State v. National Surety Co.

BUDGE, J.

One O. Y. Allen was elected at the biennial election held on November 8, 1910, to the office of state treasurer of the state of Idaho for the years 1911 and 1912, and on November 5, 1912, Allen was re-elected to said office for the years 1913 and 1914. The National Surety Company of New York, to insure the faithful performance of all the duties of the office of state treasurer by Allen, furnished a bond to the state of Idaho in the penal sum of $200,000. During Allen’s terms of office as such state treasurer he embezzled from the state of Idaho large sums of money that came into his hands. Suit was brought by the state of Idaho, as plaintiff, against the National Surety Company, a corporation, as defendant, in the district court of the third judicial district to recover the moneys so embezzled, which resulted in a judgment being entered in favor of the state of Idaho and against the National Surety Company in the sum of $145,264.34, and it was further ordered in said judgment that the state of Idaho do hold and retain, in addition to said sum of $145,-264.34, the payments made to the state depository board of the state of Idaho by and on behalf of the Bank of Nampa, namely, $7,414, together with costs and disbursements incurred in the action, amounting to the sum of $648.25.

The appellant herein appeared as one of the attorneys for the state in the trial of said cause in the district court. Shortly after the entry of the above-mentioned judgment, appellant, upon learning that the National Surety Company, through its attorneys, was about to pay to the state depository board the amount of the judgment recovered and thereby procure a satsfaction thereof, made and filed his application in the district court, wherein said judgment was rendered for permission to file a complaint in intervention, wherein he sought to subject a portion of said judgment to the payment of his attorney fees, alleged in his complaint in intervention to be due him for services rendered to the state in procuring said judgment, and for certain costs and expenditures made by him, alleged to have been incurred in connection with the preparation and trial of said cause. Permission was granted to appellant by the trial judge to file his complaint in intervention and his affidavit in support thereof; whereupon the trial court granted a temporary injunction wherein it was ordered that the National Surety Company, its attorneys, and each and all of them, were temporarily restrained from paying either to the state or its representatives the entire amount of said judgment, and directed that so much thereof as appellant claimed was due him for legal services rendered, to wit, $12,500, together with fees and expenditures alleged to have been incurred by appellant in connection with the preparation and trial of said cause, namely, $1,556.93, be retained by counsel for said National Surety Company until the further order of the court. The foregoing order was made on the 15th day of September, 1916. On the same date the state of Idaho, by its attorney general, J. H. Peterson, and A. A. Fraser, Esq., and J. T. Pence, E'sq., moved, upon the minutes of the court, to dissolve the temporary restraining order theretofore issued. Said motion came on for hearing before the court, the state of Idaho being represented by the attorneys heretofore named; Messrs. Hawley and Hawley appearing as counsel for the National Surety Company; and Messrs. Richards and Haga and V. P. Coffin, Esq., and T. C. Coffin, Esq., appearing as counsel for intervenor. Said motion was argued by counsel for the respective parties and taken under advisement.

On September 19th, the appellant, by his attorneys, moved the court for permission to file an amended complaint in intervention; said motion being supported by his affidavit, which motion was granted by the court. Whereupon the amended complaint in intervention and affidavit were filed. On the same day the trial court entered an order “That the temporary restraining order theretofore issued should be vacated and the money should be permitted to be paid to the state depository board; that the court should order the state depository board to then deposit the amount of $14,056.93 in a special fund in the state treasury, to be designated as the State of Idaho v. National Surety Company fund, to be kept in such fund until the petitioner’s claim is acted on in due course, or until further orders of the court .... that the balance of the proceeds of said judgment be paid to the state depository board and by them into the public treasury of the state of Idaho; that the plaintiff and defendant be not required to answer the petition of intervenor herein; that this court entertain no further jurisdiction in said case other than such as may be necessary to carry this order into effect. ’ ’ It was further provided in said order that, whereas it appeared to the court that the petitioner would perfect an immediate appeal from the order to the supreme court; that said order is an appealable order; that one ground of such appeal will be that the court should have ordered the sum of $14,056.93 of the proceeds of said judgment paid into that court, and should then have proceeded to try the issues between the petitioner and the state of Idaho as to whether the state should be compelled to pay petitioner for legal services rendered and expenses incurred out of the proceeds of the judgment in favor of the state, and if so, how much; and that “whereas the petitioner has applied to this court for a stay of the judgment entered herein, pending the determination of his appeal, so far as the same relates to the payment of said sum of $14,056.93 into the special fund in the state treasury; whereas it appears possible that in the event said sum is paid into the state treasury, even though it be into a special fund, said appeal would be fruitless so far as the question just above mentioned is concerned, now, therefore, for the purpose of keeping said amount of $14,056.93 in statu, quo until said appeal is perfected and the matter comes within the jurisdiction of the supreme court, it is hereby ordered that a stay of proceedings be and is hereby granted until 12 o’clock noon, Saturday, September 23, 1916, as to that portion of this order which requires $14,056.93 of the proceeds of said judgment to be paid to the state depository board and by said board to be paid into a special fund in the state treasury, and the operation of this order .... to that extent and to that extent only is suspended for that length of time. ’ ’ Said order further provided that appellant should immediately perfect his appeal to the supreme court and furnish an undertaking on such appeal. Whereupon counsel for intervenor duly perfected an appeal to this court from the order made and entered in the district court, on September 21,1916.

