Kerger & Hartman, L.L.C. v. Ajami

[Cite as Kerger & Hartman, L.L.C. v. Ajami, 2015-Ohio-5157.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
LUCAS COUNTY
Kerger & Hartman, LLC, et al. Court of Appeals No. L-14-1219
Plaintiffs Trial Court No. CI0200908133
v.
Mohamad Ajami, et al. DECISION AND JUDGMENT
Appellees Decided: December 11, 2015
[RKA Petroleum Companies,
Inc.—Appellant]
*****
Norman A. Abood, for appellee.
Herbert Howard, pro se.
Kevin R. Eff, for appellant.
*****
SINGER, J.
{¶ 1} This is an appeal from a judgment of the Lucas County Court of Common
Pleas, in which the trial court determined the validity of an attorney’s charging lien and
the priority of claims against proceeds from the sale of certain property. For the reasons
that follow, we affirm the trial court’s judgment.
{¶ 2} Appellant, RKA Petroleum Companies, Inc. (“RKA”), sets forth four
assignments of error:
1. The trial court erred, as a matter of law, in ruling that an attorney
charging lien operates as a lien against real property and in derogation of Ohio’s
recording statutes.
2. The trial court erred, as a matter of law, in ruling that an equitable
attorney charging lien can be established and enforced in a court foreign to
the litigation in which the attorney performed the work giving rise to the
charging lien.
3. The trial court erred, as a matter of law, in ruling that the doctrine
of lis pendens gives Appellee Norman Abood (as to the portion of his
judgment not secured by his $50,000.00 mortgage - i.e., his money
judgment) marshalling priority over Appellant’s secured claims.
4. The trial court committed plain error in ignoring well-established
principles of laches in establishing the superpriority of Appellee Norman
Abood’s charging lien to the detriment of properly secured third-party
creditors.
2.
Background
{¶ 3} This case has a long history involving numerous parties and claims. Briefly,
on November 10, 2009, this action was filed in the trial court by the law firm of Kerger &
Hartman, LLC (“the firm”), to collect attorney fees and expenses pursuant to two fee
agreements. The firm named as defendants in the action: Mohamad Ajami, Hanadi
Ajami, Jamil Ajami, Herbie Howard, American Petroleum Retail, Inc. and Norman
Abood. In 2012, RKA moved to intervene, and filed a foreclosure complaint against
numerous defendants including the firm and Abood.
{¶ 4} The parties and people relevant to this appeal are: Mohamad Ajami, who
owned gas station property at 350 W. Bancroft Street, Toledo, Ohio (“the gas station”)
and was married to Hanadi Ajami. Hassan Harajli is Hanadi Ajami’s brother and
Mohamad Ajami’s former brother-in-law. Hereafter, we will refer to these parties by
their first names. The firm and Abood represented Mohamad. RKA is a creditor of
Mohamad and has a lien on several properties including the gas station.
{¶ 5} The following facts are pertinent to this appeal. Beginning in approximately
the year 2000, Mohamad and Hassan were involved in business and financial dealings
with respect to the gas station. Ultimately, there was a falling out between the parties.
Hassan filed a foreclosure action against Mohamad in the Lucas County Court of
Common Pleas (“the first state action”).
{¶ 6} In September 2004, Mohamad went to his homeland of Lebanon, where he
was arrested, detained and tortured. Information in the record reveals Hassan paid
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$50,000 to his relative to have Mohamad unlawfully arrested and tortured. Mohamad
was released from imprisonment in Lebanon as a result of the efforts of the United States
Embassy in Beirut. Upon his return to the United States, Mohamad retained Abood to
represent him with respect to the injuries and damages he suffered related to his arrest
and torture. On October 20, 2004, Mohamad executed a fee agreement with Abood for
Abood’s compensation. Abood then retained the firm to assist him.
{¶ 7} In November 2004, Mohamad was hospitalized after he was severely beaten
outside of his Michigan home. Information in the record shows Hassan had hired two
men to beat Mohamad to prevent Mohamad from attending a proceeding in the first state
action. Both of the men hired by Hassan to beat Mohamad were arrested and charged
and convicted, as was Hassan.
{¶ 8} On January 17, 2006, a federal court case was filed by Mohamad and Hanadi
against the Republic of Lebanon, Hassan and others. The causes of action included
torture, in violation of certain laws and acts, unlawful detention, assault and battery,
conspiracy to interfere with civil rights, intimidation, racketeering and loss of consortium.
The record indicates Abood did most of the work on this federal case.
{¶ 9} In March 2006, Mohamad and Hanadi executed a second fee agreement with
Abood for Abood’s legal representation and compensation.
