Santander Bank, NA v. Warrender , 760 F.3d 130 ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-1476
SANTANDER BANK, N.A.,
Plaintiff, Appellee,
v.
CAMILLA J. WARRENDER,
Defendant, Appellee,
VALERIANO DIVIACCHI,
Interested Party, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Selya, Stahl and Lipez,
Circuit Judges.
Valeriano Diviacchi, appearing pro se.
Howard M. Brown, with whom Richard E. Gentilli, Sarah A.
Smegal, and Bartlett Hackett Feinberg P.C. were on brief, for
appellee Santander Bank, N.A.
Nancy Sue Keller, with whom Harold Jacobi, III and Jacobi and
Chamberlain LLP were on brief, for appellee Camilla J. Warrender.
July 29, 2014
LIPEZ, Circuit Judge. This is an appeal from the
district court's denial of a motion to enforce an attorney's lien
in an underlying mortgage dispute. Attorney Valeriano Diviacchi
was one of several lawyers representing defendant Camilla Warrender
in an action brought against her by her mortgagee, Sovereign Bank.1
Shortly after Diviacchi entered his appearance, Warrender, without
Diviacchi's assistance, was able to find a third-party purchaser
for her property and negotiate with Sovereign Bank for the
dismissal of its claims against her. Prior to the completion of
the settlement, Diviacchi filed a notice of attorney's lien
pursuant to Massachusetts General Laws chapter 221, section 50
("section 50"). The sale of the property went smoothly and
Sovereign Bank dismissed its claims against Warrender. Diviacchi
nonetheless moved for enforcement of his lien against funds derived
from the sale of the property. The district court denied his
motion. We affirm that decision.
I.
In June 2011, Sovereign Bank commenced this action in the
District of Massachusetts against Warrender to collect on a $2.5
million loan that was secured by property on Nantucket.2 On May 1,
1
The appellee, Santander Bank, N.A., operated under the name
"Sovereign Bank, N.A." during the events at issue here and so we
refer to it throughout by that former name. The bank's name was
changed in 2013 and, pursuant to our order of November 13, 2013,
the caption of the case was amended to reflect that change in name.
2
Federal jurisdiction is based on diversity of citizenship
pursuant to 28 U.S.C. § 1332. At the time of filing, plaintiff
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2012, Warrender hired Diviacchi to represent her. The fee
arrangement provided for Diviacchi to receive either a contingent
fee (calculated as a percentage of the gross amount collected from
her counterclaim, if any) or a flat, nonrefundable fee of $25,000
($15,000 of which was paid upfront). One week after he was
retained, Diviacchi entered his appearance and filed an amended
counterclaim against Sovereign Bank. Sovereign Bank filed a motion
to dismiss the counterclaim on May 17.
Shortly after entering his appearance, Diviacchi briefly
left the state to attend his daughter's college graduation. He
requested, and was partially granted, a stay of proceedings for
thirty days. That stay applied to any scheduling and response
deadlines, but the court held that the non-judicial foreclosure of
Warrender's property, scheduled for May 24, could proceed
regardless of Diviacchi's availability.3 As a result, Warrender
hired attorneys from the law firm of Jacobi & Chamberlain LLP, who
entered a limited appearance for the purpose of "filing Defendant's
Emergency Motion For A Temporary Restraining Order And Motion For
Preliminary Injunction in the above-captioned action while
Sovereign Bank, N.A. was a federal savings bank with its
headquarters and principal place of business in Pennsylvania;
defendant Warrender was a citizen of Massachusetts.
3
Under Massachusetts law, a court action is generally not
necessary to effectuate a foreclosure. When the loan is in
default, provided the mortgage documents include the usual power of
sale provision, the law permits the mortgagee to conduct a
foreclosure by sale. See Mass. Gen. Laws ch. 244, § 14. The law
does require notice before such a foreclosure sale. Id.