After the appeal had been duly perfected, T. C. Coffin, Esq., intervenor below and appellant here, made an application for an order that the fund heretofore referred to be kept within the control and jurisdiction of this court until the appeal be determined. Thereupon this court, upon the filing of a good and sufficient bond, made an order to John W. Eagleson, as state treasurer of the state of Idaho, that he, as state treasurer, receive said amount of $14,056.93 from the defendant, and deposit and hold the same in a special fund, subject to the orders of this court.

This appeal is prosecuted from the order of the district court, dissolving the temporary restraining order heretofore referred to and refusing to take further jurisdiction of the proceedings in intervention instituted by the appellant. For a reversal of said order, the appellant assigns and relies upon the following assignments of error:

1. The court erred in that it ordered and adjudged that said temporary restraining order be vacated and dissolved. The court also erred in that it did not grant the prayer of the amended complaint in intervention, that said temporary restraining order be continued in full force and effect pending the final judgment of the court herein.

2. The court erred in that it ordered and adjudged that the defendant pay the full amount of said judgment to the state depository board. The court also erred in that it did not grant the prayer of the amended complaint in intervention, that said defendant National Surety Company, a corporation, and its attorneys, Hawley and Hawley and James H. Hawley, Esq., their servants and agents, and each and all of them, be ordered to forthwith deposit with the clerk of said court said sum of $14,056.93, proceeds of said judgment, there to await the further orders of said court.

3. The court erred in that it ordered and adjudged that the plaintiff and defendant be not required to answer the petition of intervenor herein. The court also erred in that it did not grant the prayer of the amended complaint in intervention that all parties herein who have or claim to have interests or rights adverse to this intervenor be required to answer the amended complaint in intervention within ten days of the service upon them or their attorneys of the same.

4. The court erred in that it ordered and adjudged that ..said court entertain no further jurisdiction in said cause other than such as might be necessary to carry the order appealed from into effect.

The question presented to this court upon the record in this case is, in substance and effect: Conceding for the purposes of this case that there is no fund or appropriation in the state treasury out of which the attorney’s fee and expenses necessarily incurred in obtaining the judgment heretofore mentioned, in favor of the state, can lawfully be paid, can the fund arising from the judgment itself be stopped in transitu by order of the court, and charged while in the custody of the law with the payment of the attorney fees and costs incurred in creating the fund, by asserting an attorney’s lien against it?

As we view it, if, under the constitution and statutes of this state, an attorney’s lien for services rendered the state may be asserted, against funds arising from a judgment procured in favor of the state, the trial court erred in dissolving the temporary injunction; in refusing to retain jurisdiction of the case; and refusing to require the state of Idaho and the National Surety Company to answer the amended complaint in intervention of the appellant herein. The various assignments of error heretofore stated, being all directed to the above propositions, may be considered collectively.

At the outset it may be conceded that if this were an action between individuals or private corporations, and notice were duly given to the judgment debtor as provided by law, the fund arising from the judgment would be subject to and chargeable with the attorney fee, and the same would be an enforceable lien against the proceeds of said judgment, together with costs and expenses incurred in obtaining the same. (Kerns v. Washington Water Power Co., 24 Ida. 525, 135 Pac. 70.)