{¶ 10} On April 4, 2008, a settlement of the federal court case was reached which
included the release of two liens held by Hassan against the gas station in the amount of
$798,041.32.
4.
{¶ 11} The firm and Abood were not paid for their legal services. Therefore, the
firm filed its complaint in 2009. The firm set forth several claims in the complaint
including breach of contract, quantum meruit and fraudulent transfer. The firm and
Abood ultimately reached a resolution regarding their fee splitting arrangement.
{¶ 12} In February 2011, Mohamad executed a $50,000 mortgage on the gas
station in favor of Abood, and the mortgage was recorded on February 24, 2011.
{¶ 13} On April 1, 2011, Abood filed a foreclosure action in Lucas County
Common Pleas Court, case No. CI0201102615, against Mohamad and others. This case
was consolidated with the present case on April 15, 2011. Abood then filed a motion for
summary judgment seeking judgment against Mohamad in the amount of $359,118.94
plus interest, and an order of sale of the gas station. On April 10, 2012, the court granted
Abood’s motion for summary judgment, finding Abood’s $50,000 mortgage was valid.
{¶ 14} On November 13, 2012, RKA filed a motion to intervene and a foreclosure
complaint. In the complaint, RKA alleged on April 8, 2009, it recovered a default
judgment against Mohamad, Hanadi and A&M Investment Strategies, Inc., jointly and
severally, in the amount of $245,892.91 plus interest in the Third Circuit in Michigan.
On August 31, 2012, the judgment was filed for domestication in Lucas County, Ohio,
and on October 1, 2012, RKA caused a certificate of judgment to be filed with the clerk
of the Lucas County Court of Common Pleas. RKA alleged the judgment was a valid
lien on several properties including the gas station.
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{¶ 15} On January 29, 2013, the trial court issued an opinion and journal entry and
found Abood was entitled to judgment in the amount of $359,118.94 plus interest,
although only $50,000 of that judgment was secured by a mortgage. The court further
found Abood was entitled to have his mortgage foreclosed.
{¶ 16} On April 11, 2014, Abood filed a memorandum in support of priority of
attorney fee lien, requesting his lien for $359,118.94 have priority over all liens on the
gas station, except those liens running with the land. RKA opposed Abood’s request.
{¶ 17} On September 15, 2014, the trial court issued its findings of fact,
conclusions of law, and journal entry wherein it concluded Abood was entitled to
judgment in the amount of $359,118.94 plus interest, which constituted a charging lien
and was first in priority after court costs, taxes, underground storages fees and utility
bills. The court further decided RKA had a valid and enforceable certificate of judgment
in the amount of $245,842.91, plus interest, against Mohamad and others, and the lien
was third in priority after court costs, taxes, underground storages fees and utility bills.
{¶ 18} It is from this decision that RKA appeals.
First Assignment of Error
{¶ 19} In the first assignment of error, RKA claims the trial court erred when it
ruled Abood had a valid and enforceable charging lien against the gas station.
Law
{¶ 20} Ohio recognizes two types of attorney liens:  (1) general, or retaining liens,
and (2) special, or charging liens. Fire Protection Resources, Inc. v. Johnson Fire
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Protection Co., 72 Ohio App. 3d 205, 209, 594 N.E.2d 146 (6th Dist.1991), citing Foor v.
Huntington Natl. Bank, 27 Ohio App. 3d 76, 499 N.E.2d 1297 (10th Dist.1986).
{¶ 21} The reasoning for allowing charging liens was set forth in Cohen v.
Goldberger, 109 Ohio St. 22, 141 N.E. 656 (1923), paragraph one of the syllabus:
[t]he right of an attorney to payment of fees earned in the prosecution of
litigation to judgment, though usually denominated a lien, rests on the
equity of such attorney to be paid out of the judgment by him obtained, and
is upheld on the theory that his services and skill created the fund.
{¶ 22} Although there is no statute in Ohio which permits an attorney to attach a
lien to a client’s judgment, courts in Ohio have recognized such a lien. Mancino v.
Lakewood, 36 Ohio App. 3d 219, 223-224, 523 N.E.2d 332 (8th Dist.1987).
{¶ 23} Charging liens are usually superior to those of other creditors. Garrett v.
City of Sandusky, 6th Dist. Erie No. E-03-024, 2004-Ohio-2582, ¶ 25. In fact, charging
liens have been regarded as having a superpriority to other liens, including federal tax
liens. Cuyahoga Cty. Bd. of Commrs. v. Maloof Properties, Ltd., 197 Ohio App. 3d 712,
2012-Ohio-470, 968 N.E.2d 602, ¶ 18 (8th Dist.). An attorney will only be allowed to
enforce a charging lien in proper cases. Garrett at ¶ 25. “The decision of what
constitutes a proper case is left to the sound discretion of the court of equity, the exercise
of which should be based on the facts and circumstances of the case.” (Citation omitted.)