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defendant and plaintiff-in-counter-claim awaits the return of her
new counsel from vacation." After oral argument on May 22, the
court denied the motion, thereby declining to enjoin the
foreclosure sale of Warrender's property. Jacobi & Chamberlain LLP
represented Warrender in an interlocutory appeal of that decision.
We ordered the parties to participate in mediation.4
On June 6, Warrender notified Diviacchi by email that she
had received an offer for the property from a third party and
Sovereign Bank was offering to settle the case pursuant to the
short sale5 and forgive the loan. Diviacchi responded, telling
Warrender that if she were to settle, she would still owe him the
$10,000 balance on the flat fee. Meanwhile, on June 14, Diviacchi
filed an opposition to Sovereign Bank's motion to dismiss the
counterclaim.
In July, due to Warrender's alleged refusal to pay the
remaining portion of the flat fee in accordance with the fee
agreement, Diviacchi filed a notice of attorney's lien in the
action in accordance with section 50. Three days after the lien
was filed, as a result of the court-ordered mediation, Warrender
4
The appeal was not decided before the settlement described
herein was reached and was therefore voluntarily dismissed pursuant
to Federal Rule of Appellate Procedure 42(b).
5
A short sale is a sale of real property for less than the
total amount owed on a loan secured by that real property that
nonetheless, by agreement, generally releases the property from the
encumbrance. See Daniel F. Hinkel, Practical Real Estate Law 167
(7th ed. 2014).
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and Sovereign Bank agreed to a settlement pursuant to a stipulation
(allegedly unbeknownst to Diviacchi) that Warrender's property be
sold for $2.24 million to a third party. Sovereign Bank agreed to
forgive the loan and waive its right to a deficiency judgment in
exchange for $1.9 million of the proceeds from the short sale. The
remaining proceeds were left to Warrender ($340,000 in total). Of
the $340,000, after other debts were paid in order to transfer
clear title (including the debts accrued by the hiring of Jacobi &
Chamberlain LLP), Warrender had over $175,000 remaining. Only the
attorneys of Jacobi & Chamberlain LLP signed the stipulation on
behalf of Warrender. On September 6, 2012, one day after the sale
of the property, a stipulation of dismissal was submitted to the
court (also allegedly unbeknownst to Diviacchi).6
Diviacchi then filed a Motion to Enforce Attorney's Lien
Against All Parties, seeking almost $100,000 in accordance with the
contingency fee provision (i.e., one-third of the $340,000 minus
the $15,000 paid on the flat fee). In April 2013, the district
court denied the motion to enforce the lien, holding that it failed
to comply with section 50. In May 2013, the court denied
Diviacchi's motion for reconsideration. This appeal from Diviacchi
followed. We review de novo the district court's determination
that the attorney's lien was not enforceable under section 50. See
6
Diviacchi claims that he did not learn of the events that
occurred between the time he filed his lien and the filing of the
stipulation of dismissal until September 21.
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Gargano v. Liberty Int'l Underwriters, 572 F.3d 45, 49 (1st Cir.
2009) ("[W]e review de novo the district court's interpretation of
state law.").
II.
Section 50 provides, in pertinent part:
From the authorized commencement of an action,
counterclaim or other proceeding in any court,
or appearance in any proceeding before any
state or federal department, board or
commission, the attorney who appears for a
client in such proceeding shall have a lien
for his reasonable fees and expenses upon his
client's cause of action, counterclaim or
claim, upon the judgment, decree or other
order in his client's favor entered or made in
such proceeding, and upon the proceeds derived
therefrom.
The district court concluded that Diviacchi was not
entitled to enforcement of his lien pursuant to that statute.
Initially, the court concluded that there was no judgment in favor
of Warrender. In the alternative, the court held that Diviacchi
"failed to make a showing that he incurred reasonable fees and
expenses here." After reconsideration, the court added, without
reversing its prior decision, that even if the stipulation of
dismissal constituted a judgment, it did not result in "proceeds"
being paid on Warrender's counterclaim.
