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No “Judgment,” No Attorney Charging Lien; Claim Reclassified

In re Pallet Company LLC, No. 13-11459 (KG) (Bankr. D. Del. Feb. 4, 2014)

In this short Memorandum Opinion, the Honorable Kevin Gross ruled that, under Michigan and Arizona state law, attorney’s charging liens attach only after a judgment is final and favorable to the client.  Therefore, the claimant, who asserted a $301,000 secured claim for prepetition legal services, was entitled only to assert a nonpriority general unsecured claim.

The Debtors hired the claimant, Perkins Coie LLP, to represent them pre- and post-petition to prosecute actions against third parties for misappropriation and property damage.  The actions were sold by the Debtors during the bankruptcy proceedings, and Perkins Coie sought to attach their alleged charging lien against the proceeds of the sale.  The Court did not allow such attachment, holding that charging liens arise only after a judgment is entered.  It was undisputed that the litigation was ongoing and that Perkins Coie still prosecuted the actions.  Because the Court found that no favorable, final judgment existed at the time of the sale, it reclassified the claimant’s claim as a nonpriority general unsecured claim.

While not addressed in the decision, similar to Michigan and Arizona, Delaware does not have a statute recognizing attorney’s liens, but follows common law, which states that a judgment must be final and favorable to the client for an attorney’s lien to arise. See, e.g., Doroshow, Pasquale, Krawitz & Bhaya v. Nanticoke Mem’l Hosp., Inc., 36 A.3d 336, 340-42 (Del. 2012).