Id.
7.
Standard of Review
{¶ 24} There is a disagreement between the parties concerning the appropriate
standard of review to be applied with respect to this issue. RKA contends this issue is a
question of law and a de novo standard of review should be applied, while Abood claims
the proper standard of review is abuse of discretion.
{¶ 25} This court held a reviewing court will not reverse the equity court’s
decision to enforce an attorney’s right to recover pursuant to a charging lien unless there
is an abuse of discretion. Id. Consequently, we will apply an abuse of discretion
standard to this assignment of error. An abuse of discretion connotes that the trial court’s
decision was unreasonable, arbitrary or unconscionable and not merely an error of law or
judgment. Blakemore v. Blakemore, 5 Ohio St. 3d 217, 219, 450 N.E.2d 1140 (1983).
When applying the abuse of discretion standard, a reviewing court may not substitute its
judgment for that of the trial court. Pons v. Ohio State Med. Bd., 66 Ohio St. 3d 619, 621,
614 N.E.2d 748 (1993).
Arguments and Analysis
{¶ 26} RKA argues the trial court erred when it found that a charging lien can
operate as an encumbrance on real property. RKA submits this is an issue of first
impression in Ohio although other jurisdictions have addressed the issue and determined
that an attorney charging lien does not act to encumber real property. RKA maintains
under Ohio law, a lien recorded first has priority over later recorded liens, thus RKA’s
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judgment lien is inferior to Abood’s $50,000 mortgage, but takes priority over Abood’s
charging lien, which is the judgment in excess of the $50,000 mortgage.
{¶ 27} Abood counters the trial court correctly found this was a proper case for
recognizing an attorney charging lien based on the facts in the record, including the
length of time of the litigation, the number of cases in state court and federal court, the
release of almost $800,000 in liens against the gas station and the credible threats of
personal harm.
{¶ 28} We conclude, in light of the circumstances of this case, the trial court did
not abuse its discretion in finding Abood had a valid charging lien against the gas station.
The court, in its sound discretion, ruled in its September 15, 2014 decision that Abood
was entitled to a charging lien as “through Mr. Abood’s efforts, a substantial recovery
was obtained. In addition, Mohamad specifically agreed to the charging lien in the Fee
Agreements.” Moreover, we observe RKA has cited no Ohio case law or statute which
prohibits a trial court in Ohio from proceeding as the trial court did in this case. As no
Ohio authority precludes an attorney charging lien from attaching to real property, the
trial court’s decision was not erroneous. Furthermore, since the trial court had a
reasonable basis in law and fact to conclude Abood had a valid charging lien against the
gas station, it did not abuse its discretion. Accordingly, RKA’s first assignment of error
is not well-taken.
9.
Second Assignment of Error
{¶ 29} In the second assignment of error, RKA asserts the trial court erred when it
ruled that a charging lien can be established and enforced in a court foreign to the
litigation where the attorney performed the work giving rise to the charging lien.
Arguments
{¶ 30} RKA contends the charging lien claimed by Abood was for legal services
rendered not in the trial court but in federal court, in the 2005 federal case. Thus, RKA
claims, it was improper for the trial court to award Abood a charging lien for services
rendered in a foreign court. RKA notes Ohio law is scarce on the topic of the proper
venue for establishing a charging lien, and cites Florida law in support of its position.
{¶ 31} Abood counters RKA did not present this argument in the trial court and is
therefore barred from now raising it on appeal.
{¶ 32} In reply, RKA submits it consistently advanced the same theory, which is
that lien priority with respect to the gas station should have been established based on the
recorded security interests and Abood should not have been granted priority based on a
“super-secret, ancient, unrecorded supposed charging lien.”
Law and Analysis
{¶ 33} A party cannot assert a new issue or legal theory for the first time on
appeal. (Citations omitted.) Abbott v. Haight Properties, Inc., 6th Dist. Lucas No.
L-98-1413, *6, 2000 WL 491731 (Apr. 28, 2000), fn.1. “‘[A] reviewing court will not
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consider issues that a party failed to raise in the trial court and will consider those issues
waived.’” (Citations omitted.) Id.