It will therefore be unnecessary for us to discuss that particular phase of this case, and we will confine ourselves to the question of the application of attorney’s liens against the state or funds belonging to it. In doing so, we are not unmindful of the numerous cases that have been cited by able counsel in their brief and so earnestly argued upon presentation of this cause, for the purpose of establishing the right of an attorney to a lien upon the proceeds of a judgment in favor of his client for his fees and necessary and proper expenses, even where the client is the sovereign. There were a number of cases cited by counsel in their brief which would seem to bear out their theory, in the absence of constitutional provisions and statutory enactments directly in conflict with the doctrine announced therein. Upon examination we find some of these cases are not in point, for the reason that prior to the employment of the attorneys who represented the sovereign, necessary appropriations were made by the legislature to meet the expenses and attorney fees, in advance of the services rendered and expenses incurred. In other cases attorney’s retaining liens have been upheld upon the theory that these liens existed from the necessities of commerce and the necessities of the public service. In our opinion the right to enforce a lien of the character sought to be enforced in this case, if any exists, against the state in this jurisdiction, must depend upon constitutional and statutory authority, and we are not inclined to follow the decisions of appellate courts of other states where they directly conflict with the constitution and statutory provisions of our own commonwealth.

The common law as to the compensation of attorneys has been abrogated in this state by statute and is now a matter, of contract, either express or implied. See. 4900, Rev. Codes, as amended by the Session Laws of 1911, c. 167, p. 563, is as follows: “The measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties, which is not restrained by law. From the commencement of an action, or the service of an answer containing a counterclaim, the attorney who appears for a party has a lien upon his client’s eause'of action or counterclaim, which attaches to a verdict, report, decision or judgment in his client’s favor and the proceeds thereof in whomsoever hands they may come; and cannot be affected by any settlement between the parties before or after judgment; but parties to actions or proceedings are entitled to costs and disbursements, as hereinafter provided.”

The foregoing statutory provision fails to provide for an attorney’s lien in favor of an attorney who appears on behalf of the state, which attaches to a verdict, report, decision or judgment in favor of the state, or to the proceeds thereof. In other words, the statute makes no reference to the sovereign power, and the sovereign is not included within the foregoing statutory provision either by express words or by necessary implication.

In the case of Hendrick v. Posey, 104 Ky. 8, 45 S. W. 525, 46 S. W. 702, it appeared that appellant was attorney general of the state of Kentucky from September 7, 1891, to January 6, 1895, and as such during that time instituted suits against the Kentucky Midland Railway Company and recovered judgments aggregating $11,000; that appellant had said judgments made a prior lien in favor of the state; that the property of the railway company was sold after the expiration of appellant’s term of office; that the master commissioner, under the order of the court, was directed to pay to the commonwealth $7,578.65, its pro rata share of said judgment; that appellant, believing that he had a right so to do, received the money from the commissioner as the attorney for the commonwealth, and contended that inasmuch as the auditor and Governor had refused to fix the amount of his compensation according to statute, he had a right to receive and retain the money paid him by appellee, and that he had a special lien thereon by virtue of sec. 107, Ky. Stats. The supreme court of Kentucky did not agree with his contention, but, to the contrary, held that sec. 107, Ky. Stats, (which is similar to sec. 4900, Rev. Codes, as amended, supra), had no application to the commonwealth, and cited in support thereof Commonwealth v. Cook, 8 Bush (71 Ky.), 220, 8 Am. Rep. 456, where the court held that “The commonwealth is not embraced by an act which is made to operate between individuals unless there is something in the act which shows an intention to subject the state to the same rule. As the government of the state is established for the good of the whole, and can only be supported by means of its revenues, courts in the construction of general laws will not ordinarily apply to the state such as upon their face seem to have been intended only for declaring or regulating the rights and remedies of individuals, and which, if so applied, would have the effect of obstructing the speedy collection of the public dues. ’ ’ (Divine v. Harvie, 7 T. B. Mon. (23 Ky.) 439, at 443, 18 Am. Dec. 194.) This rule of law the court in its opinion held to be founded, “Not only upon the highest public policy but as warranted by the firmly established maxim that ‘General statutes do not bind the sovereign unless expressly mentioned in them. ’ Laws are prima facie made for the government of the citizen and not of the state herself.” (Compton v. State, 38 Ark. 601.)

