Liens

Debt Collection Tips: Docketing the Judgment

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Once the creditor has obtained a Judgment from a court, the collection process has now begun. In the context of collecting the money due on the Judgment, it may be necessary to “docket” the Judgment in the County Clerk’s Office.

In each county of the State, there is a court of general jurisdiction called the “Supreme Court.” In some counties, towns, cities, and villages, there are lower courts (such as Civil Court, District Court, etc.). Judgments entered in those courts are not automatic liens upon any realty that the debtor may own in the county. Rather, a “Transcript of Judgment” must be obtained from the court and filed with the County Clerk to create the lien. Once docketed, the Transcript of Judgment will serve as notice to others that there is a lien upon any realty owned by the debtor; other parties are now aware that the lien must be paid according to its priority.

Judgments entered in a Supreme Court case are automatically docketed with the County Clerk.

Unlike New Jersey or some other states, which have state-wide recognition, the Judgment must be docketed by the filing of a Transcript of Judgment in each county in which the debtor has realty in order to create the lien.

The docketing of a Judgment is also essential when attempting to issue an Income Execution to a County Sheriff in another county (where, perhaps, the employer of a debtor is located). Another purpose of docketing a Judgment may be where the Judgment was entered in federal District Court and the creditor wants to use a Sheriff instead of a United States Marshall.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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A Day Late and a Dollar Short

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A comprehensive medical practice was opening up in an office building and needed extensive renovations in the space. The medical practice hired a construction company to handle the build-out of the office at a cost of over $250,000. The construction contract specified that the contractor would achieve “ substantial completion ” of the project within 3 months after work began in April 2012. Unfortunately, the project took a lot longer than anticipated (about 9 months). Finally, on January 16, 2013, the project was confirmed by the contractor as complete, and the work was approved by the county. There was even a confirming email from the contractor to the medical provider stating “ We Passed!!! ” An invoice marked “ Final Billing ” was rendered, and a Certificate of Compliance was issued by the Building Inspector on January 31, 2013.

Since the project took much longer to complete than anticipated and agreed-upon in the construction contract, the medical provider withheld final payment, claiming it suffered heavy losses including loss of business, substantial rent payments to the landlord for the unusable space and additional overhead expenses.

Mechanic’s Lien Filed

Instead of directly addressing the client’s concerns, on October 8, 2013, the contractor simply filed a “ Notice of Mechanic’s Lien ” with the County Clerk. New York’s Lien Law Section 10 provides a powerful collection tool to a home improvement or commercial contractor—the right to place a lien upon someone’s house or building:

§10(1) Notice of lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within eight months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials, dating from the last item of work performed or materials furnished; provided, however, that where the improvement is related to real property improved or to be improved with a single family dwelling, the notice of lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within four months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials, dating from the last item of work performed or materials furnished.

The “Eight Month” Rule

One of the fundamentals of the Lien Law is that its procedures are to be strictly followed by the lienor. Unlike other areas of law, in which harmless errors can be glossed over, the Lien Law requires punctilious compliance; otherwise, the lien will be invalid. This is mainly because the right to place a lien on someone’s house is such a harsh remedy.

After being directed by the landlord to remove the mechanic’s lien, the medical provider retained Richard A. Klass, Your Court Street Lawyer. The first step was to analyze the lien notice itself—and determine whether a proceeding could be brought to discharge the mechanic’s lien under Lien Law §19(6) for being “ facially invalid. ” This means that, from looking at the face of the notice of lien itself, it may be determined that the lienor does not have a valid lien.

In the lien notice, the contractor had stated that the last item of work was performed on “ February 13, 2013. ” However the court ruled that all work was completed by January 31, 2013. Thus, the October 8, 2013, lien notice was filed more than 8 months afterward (late filing). This late filing would make the mechanic’s lien invalid under the Lien Law. In Ren. Reh. Systems Co., Inc. v. Faulkner, 85 AD3d 752 [2 Dept. 2011], the court held that the failure of a mechanic’s lien to be timely filed pursuant to the Lien Law was fatal to the mechanic’s lien.

Extra Work Doesn’t Count

In response to the proceeding brought by the medical provider to discharge the mechanic’s lien, the contractor claimed that it sent a subcontractor to the premises to perform some work in March 2013; thus, its filing of the lien was timely. The medical provider challenged this claim by showing the court that the subcontractor only performed a normal service call for “ no heat. ” It was argued that the court should follow the rule in Nelson v. Schrank, 273 AD72 [2 Dept. 1947], that a mechanic’s lien is not timely filed when measured from the last date that extra work was performed when the extra work was not part of the original contract, anticipated when the original contract was made, or done in continuance of the work under the contract.

