Pedersen & Houpt, P.C. v. Main Street Village West, Part 1, LLC , 2012 IL App (1st) 112971 ( 2014 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
Pedersen & Houpt, P.C. v. Main Street Village West, Part 1, LLC,
2012 IL App (1st) 112971
Appellate Court PEDERSEN AND HOUPT, P.C., Plaintiff-Appellant, v. MAIN STREET
Caption VILLAGE WEST, PART 1, LLC.; TATUM AND SHEA, LTD.; OLD
SECOND NATIONAL BANK, N.A.; NORTH AMERICAN SAVINGS
BANK, F.S.B.; JJR HOLDINGS, LTD.; and MB FINANCIAL BANK,
N.A., Defendants-Appellees.
District & No. First District, Second Division
Docket No. 1-11-2971
Opinion filed December 28, 2012
Rehearing denied March 4, 2013
Modified opinion filed March 12, 2013
Held Plaintiff law firm’s attempt to collect its lien for attorney fees via a
(Note: This syllabus foreclosure action in a pending mechanic’s lien case involving third
constitutes no part of parties was properly dismissed on the ground that the Attorneys Lien Act
the opinion of the court does not provide for a foreclosure action as a means of collecting such a
but has been prepared lien, especially when none of the parties to the mechanic’s lien case was
by the Reporter of ever defined as a party against whom plaintiff’s client may have had a
Decisions for the cause of action.
convenience of the
reader.)
Decision Under Appeal from the Circuit Court of Cook County, No. 08-CH-30891; the
Review Hon. Lisa R. Curcio, Judge, presiding.
Judgment Affirmed.
Counsel on Pedersen & Houpt, P.C., of Chicago (Arthur M. Holtzman and Donald J.
Appeal Moran, of counsel), for appellant.
Arnstein & Lehr, LLP (David A. Golin, of counsel), Polsinelli Shughart,
PC (Peter J. Schmidt, Tiffany R. Harper, and Matthew R. Moriarity pro
hac vice, of counsel), and Fidelity National Law Group (Erik J. Anderson,
of counsel), all of Chicago, for appellees.
Panel JUSTICE QUINN delivered the judgment of the court, with opinion.
Justices Connors and Simon concurred in the judgment and opinion.
OPINION
¶1 After questions were raised by the trial court regarding the propriety of a law firm’s
attempt to collect an attorney fees lien in a pending mechanic’s lien case, the law firm filed
a foreclosure action seeking payment of its attorney fees and priority over all mechanic’s lien
claimants. The trial court ruled that the Attorneys Lien Act (770 ILCS 5/0.01 et seq. (West
2010)), unlike the Mechanics Lien Act (770 ILCS 60/0.01 et seq. (West 2010)), and other
statutes, did not provide for foreclosure as a mechanism to collect a statutory attorney fees
lien and dismissed the action. This appeal by the law firm followed. For the reasons that
follow, we affirm.
¶2 I. BACKGROUND
¶3 The genesis of the attorney fees that the Pedersen & Houpt law firm (P&H) seeks to
collect via its foreclosure complaint filed in a mechanic’s lien court is a real estate dispute
wherein it successfully represented its client, Summit Real Estate Group, LLC (Summit).
Back in 2004, P&H filed a complaint on behalf of Summit seeking specific performance of
a real estate contract to acquire a parcel of real estate located in Orland Park, Illinois, from
certain defendants (Lakeside Bank as trustee, the holder of legal title to the property; Hickory
Properties, Inc.; and Steven P. Gianakas) in exchange for money. Summit Real Estate Group,
LLC v. Lakeside Bank, No. 04 CH 16593 (Cir. Ct. Cook Co.). Trial was held in 2005, and
the circuit court entered a judgment on February 17, 2005, requiring specific performance
of the real estate contract wherein the defendants were to convey the Orland Park real estate
to Summit. Id. The circuit court granted a stay of the specific performance order on the
condition that Lakeside Bank post a $6 million bond. Lakeside sought a stay in the appellate
court, also requesting that the amount of the bond be lowered. These appeals were dismissed.
The circuit court set a new closing date for June 17, 2005. When Lakeside Bank still refused
to close, the circuit court set July 12, 2005, as a return date on a rule to show cause. On June
28, 2005, Lakeside Bank filed a motion in the appellate court to stay the circuit court’s
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hearing. This appeal was also dismissed. P&H represented Summit during these appeals.
Neither before nor during P&H’s representation of Summit’s interests until the conclusion
of the specific performance case did P&H ever give notice to any of the three defendants of
any attorney fees lien. P&H also did not file any motion to enforce or adjudicate any attorney
fees lien before the judgment became final. In other words, no statutory lien was sought to
be placed on the property in the specific performance action.
¶4 The defendants in the above-described specific performance real estate action complied
with the court’s final judgment by conveying the parcel of Orland Park real estate in two
separate conveyances to Summit on August 22, 2005 and January 12, 2006. The portion of
the parcel conveyed to Summit on August 22, 2005 is not subject to this lawsuit. There is no
evidence that P&H ever sought to enforce a lien on that portion of the parcel. The second
portion of the parcel was conveyed to Summit on January 12, 2006. Summit, by quitclaim
deed dated January 13, 2006, immediately conveyed the second portion of the parcel to one
of the defendants in this lawsuit, Main Street Village West, Part 1, LLC. Both transactions
involving the second portion of the parcel were the subject of the same closing that occurred
on January 25, 2006. P&H did not assert any attorney fees lien arising out of the successful
specific performance action at the January 25, 2006 closing even though P&H had a
representative present at the closing. The Main Street Village West’s deed was recorded on
January 30, 2006. It is this second portion of the Orland Park real estate involved in the
original specific performance action that is the subject of this lawsuit.
