . . . order . . . appealed from.” As Friedman did not file an appeal of the
June 2000 order until nearly two years later, it is barred. Friedman replies that he was not
8
bound by the jurisdictional 10-day appeal requirement of Bankruptcy Rule 8002(a)
because the June 2000 order of Judge Ferguson was merely interlocutory, as the Court
did not address Friedman’s counterclaim.
The order entered in June 2000 was in response to a motion for partial summary
judgment of the Trustee seeking, inter alia, disgorgement of the settlement proceeds
Friedman was holding. The Bankruptcy Court’s order reflected its judgment that the
Allstate settlement was void. Because the settlement was void, disgorgement of
Friedman’s fees was simply an attempt to restore the status quo prior to the settlement
being implemented. That included the give-back by Friedman of the monies he held. Not
timely appealing this order, once it became final after Friedman’s motion for
reconsideration was denied, arguably was fatal to challenging Judge Ferguson’s
disgorgement decision (which, to repeat, had only a three-day window to comply).
But even if the Bankruptcy Court’s order was interlocutory (and thus not
appealable, absent an exception, until it became final), it would make no difference to the
ultimate outcome. Friedman argues preliminarily that the Bankruptcy Court’s order that
he return the $26,000 in attorney’s fees to Allstate was a grant of summary judgment sua
sponte in favor of Allstate. The Bankruptcy Court, of course, did not grant summary
judgment in favor of Allstate, as all Allstate had before the Court was an inchoate cross-
claim for indemnification if it were to be found liable for anything that would even trigger
a right to indemnification (and that never occurred). Rather, it appears that the
disgorgement of fees back to Allstate was part of the Bankruptcy Court’s judgment that
9
the Allstate settlement was void. The entire $85,000 had to be returned to Allstate, as a
matter of logic, to restore the status quo ante. This includes, of course, the monies
Friedman held. In this context, Friedman’s procedural argument as to the improvident
grant of summary judgment fails, and we affirm (to the extent we have jurisdiction) the
District Court’s affirmance of the Bankruptcy Court’s June 20, 2000 order.
B. Appeal from the March 2002 Order
This leaves Friedman’s counterclaim, filed on June 26, 2000, that he has a lien on
the settlement proceeds he holds and the files he turned over to the Trustee. This was
ruled on both by Judge Stripp in 2001 and by Judge Ferguson in March 2002. It is here
that the Trustee interposes another procedural bar to Friedman’s appeal—that he waived
before Judge Ferguson the making of any substantive argument in favor of his assertion
of any attorney’s lien.
The context is this. After the first District Court decision that vacated Judge
Stripp’s decision granting summary judgment in favor of Friedman as to attorney’s liens
because Judge Stripp entered his decision sua sponte (thus improperly), the case was
remanded to the Bankruptcy Court. The parties appeared—this time before Judge
Ferguson—and the only argument Friedman made to the Trustee’s motion for summary
judgment was that Judge Stripp’s decision was the law of the case. As an exception to the
law-of-the-case doctrine is whether the decision purported to be law of the case is clearly
wrong and would be manifestly unjust, see Schultz v. Onan Corp., 737 F.2d 339, 345 (3d
Cir. 1984) (citing Arizona v. California, 460 U.S. 605, 619 n.8 (1983)), Judge Ferguson
10
decided that Judge Stripp had indeed erred and entered summary judgment on the merits
of the attorney’s lien claims in favor of the Trustee.
Prudence would have counseled Friedman to argue the merits before Judge
Ferguson as a back-up to his procedural, law-of-the-case argument. Moreover, as the
District Court had remanded Judge Stripp’s ruling “because of the failure to give [the
Trustee] notice and the opportunity to respond before the grant of summary judgment to
[Friedman],”9 there can be little (if any) doubt that the “slate was wiped clean” as to any
pronouncement by Judge Stripp on the merits. The parties were starting over at the
summary judgment stage on attorney’s lien issues. The Court—this time with Judge
Ferguson back presiding—was free to reverse itself now that it had the benefit of the
Trustee’s response. The law-of-the-case doctrine was not in play, and Friedman’s
decision to rest solely on that argument waived whatever substantive contentions he could
have made. Thus we need not decide whether he had a valid lien—statutory or common
law—on Smith’s personal injury cause of action.10
9
The order mistakenly said “appellant” (the Trustee) when it meant “appellee”
(Friedman).
10
Even were Friedman to have either or both a statutory or common law attorney’s lien,
we reiterate that the District Court “decline[d] to conclude that an attorney who performs
the settlement of his . . . client’s case post-petition without the knowledge of the Trustee
. . . retains a lien in the future proceeds of the claim.” While we do not decide this issue,
we note that the fact mentioned—combined with the initial failure to disclose the
settlement, the failure to seek and obtain Bankruptcy Court approval of the settlement,
and the attempt to dismiss the bankruptcy when inquiry was made about the status of
Smith’s possible claims against others—make this an inviting case for a court to exercise
its equitable authority to preclude any attorney’s lien from being enforced (or at least
11
* * * * *
For these reasons (and thus without commenting or ruling on the merits of the
attorney’s lien issues), we affirm the District Court’s October 31, 2002 order.
subordinate equitably any valid claim Friedman may have had).
12