In discharging the mechanic’s lien, the court held that there was no proof that the extra work completed was part of the original contract, was anticipated when the original contract was made, or constituted work completed under the original contract. Accordingly, the court granted the petition to discharge the mechanic’s lien.

copyr. 2015 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-mail to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Credits: Photo of Richard Klass by Robert Matson, copyr. Richard A. Klass, 2011.
Marketing services by The Innovation Works, Inc. www.TheInnovationWorks.com.
Image at top: Felicitas, by Anton von Werner, 1872.

R. A. Klass
Your Court Street Lawyer

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Difference of Opinion regarding Mandatory Attorney Fee Dispute Arbitration

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The Fee Dispute Resolution Program (22 NYCRR §137) was created to mandate arbitration of fee disputes between attorneys and their former clients in civil matters. It has been subject to differing opinions among different departments leading to divergent opinions on the issue of whether or not an arbitration is necessary when the former client fails to object the validity of the underlying fee.

In 2000, the Second Department determined in Scordio that when there is a fee dispute between an attorney and a former client, the attorney was not required to send notice to the former client informing them of their rights to arbitrate when there was no dispute or objection to the reasonableness of the attorney’s fees. Scordio v. Scordio, 270 A.D.2d 328 (2nd Dept. 2000).

The decision in Scordio would ordinarily lend to the notion that an attorney may pursue collection of his fees without notice to a client of his right to arbitration but the rules regarding arbitration of fee disputes were modified and expanded in 2002, and now lists exceptions to when a notice to a client of his right to arbitrate can be waived. In Wexler & Burkhart, the court held that a reading of the Rules in this way would “effectively eviscerate Part 137 of the Rules, a comprehensive scheme for the informal and expeditious resolution of fee disputes between attorneys and clients through arbitration and mediation.” Wexler & Burkart LLP v. Grant, 12 Misc.3d 1162(A) (Nassau Cty. 2006).

The court in Rotker determined that “the rules of the appellate division establish a clear public policy in favor of the arbitration of attorney-client fee disputes.” Rotker v. Rotker, 195 Misc.2d 768 (Westchester Cty. 2003). Rotker was a matrimonial case where the attorneys for the wife instituted a retainer lien against her for non-payment of her fees. The attorneys asserted that since the client had not disputed the fees, under Scordio, they were entitled to payment without arbitration. The court held that even if it was determined that counsel was not fired for cause, the attorneys were required to provide the client notice of her rights to arbitrate the dispute, with said notice given in writing. If the client then failed to avail herself of her right to arbitrate after 30 days of mailing the notice, the right to arbitration would be waived. Id at 790-791.

The court in Rotker went so far as to hold that the failure of former counsel to send the 30-day notice, regardless of whether or not there is a dispute, would mandate the dismissal of any action for unpaid counsel fees. Rotker at 791.

The basic tenet held in these decisions is the idea that if the Scordio argument is used as a means to avoid Rule 137, then nearly anyone can circumvent the protections that Rule 137 was meant to provide. Wexler & Burkhart LLP at 214;

The position of the Wexler & Burkhart decision and the Rotker decision was most recently supported in Noel F. Caraccio, where the court held that regardless of whether there was an objection or dispute as to the fees when they were billed, the attorney was still required to send the 30-day notice of the right to arbitrate. Noel F. Caraccio PLLC v. Thomas, 29 Misc.3d 1230 (A) (City Ct., Rye 2010); Rotker at 791.

Thus, it is questionable as to whether Scordio remains good law, and as such, it is prudent to notify the former client of his rights to arbitrate the fee in order to prevent a dismissal of an attorney’s action for payment.

Elisa S. Rosenthal, Esq.
Associate
Law Office of Richard A. Klass
Copyr. 2014


Elisa S. Rosenthal, Esq. is an associate of the law firm of Richard A. Klass, Esq.. She practices primarily in the areas of commercial litigation, debt collection/enforcement of judgments, legal malpractice and real estate litigation. She may be reached by phone at (718) COURT-ST [(718) 268-7878)] or www.courtstreetlaw.com.

R. A. Klass
Your Court Street Lawyer

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An attorney maintains a common law and statutory charging lien in the judgment

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Under common law, an attorney was originally only entitled to a lien upon the judgment but the scope of the charging lien was extended by statute [Judiciary Law §475] to give the attorney a lien upon the client’s cause of action as well. The lien comes into existence, without notice or filing, upon commencement of the action or proceeding. See, Matter of Heinsheimer, 241 NY 361 [1915]. In Matter of Heinsheimer, Judge Cardozo stated,

If the attorney got possession of the fund, he had a general lien. If he did not get possession, his lien was for the services that brought the fund into existence. This charging lien still exists under our statutes. It has been enlarged to the extent that it now attaches to a cause of action even before judgment. ‘From the commencement of an action or special proceeding‘ the attorney now has a lien ‘upon his client’s cause of action, claim or counterclaim, which attaches to a verdict, report, decision, judgment or final order in his client’s favor, and the proceeds thereof in whosoever hands they may come.‘ (Judiciary Law, Cons. Laws, ch. 30, sec. 475.) Except as thus changed, the charging lien is today what it was at common law.