¶5 By letter dated January 17, 2006, almost 11 months after the judgment in the specific
performance lawsuit became final, P&H sent a notice of its claimed statutory attorney fees
lien to only one of the named defendants in the specific performance action, Hickory
Properties, Inc. The two other defendants, Lakeside Bank and Steven P. Gianakas, against
whom Summit had a claim in the specific performance action were not sent any attorney fees
lien notice directly by P&H on January 17, 2006 or at any other time. Copies of the January
17, 2006 P&H attorney fees lien notice were also sent to two agents at Chicago Title & Trust,
to the attorney who had represented the defendants in the specific performance litigation and
to the individual former clients of P&H in the specific performance action, Messrs. Tyman
and Schutte. Immediately upon receipt of the attorney fees lien notice by Hickory Properties,
Inc., their attorney informed P&H on January 23, 2006, that P&H’s notice of an attorney fees
lien was not meritorious.
¶6 The January 25, 2006 closing for this second portion of the parcel of real estate was
concluded and P&H purposefully did not assert or in any way claim payment should be made
for its attorney fees arising out of its successful litigation in the specific performance action
that made this closing possible. In other words, P&H intentionally missed the opportunity
to get paid during this liquidating event. P&H’s stated rationale was to try to work out a
payment plan with its client for its attorney fees. P&H also never followed up with the title
company by filing a claim with it for insuring over P&H’s claimed lien.1
1
The facts contained in this paragraph were obtained by representations made by counsel for
P&H at oral argument held on November 13, 2012.
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¶7 On August 1, 2006, more than six months after receipt of the January 23, 2006 letter from
attorneys for Hickory Properties, Inc., and the January 25, 2006 closing on the final portion
of the property where its client sold the property to a third party, P&H filed a lawsuit in the
law division of the circuit court, to recover its unpaid fees from its former client, Summit,
for its representation in the specific performance action. This suit included a count for
enforcement of its attorney fees lien naming a subsequent owner of the second parcel of real
estate, Main Street Village West, Part I, LLC, as an additional defendant. Pedersen & Houpt,
LLC v. Summit Real Estate Group, LLC, No. 06 L 8078 (Cir. Ct. Cook Co.). This lawsuit
did not name any of the original three defendants from the specific performance action and,
specifically, did not name Hickory Properties, Inc., the one defendant to whom P&H sent its
letter dated January 17, 2006 asserting a lien. On August 18, 2006 and August 21, 2006,
P&H recorded two lis pendens using the personal identification number (PIN) used for
mechanic’s lien notices for the subject property.
¶8 The law division judge ruled on an attorney disqualification issue in the action filed by
P&H to recover its attorney fees. P&H appealed that ruling and this court addressed the issue
in an opinion. Pedersen & Houpt, P.C. v. Summit Real Estate Group, LLC, 376 Ill. App. 3d
681 (2007). The appellate court opinion is illuminating as it recounts P&H’s postjudgment
efforts in a 43-count complaint which included allegations against its client, Summit, for
fraudulent conveyance of the property that was the subject of the specific performance action
“ ‘with the intent to *** defraud its creditors’ ” (id. at 684) including the attorney fees
Summit owed to P&H, in violation of the Uniform Fraudulent Transfer Act (740 ILCS 160/1
et seq. (West 2006)). P&H also included counts for requests for payment of its attorney fees
from Summit on theories of fraudulent misrepresentation and promissory estoppel due to
Summit’s false promises made to P&H that it would pay P&H its attorney fees. Pedersen &
Houpt, P.C. v. Summit Real Estate Group, LLC, 376 Ill. App. 3d 681, 684 (2007). We can
find no specific judicial ruling on P&H’s fraudulent conveyance, fraudulent
misrepresentation and promissory estoppel actions against Summit other than the money
judgment against Summit for the full amount of P&H’s attorney fees that was entered by the
circuit court after remand.
¶9 On remand from the appellate court, on June 9, 2009, the law division judge of the circuit
court found that the P&H attorney fees lien attached to the property that P&H obtained for
Summit as a result of the specific performance litigation. On July 29, 2009, the law division
judge also determined that the P&H attorney fees lien was for $278,870.90.
¶ 10 On November 3, 2009, the law division judge determined that the date of attachment of
the P&H attorney fees lien to the property was January 17, 2006, the date P&H sent its first
and only notice to one of the defendants from the specific performance lawsuit and to others.
On that same day, the law division judge granted summary judgment in favor of P&H and
against its former client, Summit, in the amount of $297,333.76, a money judgment for all
attorney fees Summit owed to P&H. No judgment was entered against the other defendants
named in the law division case. The real estate at issue in the specific performance case was
subdivided and transferred to other entities between January 13, 2006 and November 3,
2009. There is no evidence that those individuals who had subsequently acquired an interest
in the property were ever named as additional defendants in this lawsuit or were otherwise
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given notice that P&H was requesting the court to adjudicate a significant interest in the
property, specifically, P&H’s attorney fees as a lien on the property. We can find no evidence
of record that the law division judge was ever informed that third parties not named in the
complaint pending in law division court had ownership and lien interests in the subject
property pending before him.