Thus, the district court's holding had three components.
First, the court concluded that the settlement reached in this case
did not constitute a "judgment, decree or other order in
[Warrender's] favor" within the meaning of section 50. Second, the
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court concluded that Warrender received no "proceeds" upon which a
lien could attach. Id. Third, the court concluded that the fees
requested were not shown to be reasonable. We address each of
these conclusions in turn.
Massachusetts courts have consistently held that "for
purposes of [Mass. Gen. Laws ch. 221, § 50], a 'judgment' includes
a stipulation of dismissal." Ne. Avionics, Inc. v. City of
Westfield, 827 N.E.2d 721, 725 (Mass. App. Ct. 2005); see also
Craft v. Kane, 747 N.E.2d 748, 752 (Mass. App. Ct. 2001) ("[T]he
stipulation of dismissal constituted a judgment within the meaning
of the attorney's lien statute."). Here, it is undisputed that the
parties agreed to a settlement whereby Sovereign Bank would forgive
Warrender's debt and waive its right to a deficiency judgment
against her in exchange for a cash payment derived from the short
sale of the property. Because the result of that settlement was
the dismissal of claims against Warrender, the stipulation of
dismissal could fairly be interpreted as a judgment in her favor.
See, e.g., Ne. Avionics, 827 N.E.2d at 725-26. Accordingly,
Diviacchi is correct in his assertion that the stipulation of
dismissal here could have provided the basis for an attorney's
lien.
The problem, however, is that an attorney's lien must
attach to something. In other words, there must be "'proceeds
derived' from a 'cause of action' as a result of a settlement."
Ropes & Gray LLP v. Jalbert, 910 N.E.2d 339 n.12 (Mass. 2009); see
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also Curly Customs, Inc. v. Pioneer Fin., 814 N.E.2d 1176, 1179
(Mass. App. Ct. 2004) ("[I]f there are no such proceeds, there is
no lien." (citing Torphy v. Reder, 257 N.E.2d 435, 437-38 (Mass.
1970)). Here, the sale of Warrender's property, which was a
condition of the settlement, did generate money that she then used
to pay her indebtedness to Sovereign Bank and other creditors.
Importantly, these funds did not come from the counterclaim
defendant -- Sovereign Bank -- but rather from a third party in a
transaction that was effectuated outside the context of the
litigation. Furthermore, the relevant cause of action from which
proceeds had to derive was her counterclaim, which was simply
dismissed as part of the settlement.
The district court found that the settlement itself
generated no "proceeds" for Warrender; neither the dismissal of her
counterclaim nor the dismissal of the bank's claims against her
required any payment to her, and any money she may have acquired
came from the sale of her property to a third party. Accord In re
Leading Edge Prods., Inc., Civ. A. No. 90-13112-Z, 1991 WL 97459,
at *1 (D. Mass. May 28, 1991) ("[The attorney's client] received no
cash or cash equivalent as the result of the settlement. Rather,
the benefit derived from the elimination of [creditor's] claim was
merely the elimination of [the client's] debt to this creditor
. . . . No case in Massachusetts recognizes such a benefit as
attachable proceeds under the charging lien statute . . . ."). As
in Leading Edge, the benefit Warrender derived from the stipulation
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of dismissal was the ability to sell her own property and eliminate
her indebtedness to Sovereign Bank (i.e., the bank's claim against
her). Thus, any funds that went to satisfy Warrender's debt were
not "proceeds" of her counterclaim.