The concept of protecting an attorney’s lien in litigation from inception through and after entry of judgment is an old one. As stated in the decision of Fischer-Hansen v. The Brooklyn Heights Railroad Company, 173 NY 492 [1903].

There is much learning in the books relating to the lien of an attorney upon a judgment for his costs as it existed before the statute, and though now virtually obsolete, it shows the fixed determination of the courts to protect attorneys against fraudulent settlements. The lien upon a judgment was not created by statute, but was ‘a device invented by the courts for the protection of attorneys against the knavery of their clients by disabling their clients from receiving the fruits of recoveries without paying for the valuable services by which the recoveries were obtained.’ Goodrich v. McDonald, 112 NY 157 [1889].

In Peri v. The New York Central and Hudson River Railroad Company, 152 NY 521 [1897], the Court of Appeals held that an attorney’s charging lien is a statutory lien “of which all the world must take notice, and any one settling with a plaintiff without the knowledge of his attorney, does so at his own risk.” In this case, that risk is borne by all of the defendants.

New York Judiciary Law Section 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, or the initiation of any means of alternative dispute resolution including, but not limited to, mediation or arbitration, or the provision of services in a settlement negotiation at any stage of the dispute, 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, award, settlement, 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 Court of Appeals noted, in Matter of City of New York (United States of America-Coblentz), 5 NY2d 300 [1959], that the statute gives an attorney a lien on the cause of action which attaches to the judgment from the commencement of the action. In the decision, the Court stated that Section 475, in substance, declares the common law. The origin of an attorney’s lien, whether as retaining or as charging, is obscure, but in all events, irrespective of type, has been recognized and enforced by the courts from very early times (see Fourth Annual Report of N. Y. Judicial Council, 1938, p. 49; 7 C. J. S., Attorney and Client, § 210 et seq.; 5 Am. Jur., Attorneys at Law, § 208 et seq.). The underlying purpose at both common law and now, by statute, is to protect an attorney against the ‘knavery of his client’ (Matter of Rosentover v. Weiss, 247 AD 137 affirmed 272 N.Y 557; Goodrich v. McDonald, 112 NY 157) and, being created by statute, does not require the giving of any notice in order to bring it into existence (Matter of Drake v. Pierce Butler Radiator Corp., 202 Misc. 935) for it is generally regarded as an equitable assignment to the attorney of the fund procured by his efforts to the extent of the amount of his lien (Matter of Herlihy, 274 AD 342).

Other parties do not have the ability to destroy the attorney’s vested property rights in and to the Judgment. See, LMWT Realty Corp. v. Davis Agency, Inc., 85 NY2d 462 [1995] (“Manifestly, then, an attorney’s charging lien is something more than a mere claim against either property or proceeds; an attorney’s charging lien “is a vested property right created by law and not a priority of payment”).

In enforcing the charging lien, the attorney is not required to solely chase after his client for the money he is owed; he can also pursue the other defendants. In Haser v. Haser, 271 AD2d 253 [1 Dept. 2000], the court held that, under New York law, a plaintiff’s attorney may enforce her statutory charging lien against the defendant’s own assets, if he still possesses the settlement proceeds or knowingly paid them to the plaintiff so as to deprive the attorney of her compensation (citing to Kaplan v Reuss, 113 AD2d 184, 186-187, affd 68 NY2d 693; Fischer-Hansen v Brooklyn Hgts. R. R. Co., 173 NY 492, 502). The lien which attaches in the attorney’s favor cannot be impaired by a collusive settlement.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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Debt Collection Tips: Docketing a Judgment Lien

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Once a Judgment has been entered in a court, there are various methods which may be utilized by the judgment creditor to collect the Judgment from the debtor.

Where the debtor owns real estate, a lien may be placed upon the property. This type of lien is referred to as a Judgment lien under Article 52 of the Civil Practice Law and Rules (CPLR).

The Judgment lien is placed upon real estate by the “docketing” of a Transcript of Judgment with the County Clerk’s Office. Once the Judgment is docketed or registered, the judgment creditor may issue an Execution to the Sheriff to levy and sell the real estate, or merely leave the lien against the property until the debtor sells or transfers the property (at which time, the Judgment will likely be paid from the proceeds at closing).

If the Judgment was obtained in the Supreme Court of the county in which the property is located, no further action is required to docket the lien.

If the Judgment was obtained in another court (such as the New York City Civil Court, federal court, Family Court, or District Court), that court will issue, for a fee, a Transcript of Judgment with a raised seal, which Transcript of Judgment will then be filed with the County Clerk’s Office, at which point the lien will be effective.

If the debtor owns real estate in a county different from the one in which the Judgment was entered, a Transcript of Judgment should issue from the County Clerk’s Office in which the Judgment was entered and be filed with the County Clerk’s Office in which the property is located to effectuate the lien.

copyr. 2014 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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