¶ 11 In a separate proceeding in mechanic’s lien court, on August 22, 2008, a general
contractor filed a mechanic’s lien action to foreclose on a portion of the property that was the
subject of the above-mentioned specific performance action. In January 2009, P&H was
participating in this mechanic’s lien proceeding pending before Judge Curcio from which this
appeal is taken. The trial court in the instant mechanic’s lien proceeding issued an order
dated August 19, 2009, which stated: “At [the next] status hearing [September 21, 2009]
counsel [for all mechanic’s lien claimants] shall be prepared to inform the Court how their
clients intend to proceed as to the lien claimed by Pedersen/Houpt. Pedersen/Houpt shall
report on the status of lien [pending before the law division judge].”
¶ 12 On January 25, 2010, P&H filed a counterclaim and third-party complaint in the
mechanic’s lien proceedings before Judge Curio which consisted of one count which sought
a judgment of foreclosure and sale of the property no longer owned by its former client,
Summit, or the three defendants from the original specific performance action against whom
its client had a claim, in order to collect on attorney fees owed to it by Summit arising out
of the specific performance litigation. Additionally, the counterclaim/third-party action
requested enforcement of its attorney fees lien pursuant to the Attorneys Lien Act (770 ILCS
5/1 (West 2010)) and an order granting P&H priority for its statutory attorney fees lien over
all lien claimants in the mechanic’s lien proceedings. Motions to dismiss pursuant to sections
2-615 and 2-619 of the Illinois Code of Civil Procedure (Code) (735 ILCS 5/2-615, 2-619
(West 2010)) and motions for summary judgment pursuant to section 2-1005 of the Code
(735 ILCS 5/2-1005 (West 2010)) were filed by various opposing parties. By its seven-page
memorandum order dated July 20, 2011, the circuit court granted all motions to dismiss and
all motions for summary judgment and ruled that P&H has no right under the law to
foreclose on its statutory attorney fees lien against this property. P&H appeals this ruling.
¶ 13 II. ANALYSIS
¶ 14 A. Standard of Review
¶ 15 This decision involves statutory interpretations of the Attorneys Lien Act and the
Mechanics Lien Act. Statutory interpretations are questions of law that this court reviews de
novo. Acme Markets, Inc. v. Callanan, 378 Ill. App. 3d 676, 677-78 (2008). The parties are
correctly in agreement that the standard of review to be employed in this action is de novo
review.
¶ 16 B. Discussion
¶ 17 The mechanic’s lien court ruled that because the statute allowing for an attorney fees lien
for services rendered did not specifically allow for collection of that lien via a foreclosure
action, it would not allow P&H to proceed with its counterclaim and third-party complaint
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in the mechanic’s lien proceedings to foreclose on a portion of the property that was the
subject of the specific performance litigation.
¶ 18 In addition to the record in the mechanic’s lien action for foreclosure, the record contains
the 64-page, 388-paragraph complaint filed by P&H in the law division wherein P&H
claimed a statutory attorney fees lien on a portion of the property previously owned by
Summit that was the subject of the specific performance action. There is no indication from
the specific performance action that reflects P&H ever claimed an attorney fees lien was
imposed while that case was pending or prior to judgment being final. P&H only
subsequently sued for a money judgment against its client in a separate action, which was
allowed and for a lien on the property no longer owned by Summit or the original three
defendant-owners against whom Summit had a claim during the specific performance action
which was the subject of the specific performance action in which Summit prevailed. It is
not possible to enter any judgments affecting property unless a court has jurisdiction over the
res. Financial Freedom v. Kirgis, 377 Ill. App. 3d 107, 120 (2007). There is no evidence that
the subsequent purchasers, current owners or parties with an interest in the property were
sued, served with process or otherwise given proper notice of the suit by P&H before the law
division court.
¶ 19 P&H argues that its statutory attorney fees lien has priority over all lien claimants
because it was perfected on June 9, 2009 and ruled on by the law division judge to be validly
attached to the property as of January 17, 2006, the date of P&H’s notice of lien to only one
defendant from the prior specific performance action and to others but not to others involved
in this mechanic’s lien action litigation. P&H argues that because the law division judge
determined through his ruling that its lien attached to the property on January 17, 2006, it
predates the recording of any mortgages or mechanic’s liens in the action before Judge
Curcio and, therefore, its statutory attorney fees lien in this mechanic’s lien proceeding
should have priority over all other liens and mortgages.
¶ 20 The purpose of the Mechanics Lien Act is to protect those who, in good faith, furnish
material or labor for construction of buildings. 770 ILCS 60/0.01 et seq. (West 2010); Lawn
Manor Savings & Loan Ass’n v. Hukvari, 78 Ill. App. 3d 531, 532 (1979). A lienable
improvement includes labor or services in improving land or a structure on the land, and
performing any services or incurring any expense for an architect, structural engineer, or
professional engineer. 770 ILCS 60/1 (West 2010). Attorney services are not covered by the
Mechanics Lien Act; rather, they are covered by the Attorneys Lien Act.