{¶ 34} Here, a review of the record shows RKA raises, on appeal, the argument
that the trial court erred in awarding Abood a charging lien for services rendered in a
foreign court. However, RKA did not assert this argument in any of its filings in the trial
court, which includes its motion to intervene, its foreclosure complaint, “RKA’s
Response in Opposition to Plaintiff Abood’s ‘Memorandum in Support of Priority of
Attorney Fee Lien,’” and “RKA’s Memorandum as to Doctrine of Lis Pendens.” Since
RKA did not raise this argument in the trial court, it is waived for appeal. RKA’s second
assignment of error is therefore found not well-taken.
Third Assignment of Error
{¶ 35} In the third assignment of error, RKA argues the trial court erred when it
determined the doctrine of lis pendens gave Abood’s unsecured claim priority over
RKA’s secured claims.
Law
{¶ 36} The doctrine of lis pendens prevents third parties, who claim they have
acquired an interest in a property after service and during a foreclosure action, from
challenging the judgment of the trial court. Bates v. Postulate Invests., L.L.C., 176 Ohio
App.3d 523, 2008-Ohio-2815, 892 N.E.2d 937, ¶ 16 (8th Dist.). Lis pendens is codified
in R.C. 2703.26, which provides:
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When a complaint is filed, the action is pending so as to charge a
third person with notice of its pendency. While pending, no interest can be
acquired by third persons in the subject of the action, as against the
plaintiff’s title.
{¶ 37} Thus, a third party who acquires an interest in property while a lawsuit is
pending “takes subject to the judgment or decree, and is as conclusively bound by the
result of the litigation as if he had been a party thereto from the outset.” Cook v. Mozer,
108 Ohio St. 30, 36, 140 N.E. 590 (1923).
{¶ 38} To invoke the doctrine of lis pendens, three elements must be established:
“‘(1) the property must be of a character to be subject to the rule; (2) the court must have
jurisdiction both of the person and the res; and (3) the property or res involved must be
sufficiently described in the pleadings.’” Allen-Baker v. Shiffler, 99 Ohio Misc.2d 49, 54,
715 N.E.2d 1185 (C.P.1998), quoting Cook v. Mozer, 108 Ohio St. 30, 37, 140 N.E. 590
(1923). With respect to the third element, Ohio courts “‘have held that the property
described in the complaint must be directly affected by the judgment in the pending
suit.’” (Citations omitted.) ProMedica Fed. Credit Union v. Wardrop, 6th Dist. Lucas
No. L-13-1075, 2014-Ohio-965, ¶ 25. Accordingly, the property “‘must be at the very
essence of the controversy between the litigants.’” (Citation omitted.) Id. If the subject
property is real property subject to a foreclosure then the property is a proper subject for
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the operation of lis pendens. Natl. City Bank v. Fruchtman, 121 Ohio Misc.2d 92, 2002-
Ohio-7445, 782 N.E.2d 695, ¶ 14 (C.P.). See also Stone v. Equitable Mtge. Co., 25 Ohio
App. 382, 391-392, 158 N.E. 275 (9th Dist.1927).
Standard of Review
{¶ 39} The interpretation and application of a statute is a question of law subject to
de novo review. Thus, we review de novo whether the trial court properly applied R.C.
2703.26 to Abood’s unsecured claim. Under such review, an appellate court does not
give deference to the trial court’s determination. See State v. Frazier, 142 Ohio App. 3d
718, 721, 756 N.E.2d 1258 (9th Dist.2001), citing State v. Sufronko, 105 Ohio App. 3d
504, 506, 664 N.E.2d 596 (4th Dist.1995).
Arguments and Analysis
{¶ 40} RKA contends Abood’s claim in excess of $50,000 constitutes a pure
money judgment and does not arise out of the gas station. RKA submits Abood sought a
money judgment from the trial court with respect to his claim in excess of $50,000, “as
evidenced by him seeking an ‘award “in the amount of $359,118.94 * * *’” in April of
2011.” RKA asserts the money judgment portion of Abood’s judgment does not serve as
lis pendens to disrupt RKA’s priority based on its recorded security interest. RKA cites
to several cases including ProMedica Fed. Credit Union v. Wardrop, 6th Dist. Lucas No.
L-13-1075, 2014-Ohio-965, ¶ 26, in support of its position (“[A]rgument concerning lis
pendens fails under the third element * * * [the] complaint did not include a description
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of Wardrop’s residence. Even if it included such a description, Wardrop’s residence was
not ‘at the very essence of the controversy.’”).
{¶ 41} Abood counters RKA has changed its position that lis pendens does not
apply at all, which RKA argued to the trial court, to lis pendens does not apply to
Abood’s unrecorded claim. Abood maintains, in the foreclosure complaint, he asserted a
contractual right to a lien for the full amount of the legal fees due pursuant to the two fee
agreements. In addition, Abood observes RKA recorded its lien well after the trial court
awarded Abood judgment in the foreclosure case for $359,118.94 plus interest. Abood
insists the trial court properly determined lis pendens gave him priority over RKA’s later
filed judgment lien.