The appellant is seeking to recover an alleged indebtedness due him, or, in other words, to enforce a claim against the state, and it is immaterial that the moneys out of which he seeks to compensate himself have not yet found their way into the state treasury. It is a claim against the state, nevertheless. It is quite evident that a debt cannot be recovered against the state under any general statute regulating the recovery of debts, unless the statute by express terms or necessary implication authorizes such a procedure. “It is a settled rule that in general statutes which regulate the recovery of debts the government is not bound unless they are made applicable to it in express terms or by necessary implication.” This is no invidious or prerogative right, but a rule founded on well-ascertained public policy, necessary to protect the public interest against the negligence of public officers; and especially to guard the public revenue. It is a rule adopted in many, if not all, of the states, and probably in most other countries, and has been sanctioned by repeated judicial decisions. (United States v. Wilson, 8 Wheat. (21 U. S.) 253, 256, 5 L. ed. 610, 611; United States v. Hoar, 2 Mason, 311, 314, Fed. Cas. No. 15,373; United States v. Greene, 4 Mason, 427, 433, Fed. Cas. No. 15,258; United States v. Hewes, Crabbe, 307, 26 Fed. Cas. 297, No. 15,359; Stoughton v. Baker, 4 Mass. 522, 528, 3 Am. Dec. 236; People v. Rossiter, 4 Cow. (N. Y.) 143; Commonwealth v. Baldwin, 1 Watts (Pa.), 54, 26 Am. Dec. 33; King v. Allen, 15 East, 340.)

This same principle is announced in the case of Wood v. State, 125 Ind. 219, 25 N. E. 190, where the court held that ‘ ‘ The law will not permit the administration of governmental affairs to be embarrassed by the seizure of public property or public funds to pay debts due individuals.”

The proceeds of the judgment recovered against the National Surety Company is a public fund, which had been embezzled by a public official, and recovered back. It belongs to the state, and it is out of this fund that appellant seeks the payment of the claim which he contends is due him, and insists that his claim became a lien, and enforceable as such, against the moneys of the state, and that he has a right to stop this money in transitu and subject it to his lien before it reaches the state treasury; that his right to have a portion of said fund paid to him by order of the court is not limited by the provisions of sec. 4900, Rev. Codes; as amended, supra, but that he has an equitable lien, which should be enforced by the trial court, whose duty it is to protect its officers in the matter of the payment to them of such fees and disbursements as may be found to be due them by the court. With this contention we are not in accord, for the reason that no equitable lien attaches in favor of the appellant where the constitution and statutes in express terms provide an adequate remedy, and where the procedure for pursuing this remedy is expressly provided, it must be followed in order to authorize the payment of any claim against the state.

Sec. 18, art. 4, of the constitution provides that “The Governor, Secretary of State, and Attorney General shall constitute .... a Board of Examiners, with power to examine all claims against the State, except salaries and compensation of officers fixed by law.....”

This clause of the constitution is supplemented by the statutes, sec. 146, Bev. Codes, as amended by Sess. Laws 1913, c. 15, p. 58, as follows: “It shall be the duty of the State Board of Examiners to examine all claims against the State, except salaries and compensation of officers fixed by law. .... The Board may approve or disapprove any claim or demand against the State, or any item thereof, or may recommend a less amount in payment of the whole, or any item thereof, and a decision of a majority of the members shall stand as the decision of the Board. ’ ’

The above sections of the constitution and statutes require all claims against the state of an unliquidated character to be submitted to the state board of examiners for approval or rejection.

To adopt a different rule in this case or any ease, no matter how just the claim might be, to permit state officers to be harassed and hindered in the recovery of moneys embezzled by public officials by way of attorney’s liens for services alleged to have been rendered the state, would be contrary to good public policy and detrimental to the due administration of the affairs of the government.

But even if the position taken by learned counsel were correct, there must be a valid claim. The lien is merely anciliary to the claim. If there is no valid claim there can be no lien.

It is quite evident that the appellant must rely upon a contract of employment, either by the attorney general or the state depository board, or both. That being true, it becomes necessary to determine to what extent these officials may bind the state for the payment of claims made against it for such services rendered as the appellant seeks to recover for.