¶ 21 We begin this analysis with the Attorneys Lien Act, as it existed in 2006, which states:
“Attorneys at law shall have a lien upon all claims, demands and causes of action,
including all claims for unliquidated damages, which may be placed in their hands by
their clients for suit or collection, or upon which suit or action has been instituted, for the
amount of any fee which may have been agreed upon by and between such attorneys and
their clients, or, in the absence of such agreement, for a reasonable fee, for the services
of such suits, claims, demands or causes of action, plus costs and expenses. ***
To enforce such lien, such attorneys shall serve notice in writing, which service may
be made by registered or certified mail, upon the party against whom their clients may
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have such suits, claims or causes of action, claiming such lien and stating therein the
interest they have in such suits, claims, demands or causes of action. Such lien shall
attach to any verdict, judgment or order entered and to any money or property which may
be recovered, on account of such suits, claims, demands or causes of action, from and
after the time of service of the notice. On petition filed by such attorneys or their clients
any court of competent jurisdiction shall, on not less than 5 days’ notice to the adverse
party, adjudicate the rights of the parties and enforce the lien.” 770 ILCS 5/1 (West
2006).
¶ 22 No statutory attorney fees lien was placed on the property during the specific
performance action. Although P&H filed its lis pendens using the mechanic’s lien PIN,
P&H’s current collection efforts should not be treated like a mechanic’s lien on the ground
that it secured the property for the prior owner, Summit, in a prior specific performance
action and subsequently secured both a money judgment against Summit and a lien on the
entire property for its fees that the law division judge ruled in 2009 attached to the property
as of January 17, 2006.
¶ 23 P&H’s efforts in the specific performance action should not be treated like a worker’s
mechanic’s lien, and its lis pendens filed like a mechanic’s lien notice is invalid. In other
words, just because P&H’s efforts secured the property for its client, Summit, these efforts
cannot be compared to workers who are allowed to proceed with mechanic’s liens for
improvements made to property that enhance the property’s value.
¶ 24 Generally, a lien is a charge on property or personalty for the payment of a debt. If
properly recorded, it encumbers property to secure payment of the debt. 51 Am. Jur. 2d Liens
§ 1 (2003). We are concerned in this case with a statutorily created attorney fees lien. The
“character, operation and extent of [a statutory] lien must be ascertained from the terms of
the statute *** and then only where there has been substantial compliance with all the
statutory requirements.” (Internal quotation marks omitted.) United States v. Beaver Run
Coal Co., 99 F.2d 610, 612 (3d Cir. 1938). “Since the attorney’s lien is a creature of statute,
the [Attorneys Lien] Act must be strictly construed, both as to establishing the lien and as to
the right of action for its enforcement. Attorneys who do not strictly comply with the
[Attorneys Lien] Act have no lien rights.” People v. Philip Morris, Inc., 198 Ill. 2d 87, 95
(2001); Haj v. American Bottle Co., 261 Ill. 362 (1913); Unger v. Checker Taxi Co., 30 Ill.
App. 2d 238 (1961); Schlake v. Lumbermens Mutual Casualty Co., 25 Ill. App. 2d 194
(1960); Cazalet v. Cazalet, 322 Ill. App. 105 (1944). Therefore, statutory liens are available
and enforced only on such terms as the legislature sees fit to provide.
¶ 25 Under the Attorneys Lien Act, an attorney is allowed to pursue a number of statutorily
authorized avenues to obtain payment of attorney fees that are less drastic than foreclosure
and, arguably, less expensive and more effective. Attorneys are allowed under the statute to
file a lien for all attorney fees they have earned and will earn in the future for their client.
They must serve their notice of lien on all parties against whom their client may have a
claim. Unlike the specificity required under the Mechanics Lien Act, attorneys do not need
to designate a sum certain owed to them. Given the prospective nature of the notice to be
served, attorneys cannot at the time of filing a notice know with any degree of certainty what
that figure would be for their fees. When P&H sought a foreclosure action as the vehicle to
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secure payment of its attorney fees lien, it was pursuing a method that is not an approved
collection mechanism under the statute. The Attorneys Lien Act does not provide for a
remedy of foreclosure on real property in the event the client does not pay his attorneys their
fees. If our legislature wished to authorize foreclosure as a method to collect a statutory
attorney fees lien, it would have specifically included such a provision in the statute as it did
for liens arising out of mortgages (735 ILCS 5/15-1101 (West 2010)), judgments (735 ILCS
5/12-101 (West 2010)), the Commercial Real Estate Broker Lien Act (770 ILCS 15/1 (West
2010)), the Mechanics Lien Act (770 ILCS 60/0.01(West 2010)), and the Oil and Gas Lien
Act of 1989 (770 ILCS 70/1 (West 2010)), all of which clearly provide for lien foreclosure.
In other words, Judge Taylor’s order of June 9, 2009, that ruled that the lien attached to the
property on January 17, 2006, did not convert the attorney fees lien into the equivalent of a
real estate mortgage or a mechanic’s lien so as to permit a right of redemption via a
foreclosure action. P&H could have recorded its judgment it secured from Judge Taylor on
November 3, 2009 against any property then owned by Summit, but there is no evidence that
it did so. The judgment that P&H received against Summit from the law division judge
appears to be a judgment for its attorney fees outside of the Attorneys Lien Act. It is well
settled that it was perfectly permissible for P&H to sue its client, Summit, outside of the
Attorneys Lien Act to recover for its services. People v. Philip Morris, Inc., 198 Ill. 2d 87,
98 (2001).