Diviacchi argues that because the sale price of the
property exceeded the amount Warrender paid to Sovereign Bank, she
experienced a windfall.7 In an attempt to characterize that
windfall as "proceeds" of her counterclaim, he then likens the sale
of Warrender's home to the sale of patents and patent applications,
which the Supreme Judicial Court of Massachusetts found to generate
attachable "proceeds" in Ropes & Gray. 910 N.E.2d at 338 ("[T]he
attorney's lien also attaches to the proceeds from the sale of
[patents and patent applications]."). There, however, the court
focused on the peculiarities of patent litigation and an attorney's
role in securing the monetary benefits of a valid patent. The
court noted that "[a] patent attorney who successfully secures a
patent for his client in proceedings before the USPTO is entitled
to the same protection under [section 50] as an attorney who
obtains a favorable judgment for his client in court." Id. at 339
(emphasis added). The court also remarked that "the clear intent
7
But cf. Goldstein, Goldman, Kessler & Underberg v. 4000 E.
River Rd. Assocs., 64 A.D.2d 484, 488 (N.Y. App. Div. 1978)(per
curiam) (holding that although the attorney successfully argued for
a reduction in the tax assessment of his client's property,
producing "a measurable saving of taxes for three tax years," the
savings were not proceeds subject to a lien within the meaning of
New York's attorney's lien statute).
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of the Legislature in enacting [section 50] was to provide
protection to the unpaid attorney, and in the context of patent
prosecution work, this intent would be wholly frustrated if the
lien did not attach to the proceeds derived from the sale of the
patent or patent application." Id. at 338.
This logic does not apply to the funds generated by the
sale of Warrender's property. Diviacchi did not "successfully
secure[]" the value that Warrender realized by selling her home.
Id. at 339. Unlike a patent, whose monetary value is linked to the
efforts of the attorney in securing appropriate recognition of its
validity, real property has value independent of the efforts of any
attorney. In other words, one situation involves created value,
the other intrinsic value. Warrender's home was worth $2.24
million regardless of whether Diviacchi did any work. Moreover, by
his own admission, Diviacchi had virtually no involvement in the
short sale or settlement process. Hence, we agree with the
district court that Diviacchi is not entitled to enforcement of his
attorney's lien against the proceeds of the sale of Warrender's
property. Accord Johnston v. First Fed. Sav. Bank, 822 N.E.2d 614,
616 (Ind. Ct. App. 2005) (remarking that under Indiana law "an
attorney would be entitled to a lien only upon property recovered
for a client"); Snitow v. Jackson, 158 N.Y.S.2d 304, 306 (N.Y. Sup.
Ct. 1956) ("The real property against which the petitioners seek a
lien was not itself recovered or awarded to the respondent by the
order dismissing the proceeding to validate the mortgage against
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such property, and the petitioners may not be given a lien against
the same.").
As noted, the district court also held that the equities
would not have entitled Diviacchi to enforcement of the lien even
if he legally met the requirements of section 50. Specifically,
the court held that Diviacchi "failed to make a showing that he
incurred reasonable fees and expenses here. . . . [H]is sole
contributions were the filing of an amended counterclaim and
opposition to the Bank's motion to dismiss that amended pleading.
The scope and brevity of his representation here do not lend
particular credence to his unsubstantiated claim that he expended
'at least 60 hours on this Action.'" Because we find that
Diviacchi's lien is not legally enforceable against the sale
proceeds, we need not reach the equitable issue of the
reasonableness of his requested fees.8
Affirmed.
8
We note that nothing in our decision precludes Diviacchi
from commencing independent litigation seeking payment for his
services pursuant to his contract with Warrender. Accord Bistany
v. PNC Bank, NA, 585 F. Supp. 2d 179, 185 (D. Mass. 2008) ("[The
unpaid attorney's] remedy cannot, therefore, lie in the enforcement
of a lien for attorneys' fees. Rather, he may sue [the clients] to
recover any fees they rightfully owe him." (citing Torphy, 257
N.E.2d at 436, 438)); Zabin v. Picciotto, 896 N.E.2d 937, 949 n.17
(Mass. App. Ct. 2008) ("[T]he lien furnishes merely a basis to
secure a claim, rather than the basis for the claim itself. With
or without a lien, the attorneys [may be] entitled to claim and
recover the amounts due to them for their respective services.").
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