Schoenherr v. . Van Meter , 215 N.Y. 548 ( 1915 )

The plaintiff is a member of the bar. He brings this action to impress a lien on property of the Brooklyn Consolidated Drug Company, recovered through his services. One Wischerth, the treasurer and general manager, had misappropriated the property of the corporation and owed it upwards of $26,000. The plaintiff was retained by a director to compel the delinquent officer to account. The director refused to be personally liable for the fees. He agreed, however, that the plaintiff should have a lien on the cause of action and on any property recovered. This agreement was found by the trial court, and the finding has been unanimously affirmed. Under that retainer, an action was brought to compel Wischerth to account for his official conduct in the management and disposition of the funds and property committed to his charge, to compel him to pay over the moneys found due upon such accounting, or the value of any property misappropriated to his own use, or lost or wasted by the violation of his duty. That is an action which a director has the right to maintain (General Corp. Law, secs. 90, 91, formerly Code Civ. Pr. sec. 1781; Miller v. Quincy, 179 N.Y. 294). After the action was begun, Wischerth gave to the corporation money and other property of value in discharge of his liability. The finding, unanimously affirmed, is that the money was paid and the property delivered as a result of the director's action and by reason of the services rendered by the plaintiff therein. The finding also is that the value of the services is $1,000. The corporation, appropriating the benefit of the services, refuses to compensate the plaintiff, and resists his effort to establish a lien on the proceeds of the suit.

We think the lien should be sustained. We assume, in accordance with our decision in Matter of Meighan (106 App. Div. 599;182 N.Y. 558), that the statutory lien created by section 475 of the Judiciary Law for the benefit of an attorney is not enforceable under such conditions. That case was a proceeding by petition under the statute. The court held that in a suit by a stockholder for the benefit of a corporation, the statutory lien of the attorney does not attach to the money paid to the corporation perforce of the judgment. This case presents a very different situation. We are not dealing now with a statutory lien to be enforced in a statutory proceeding. We are dealing with a lien independent of statute, to be enforced in a plenary suit in equity. The director who was the plaintiff in the accounting suit might have paid the attorney with his own money. If he had done so, he would have had a lien for his own reinbursement on the property recovered to the use of the corporation as a result of his action. The rule is that a trust fund must bear the expenses of its administration, and that a trustee who conducts a litigation to protect the subject of the trust, has a charge on the fund for expenses incurred in the performance of his duties (Woodruff v. N.Y., L.E. W.R.R.Co., 129 N.Y. 27; Meddaugh v. Wilson, 151 U.S. 333, 343;Central R.R. B. Co. of Ga. v. Pettus, 113 U.S. 116). The law which imposes on a director the duty to hold a delinquent officer to account (Miller v. Quincy, supra), does not deny him indemnity for the expenses of the accounting. The lien enforceable by this plaintiff, is not, therefore, the statutory lien of an attorney. It is a contractual lien, acquired by succession to the potential lien of the plaintiff in the action for an accounting. The plaintiff in that action, instead of paying the attorney with his own money, and seeking reimbursement out of the fund, chose another and for himself a safer course. He refused to assume personal liability for the attorney's services, but agreed that the attorney should have a lien on the cause of action and its proceeds. That was a lawful contract. It was a contract for the transfer to the attorney of the equitable lien of the trustee (New v. Nicoll, 73 N.Y. 127, 131). A trustee, who is unwilling to assume personal liability for services essential to the protection of the trust, has the power, if other funds fail, to create a charge, equivalent to his own lien for reimbursement, in favor of another by whom the services are rendered (Noyes v. Blakeman, 6 N.Y. 567, 579; New v.Nicoll, supra). That is exactly what this director undertook to do. We think a court of equity will give effect to his engagement. The plaintiff rendered services of value, which the corporation has appropriated without requital. The plastic remedy of an equitable lien is adequate in such a case to prevent a failure of justice (Perry v. Board of Missions, 102 N.Y. 99,105; Meighan v. Am. Grass Twine Co., 154 Fed. Rep. 346).

The point is made that relief must be denied the plaintiff because since this action was begun, the corporation was adjudged a bankrupt, and the trustee in bankruptcy substituted as a defendant. In such circumstances, the trustee's title is subject to the plaintiff's equitable lien, and to the pending action to foreclose it (Metcalf v. Barker,187 U.S. 165; Pickens v. Roy, 187 U.S. 177). It may be that the state court is without power to take the fund from the possession of the court of bankruptcy (Skilton v. Coddington, 185 N.Y. 80,85, 86; Frank v. Volkommer, 205 U.S. 521, 529). It has power, however, in this action, to which the trustee has voluntarily become a party, to declare the rights and interests of the litigants in the subject-matter of the controversy. "We may assume," as we said in Skilton v. Coddington (supra), "that the bankruptcy court will give effect to any judgment recovered therein."

The facts essential to the plaintiff's case are established by the findings. A new trial is, therefore, needless (Code Civ. Pro. sec. 1337; Farleigh v. Cadman, 159 N.Y. 169). The judgment should be reversed; the plaintiff should be decreed to have a lien upon the sum of $3,500 in the hands of the trustee in bankruptcy, the proceeds of notes and mortgage transferred by Wischerth to the corporation; the amount of the lien should be fixed at $1,000 with interest from September 6, 1911, and costs of this action in all courts; and there should also be a personal judgment in favor of the plaintiff for the amount of any deficiency remaining after the lien has been enforced.

WILLARD BARTLETT, Ch. J., WERNER, COLLIN, CUDDEBACK, MILLER and SEABURY, JJ., concur.

Judgment reversed, etc.