¶ 26 P&H cites Catherwood v. Morris, 360 Ill. 473 (1935), as support for its position that its
attorney fees lien may attach to real property and is valid even though conveyances to third
parties preceded its lien notice. Catherwood does provide support for its argument that a
statutory attorney fees lien may attach to real property. However, Catherwood does not
support its argument that such a lien can attach to property even after the property is
conveyed away from the parties against whom an attorney’s client had a claim or away from
the attorney’s client. Catherwood involved a dispute over the distribution of real property of
an estate. The dispute involving payment of an attorney fees lien arose while the original case
was pending. The circuit court in Catherwood held that there existed a valid attorney fees
lien “upon the interests of the Catherwoods in certain of the real property *** obtained in the
settlement of the litigation” (id. at 478) and ordered the administrator of the estate to pay the
attorney fees. Our supreme court affirmed and held that the attorney fees lien attached to the
real property acquired through the settlement.
¶ 27 On the basis of the Catherwood ruling, P&H argues that its lien can attach to property
even after the final judgment in the specific performance action was satisfied. Further, P&H
argues that it was not required to send notice of its lien to all defendants against whom its
client once had a claim and the lien extends to innocent, unsuspecting third parties who
acquired an interest in the real property even before P&H asserted its lien. We disagree. In
Catherwood, the client of the attorney seeking payment of his previously noticed lien actually
still possessed the property at the time the trial court enforced the lien. No final judgment had
been entered in the case. The Catherwood ruling provides no basis for a conclusion that
P&H’s lien can attach to property after judgment is satisfied and runs with the property once
it is out of the hands of the original defendants and then out of the hands of its client, in the
instant case, Summit, to whom the property was transferred pursuant to a settlement or
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judgment. Catherwood, 360 Ill. at 480; Process Color Plate Co. v. Chicago Urban
Transportation District, 125 Ill. App. 3d 885, 889 (1984) (attorney for plaintiff who took no
action so his lien would be paid from proceeds of lawsuit was precluded from seeking lien
enforcement directly against the defendant in the underlying litigation).
¶ 28 If we were to allow P&H’s method of recovery, the current owner is not afforded due
process by being given an opportunity to contest notice or whether the lien was properly
perfected not just against the property, but against the current owners, who had never used
P&H’s legal services. The fundamental principles of due process require notice and an
opportunity to be heard where a judicial body makes a fact-based adjudication affecting
property rights. Therefore, absent a statutory mechanism written into the Attorneys Lien Act,
P&H’s attempted method to collect a statutory attorney fees lien must be found to be
ineffectual.
¶ 29 As one can readily see from the above-quoted Attorneys Lien Act, there is no statutory
procedure for an attorney to commence an action to foreclose on a piece of real property.
Thus we find P&H’s novel contention that using the mechanic’s lien process and foreclosure
proceedings to recoup attorney fees owed to it from a prior owner was not a proper method
to enforce its attorney lien. P&H submitted at oral argument that there are no time limitations
on an attorney’s ability to assert a statutory attorney fees lien against a parcel of property in
a specific performance action and it was not restricted to doing so only before final judgment
or only before the property was transferred out of the hands of the original defendants and
its clients. This theory, if adopted, has the potential of hurting multiple innocent third parties
and transferring the burden of paying a client’s attorney fees to others with no connection
whatsoever to the litigation other than the fact that they acquired their interest in the real
property sometime in the future without benefit of a notice of lien or otherwise.
¶ 30 Further, it does not appear of record that P&H perfected its judgment from the law
division. In order to perfect a judgment, one must place the world on notice that it has an
interest superior to that of other creditors in the property. In Illinois, in addition to the
provisions of the Attorneys Lien Act, which P&H did not follow, one may perfect a lien
through recordation or by obtaining possession through foreclosure proceedings. A recorded
notice of foreclosure provides constructive notice of a lien on property. 735 ILCS 5/15-1503
(West 2010). The issue of perfection becomes critical when addressing the priority of
competing liens. In this case, P&H filed its lawsuit seeking to recover its unpaid attorney fees
from Summit on August 1, 2006. P&H filed two lis pendens on August 18 and 21, 2006,
respectively, using the PIN used for mechanic’s lien notices. On June 9, 2009, the law
division judge found the attorney fees lien attached to the property. On November 3, 2009,
the law division judge determined that the date of attachment was January 17, 2006. On
January 25, 2010, P&H filed its counterclaim and third-party complaint in the mechanic’s
lien action pending before Judge Curcio and for the first time P&H sought a judgment of
foreclosure on a portion of the property that its former client Summit had conveyed to Main
Street Village West on January 13, 2006. In this case, P&H also failed to perfect its judgment
from the law division prior to the other lienholders doing so, as required by section 30 of the
Illinois Conveyances Act (765 ILCS 5/30 (West 2006)) in order to assert priority as a
creditor. King v. De Kalb County Planning Department, 394 Ill. App. 3d 699, 704-05
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(2009).2
¶ 31 P&H claims that the third parties involved in the present litigation had constructive
notice via P&H’s improper lis pendens filed utilizing the mechanic’s lien PIN. However,
constructive notice of an encumbrance claimed on a piece of property arises only when the
encumbrance is in the chain of title. Krueger v. Oberto, 309 Ill. App. 3d 358, 368 (1999);
Estate of Welliver v. Alberts, 278 Ill. App. 3d 1028, 1039 (1996). An encumbrance is in the
chain of title only when it is recorded in the grantor-grantee index of the county in which the
property is located. Krueger v. Oberto, 309 Ill. App. 3d 358, 368 (1999); Skidmore, Owings
& Merrill v. Pathway Financial, 173 Ill. App. 3d 512, 514 (1988). P&H never recorded any
lien in the grantor-grantee index. The current defendants, therefore, became involved with
this parcel of property free and clear of any lien interest of P&H because they did not have
either actual or constructive notice of it. The burden of proof is on the party charging actual
or constructive notice and P&H failed to meet its burden of proof on this issue. Krueger v.