Sec. 1827, Rev: Codes, provides: “The State Auditor and Attorney General may employ other counsel than the county attorney and the expenses must be paid out of the State Treasury.” Sec. 13, art. 7, of the constitution provides that: “No money shall be drawn from the Treasury but in pursuance of appropriations made by law.”

The latter clause of sec. 1827, supra, namely, “. . . . and the expenses must be paid out of the State Treasury,” this court held in the case of Kingsbury v. Anderson, 5 Ida. 771, 51 Pac. 744, did not make an appropriation for the payment of such services, and in the absence of an appropriation the auditor properly refused to issue a state warrant in payment for legal services of counsel employed by the state auditor under the provisions of see. 1827, supra.

Therefore, if appellant’s contract of employment was made with the attorney general, it must have been understood by appellant that it was in pursuance of an appropriation made by law. It will be recalled that the legislature convened in regular session subsequent to the discovery of the embezzlement of the state funds by Allen, and the presumption is that they made ample provision for the payment of such expenses as would necessarily be incurred in recovering the moneys so embezzled. The legislature at its biennial session in 1915 made an appropriation for the attorney general’s office for that and the ensuing year of $29,200, for the payment of the salary of the attorney general, the salary of assistant attorneys, stenographers and other expenses, and provided in said act, among other things, that “Any indebtedness created or attempted to be created against the State in violation of the provisions of this act, or any indebtedness attempted to be created against the State in excess of the proper appropriation, whether made by this act or other provisions of law, shall be void.” (Sess. Laws 1915, c. 159, sec. 6, p. 350.) It is, therefore, quite evident that the attorney general was without authority to create any indebtedness against the state in excess of the appropriation for his office, and if there was no appropriation out of which the claim of the appellant could be paid, any attempt to create an indebtedness in favor of appellant by the attorney general, if the attorney general did attempt to create any indebtedness against the state in excess of his appropriation, would be absolutely void.

An examination of the statutes with reference to the duties of the state depository board convinces us at once that there is a total absence of statutory or any authority given it, whereby it is authorized to create an indebtedness of the character sought to be enforced by the appellant, and such expenses as they are authorized to incur in connection with the performance of their duties as members of such board, and in carrying out the provisions of the statutes defining their powers and duties, must be audited and allowed as provided by law, by the state board of examiners, and paid out of the general fund of the state.

From what has been said it follows that the attorney general would be without authority to employ appellant, and thereby charge the state with a claim for services rendered in excess of the appropriation made for his office for the years 1915 and 1916; but admitting that the attorney general had authority to employ appellant, under the constitutional and statutory provisions heretofore cited, the claim for services rendered, being one against the state, and not being a fixed salary, would necessarily have to be submitted to the state board of examiners for allowance or rejection.

The presumption is that the state will pay all valid claims properly presented against it, and for that purpose has provided a method whereby all claims against the state may be presented to a constitutional board with exclusive power to examine, audit and allow such claims, in whole or in part, as are found to be legal charges against the state, and as was announced by this court in the case of Rathbun v. State, 15 Ida. 273, 97 Pac. 335, a laborer or materialman may have a claim against the state within the meaning of that term, and yet be entitled to no lien to secure the payment of the same. That is, in our opinion, the position that appellant, as well as all other claimants against the state, occupies, under the constitution and laws of this state. They must present their claims to the properly constituted board for allowance or rejection, or for the procurement of a recommendatory judgment for submission to the legislature.

From what has been said it follows that the trial court did not err in refusing to continue in full force and effect the temporary restraining order issued and heretofore referred to, and requiring the National Surety Company, and its attorneys, to deposit with the clerk of said court the sum of $14,056.93, a portion of the proceeds of the judgment recovered in favor of the state, and to require the state and the National Surety Company to answer the amended complaint in intervention of the appellant. The order of this court, heretofore made, directing that John W. E'agleson, as state treasurer, receive said sum of $14,056.93 from the National Surety Company, and place the same in a special fund, subject to the order of this court, as directed in its order of September 22, 1916, is hereby vacated and the state treasurer directed to place the above-mentioned sum into the proper fund as provided by law.

The judgment of the trial court is affirmed. Costs are awarded to respondent.

Morgan, J., concurs.