Oberto, 309 Ill. App. 3d 358, 368 (1999).
¶ 32 Additionally, the Attorneys Lien Act uses language that is prospective in nature. It
instructs attorneys to serve notice of their lien upon “the party against whom their client may
have such suits, claims, or causes of actions.” (Emphasis added.) 770 ILCS 5/1 (West 2006).
After providing notice of their lien, the statute provides that the “lien shall attach to any
verdict, judgment or order entered and to any money or property which may be recovered.”
(Emphasis added.) 770 ILCS 5/1 (West 2006).
¶ 33 The Attorneys Lien Act is used frequently by personal injury attorneys who take on
injured clients’ cases on a contingent fee basis. The personal injury attorney serves his notice
of lien to all identified potential defendants before, or simultaneously with, the filing of their
clients’ lawsuit in order to take full advantage of the attorneys lien statute and protect their
fees. Any judgment that is paid out is typically sent via a check made payable to both the
client and his personal injury attorney resulting in no dispute arising between the defendants
and the plaintiff’s attorney for failing to honor a lien. In this case, it was impossible for the
prior defendants in the specific performance action to have failed to honor a lien when they
were given no notice of the lien. The only notice that was given by P&H was by letter dated
2
P&H, in its motion to supplement its reply brief, cites a 1996 unpublished ruling from the
federal appellate court entitled Bankers Trust Co. of California N.A. v. Beneficial Illinois Inc., 92
F.3d 1187 (7th Cir. 1996) (table), which its previous research failed to uncover. While it is true that
this court allowed the motion, the federal order does not control here. International Profit
Associates, Inc. v. Linus Alarm Corp., 2012 IL App (2d) 110958. First, a decision of any federal
court interpreting Illinois state law is not binding on this court. Wilson v. County of Cook, 2012 IL
112026. Secondly, the unpublished federal order is not inconsistent with Illinois precedent
interpreting the Illinois Conveyances Act and this court’s opinion. There is no evidence in this case
that subsequent creditors, such as the bank issuing the construction loan, the general contractor and
the mechanic’s lienholders had actual or constructive notice of P&H’s attorney fees lien.
Additionally, the 1889 Illinois Supreme Court case upon which the federal court relied was issued
a decade before the 1909 enactment of the Illinois Attorneys Lien Act which is at issue in this case.
See Anthony v. Wheeler, 130 Ill. 128 (1889).
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January 17, 2006, to one prior defendant from the specific performance action and not until
after the case had concluded, the 2005 judgment became final and the property was already
transferred to P&H’s former client, Summit, by quitclaim deed on January 12, 2006 and then
to a third party on January 13, 2006. P&H specifically never sent its notice to the original
named defendant, Lakeside Bank, which was the trustee for the property during the specific
performance litigation and was the party that complied with the judge’s order to transfer the
property to P&H’s client, Summit.
¶ 34 P&H had every opportunity to protect its attorney fees by filing a lien during the
pendency of the original specific performance action, before judgment became final or before
the property was transferred to third parties, but it did not. 770 ILCS 5/1 (West 2006). P&H
never gave any adverse party from the specific performance action any notice of a claimed
attorney fees lien until it sent its letter dated January 17, 2006, and then inexplicably sent
notice to only one of the original three defendants, Hickory Properties, Inc., even though
Lakeside Bank was the trustee.
¶ 35 P&H also had every opportunity to seek payment of its attorney fees during the January
25, 2006 closing and the closing that preceded it that also involved a portion of the real estate
that was the subject of the specific performance action. Our legislature did not intend that
attorneys, with full awareness of their client’s recovery and who had every opportunity to
assert a statutory attorney fees lien against the proceeds or property going to their client,
should be free to ignore those proceeds or property flowing to their client and later claim the
benefit of their attorney fees lien from the defendants in the underlying action, much less
from an uninvolved third party, in an action unrelated to the litigation giving rise to the
proceeds. Process Color Plate Co. v. Chicago Urban Transportation District, 125 Ill. App.
3d 885, 889 (1984). The laborers who filed the mechanic’s liens had no such ability to
protect themselves from any lien that P&H did not pursue immediately and did not secure
until June 2009. What the laborers did know and all that they could possibly know was that
a valid construction loan was made to the current owners of the property which would fund
the project they worked on to improve the property. The workers proceeded to improve the
property as they were hired to do. It is hardly their fault that P&H did not secure a lien on the
property before it was transferred from the original defendants in the specific performance
case to P&H’s former client, Summit and then to other bona fide, new owners and, more
importantly, never recorded the judgment after it was entered by the law division judge in
2009. Further, that judgment was only against Summit, which no longer had any interest in
the real property at issue when the judgment was entered in 2009.
¶ 36 The object of the Attorneys Lien Act is to provide notice of an attorney’s claim for fees
to the party adverse to its client so that no hardship may be imposed upon any adverse party
who, in good faith, makes good on a settlement or final judgment in the litigation by creating
a liability against the adverse party without notice of the attorney’s lien. Catherwood v.
Morris, 360 Ill. 473, 479 (1935). As our supreme court succinctly stated: “[O]nce an attorney
serves proper notice of the lien on the client’s adversary, that party bears responsibility for
respecting the lien. If the underlying defendant does not respect the lien, then the defendant
becomes liable for the attorneys fees.” People v. Philip Morris, Inc., 198 Ill. 2d 87, 98
(2001); Sutton v. Chicago Rys. Co., 258 Ill. 551, 553 (1913); Process Color Plate Co. v.
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Chicago Urban Transportation District, 125 Ill. App. 3d 885, 890 (1984). This
pronouncement was based on the supreme court’s explanation made long ago:
“ ‘By serving the notice claiming a lien the attorney in effect becomes a joint claimant
with his client *** in the proceeds of any settlement that may be made by his client, and
to the extent of the amount of his fee has the same interest in such proceeds *** as his
client and is entitled to his pro rata share thereof.’ ” People v. Philip Morris, Inc., 198
Ill. 2d 87, 97-98 (2001) (quoting Baker v. Baker, 258 Ill. 418, 421 (1913)).
¶ 37 P&H’s arguments go even further, as its attempt to impose its January 17, 2006 lien on
unsuspecting third parties who had no involvement in the specific performance action and
no notice of its lien assertions. We are not stating that an attorney fees lien does not or cannot
attach to property secured by the attorneys for their client. What we are stating is that P&H
had not given notice of any attorney fees lien as required by statute prior to the transfer of the
property from the parties against whom its client had a claim to its client. P&H also did not
assert its statutory attorney fees claim prior to when its client transferred the property to third
parties at the closing, thereby missing this liquidating event which could have secured
payment of the debt its client owed to it and provided the third parties with some notice of
its claimed lien. See Catherwood v. Morris, 360 Ill. 473, 481 (1935) (failing to speak when
someone should have spoken can mislead another).
¶ 38 Additionally, neither Summit nor any of the three original defendants from the specific
performance action were the owners of the property at the time the judgment was secured on
June 9, 2009 before Judge Taylor. There is no legal basis to have the current owners of the
property step into the shoes of the prior owner and require them to bear the burden of the
attorney fees Summit incurred in the 2004-05 specific performance action. P&H argues that
the new owners of the property additionally obtained the benefit of P&H’s legal services
because its legal services in acquiring the property for Summit allowed the new owners to
purchase it from Summit and others. This analysis falls flat. Such a result would approve an
unjust enrichment for Summit, who originally incurred the attorney fee debt to P&H. In any
case involving property, such a decision would approve a client’s action in not paying his
attorney fees for legal services incurred during a transaction involving real property and,
under a theory of subrogation, transfer the nonpaying client’s attorney fees to a new owner
and a party who was never a client of P&H and, more importantly, was never a party against
whom its client had a claim and had no lien notice from P&H. If proper notice of a statutory
attorney fees lien had been given to the original three defendants in the specific performance
action, those defendants would have shared in Summit’s burden of ensuring P&H was paid.
This is what the Attorneys Lien Act provides.
¶ 39 We also observe that the attorney fees lien which was sent by P&H suffers from several
fatal defects. First, notice was not sent before or during the pendency of the specific
performance suit as contemplated by the prospective language used in the Act. Secondly,
notice of P&H’s lien was sent well after the case was resolved and the judgment became
final. Silberstein v. Joos, 59 Ill. App. 3d 293, 295 (1978) (notice must be sent before
judgment is satisfied by defendants); Rendtorff v. Lowman, 184 Ill. App. 391 (1913) (same);
see also Catherwood v. Morris, 360 Ill. 473, 480 (1935). Third, there is no evidence that
P&H’s notice was sent while it was still acting as Summit’s attorney, as is required. Rhoades
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v. Norfolk & Western Ry. Co., 78 Ill. 2d 217 (1979); Anderson v. Anchor Organization for
Health Maintenance, 274 Ill. App. 3d 1001 (1995); Paul v. Neely, 155 Ill. App. 3d 241
(1987); Department of Public Works v. Exchange National Bank, 93 Ill. App. 3d 390 (1981).
Fourth, notice was not sent to all defendants previously named in the specific performance
action. In re Midway Industrial Contractors, Inc., 272 B.R. 651, 669 (Bankr. N.D. Ill. 2001);
Cazalet v. Cazalet, 322 Ill. App. 105 (1944); Reynolds v. Alton, Granite & St. Louis Traction
Co., 211 Ill. App. 158, 160-61 (1918). Additionally, notice of P&H’s lien was never recorded
against the property. Fifth, at the time P&H instituted their attorney fees litigation before the
law division court, the property P&H had recovered for Summit in the specific performance
action had already been transferred to new owners and was no longer owned or controlled
by the named defendants in the specific performance action or by P&H’s former client,
Summit. It appears the property continued to be transferred, subdivided and encumbered
during the litigation, as well. Sixth, no attempt was made by P&H to name and serve the
current owners or interested parties of the property it wished to encumber with a lien of its
lawsuit before the law division court. All of these defenses to the lien P&H was asserting in
the lawsuit before the law division judge could have been raised by parties with an interest
in the property had they been properly joined by P&H in the action.
¶ 40 P&H attempted to excuse its belated attorney fees lien when it alleged in its lawsuit
before Judge Taylor that it never filed the requisite lien notice during the specific
performance action because it relied on promises made by its former client, Summit, that it
would pay P&H all of its attorney fees.3 P&H, in reliance on Summit’s promises, also did
not attempt to enforce any lien against the property it secured for its former client, Summit,
and admittedly took no action to prevent Summit from conveying the property to a new
owner in January 2006.
¶ 41 The legislature, by utilizing the prospective language in the Act, gave attorneys a lien in
any proceeds or property they may recover in any lawsuit or settlement. The Act clearly is
meant to grant attorneys a right to share in any recovery they secure for their client in order
for their attorney fees to be paid. However, this statutory right does not mean the attorneys
can pick and choose when to give notice of the lien, to whom they may give notice and how
and when to exercise enforcement of their lien. Attorneys must exercise their lien rights by
notifying all the parties against whom their client may have a claim of their assertion while
they are still acting as the attorney for their client and prior to the final judgment being
satisfied in the case for which they are seeking legal fees.
¶ 42 Our supreme court has clearly stated that “an attorney’s lien under the Act ‘is a lien upon
the proceeds, only, of the litigation or settlement of the claim’ ” and “the attorney’s only
interest is in the proceeds of the litigation or settlement.” People v. Philip Morris, Inc., 198
Ill. 2d 87, 97 (2001) (quoting Baker v. Baker, 258 Ill. 418, 421 (1913)); see Countrywide
3
Paragraph 377 of P&H’s complaint states, as follows: “P&H reasonably relied upon
Tynan’s representations and promises to its detriment by not enforcing its attorneys’ lien or
otherwise seeking to prevent the transfer of the Phase 3 Property from Summit Real Estate to Main
Street West.”
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Mutual Insurance Co. v. State Farm Mutual Automobile Insurance Co., 339 Ill. App. 3d 78,
83 (2003). Only after the attorney’s lien is properly perfected, “upon petition ‘any court of
competent jurisdiction’ may adjudicate the lien. [Citation.] This includes the circuit court that
heard the matter [citation], or the circuit court that has jurisdiction over the money recovered
[citation].” People v. Philip Morris, Inc., 198 Ill. 2d 87, 95 (2001). The law division court
was neither the original court that heard the specific performance action nor a court that
secured jurisdiction over the property or proceeds from the sale of the property.
¶ 43 Because P&H never served any lien notice upon all of the defendants in the specific
performance case before any recovery was made by P&H on behalf of Summit, it never
secured a statutory interest in any recovery of property it made on Summit’s behalf with
regard to the specific performance lawsuit. A proper statutory lien was never created by P&H
to protect its attorney fees under the Act which would have enabled P&H to enforce it against
the named defendants in the specific performance case. It is impossible for the defendants
in the specific performance case to have complied with a statutory attorney fees lien when
they were never made aware of it by P&H prior to final judgment.
¶ 44 The defendants in the specific performance case conveyed the property to P&H’s client
pursuant to the final judgment via two separate conveyances on August 22, 2005 and January
12, 2006. Only one of the three defendants in the specific performance case was given notice
that P&H was asserting a statutory lien for its attorney fees and only by letter dated January
17, 2006, after the two conveyances took place. The notice was first provided by letter dated
January 17, 2006, well after the judgment became final and after its former client, Summit,
was conveyed the property and reconveyed it to Main Street Village West. Additionally, final
judgment in the specific performance case was entered and there is no evidence that P&H
was Summit’s attorney at the time it gave notice to one of the three defendants in the specific
performance action.
¶ 45 The best P&H can do at this point is attempt to recover its attorney fees from its client,
Summit. It has already secured a money judgment against Summit for the full amount of its
attorney fees. There is no evidence that P&H pursued enforcement of its judgment via a
citation to discover assets or to record its judgment against its client. Instead, P&H seeks
payment of its attorney fees from third parties who were never involved in the underlying
litigation and also had no notice of any statutory attorney fees lien at the time they became
involved with the property. Most importantly, none of the entities named by P&H involved
in the mechanic’s lien case was ever defined as a “party against whom [P&H’s] client
[Summit] may have such suits, claims, or causes of actions” as defined in the Attorneys Lien
Act. 770 ILCS 5/1 (West 2006).
¶ 46 This case highlights one of the risks involved in the practice of law. Sometimes clients
for whom attorneys have performed stellar legal services do not pay their bills. To remedy
this problem, our legislature created a statutory method for attorneys to protect their interest
in getting paid. However, the legislature did not allow this mechanism to infringe on the
rights of innocent third parties and force them to pay the attorney fees that an attorney did
not recover from his client. Illinois adheres to the rule that generally denies any prevailing
party, like Summit in the specific performance action, to recover attorney fees from the
defendant (Brundidge v. Glendale Federal Bank, F.S.B., 168 Ill. 2d 235, 237 (1995)), let
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alone innocent third parties. What the Attorneys Lien Act does is to protect the proceeds or
property recovered by a party by insuring that the attorney is paid prior to or simultaneously
with the time the proceeds or property subject to the lien are distributed to his client just as
in Catherwood. Catherwood v. Morris, 360 Ill. 473 (1935). P&H’s belated notice of lien and
subsequent foreclosure action attempts to place the burden of paying Summit’s unpaid debt
to P&H for attorney fees onto other innocent third parties and must fail. Process Color Plate
Co. v. Chicago Urban Transportation District, 125 Ill. App. 3d 885 (1984). This action by
P&H goes beyond what is statutorily authorized and departs dramatically from the standard
Illinois rule of law regarding attorney fees obligations and payment.
¶ 47 III. CONCLUSION
¶ 48 For all the foregoing reasons, the circuit court ruling dismissing P&H’s foreclosure action
is affirmed.
¶ 49 Affirmed.
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