{¶ 42} Concerning the elements necessary to invoke the doctrine of lis pendens, it
is uncontested that the trial court had jurisdiction over the parties and the gas station, and
that the gas station was adequately described in the pleadings. What is at issue is whether
the gas station is a proper subject for the operation of lis pendens.
{¶ 43} In its September 15, 2014 decision, the trial court found “[t]he action that
did trigger lis pendens is the foreclosure Complaint filed by Mr. Abood on April 1, 2011,
to enforce his mortgage on the Station recorded February 24, 2011. In support of its
finding, the court cited Stone v. Equitable Mortg. Co., 25 Ohio App. at 391-392, 158 N.E.
275 (“A foreclosure suit describing specific property is clearly lis pendens as to such
property * * *.”). The trial court further found RKA, who recorded its certificate of
judgment on October 1, 2012, was subject to the final outcome of Abood’s claim.
14.
{¶ 44} Abood, in his foreclosure complaint, alleged Mohamad and Hanadi were in
default of the two fee agreements and sought to foreclose on the gas station. The gas
station was clearly described in the complaint and it was evident that the gas station was
at the core of the controversy between Abood and Mohamad.
{¶ 45} The record indicates all of the elements necessary to invoke the doctrine of
lis pendens are present. Moreover, the record reveals RKA acquired its interest in the gas
station during the pendency of Abood’s foreclosure action. Thus, we find the trial court
did not err in determining the doctrine of lis pendens was triggered, and RKA’s judgment
lien on the gas station was affected by lis pendens such that the Abood lien had priority
over RKA’s lien. It follows that RKA’s third assignment of error is not well-taken.
Fourth Assignment of Error
{¶ 46} In the fourth assignment of error, RKA claims the trial court committed
plain error in ignoring the principles of laches by establishing the superpriority of
Abood’s charging lien to the detriment of properly secured third-party creditors.
Law
{¶ 47} Laches is the failure to assert one’s right for an unreasonable and
unexplained period of time, under circumstances which are prejudicial to the adverse
party. Connin v. Bailey, 15 Ohio St. 3d 34, 35, 472 N.E.2d 328 (1984). Laches signifies a
delay independent of limitations in statutes. Id. Laches is an affirmative defense and is
waived unless presented “‘affirmatively in a responsive pleading under Civ.R. 8(C)
* * *.’ State ex rel. The Plain Dealer Publishing Co. v. Cleveland (1996), 75 Ohio St. 3d
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31, 33.” Mary D. v. Frank H., 6th Dist. Lucas No. L-00-1005, 2000 WL 1752761, *2
(Nov. 30, 2000).
Arguments and Analysis
{¶ 48} RKA argues Abood waited years to marshal priority based on a charging
lien theory. This delay, RKA contends, is unreasonable and unexplained.
{¶ 49} Abood counters RKA did not raise the issue of laches with the trial court
and cannot present it now on appeal. Notwithstanding, Abood asserts he did not delay in
asserting his claim, as it was presented a little more than a year after the underlying cases
concluded.
{¶ 50} RKA concedes in its reply brief that it did not use the term “laches,” but
insists it did attack Abood’s delay in pursing the charging lien by setting forth in its
response in opposition to plaintiff Abood’s memorandum in support of priority of
attorney fee lien filed with the trial court on May 21, 2014, that “at no point - that is, until
quite recently - did Mr. Abood assert an intent to hold the first position lien.”
{¶ 51} A review of the record indicates RKA did not raise the defense of laches in
the trial court. RKA failed to plead any facts to indicate Abood’s delay in pursing his
charging lien was unreasonable or that RKA suffered prejudice as a result of the delay.
RKA’s statement in its pleading, made in reply to Abood’s equitable subrogation
argument, merely acknowledged that Abood recently asserted his intent to hold the first
lien position. This statement is not sufficient to constitute a laches defense. As RKA
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failed to raise the doctrine of laches in the trial court, it waived the issue on appeal.
RKA’s fourth assignment of error is therefore found not well-taken.
{¶ 52} The judgment of the Lucas County Court of Common Pleas is affirmed.
RKA is ordered to pay the costs of this appeal. See App.R. 24.
Judgment affirmed.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. _______________________________
JUDGE
Arlene Singer, J.
_______________________________
Stephen A. Yarbrough, P.J. JUDGE
CONCUR.
_______________________________
JUDGE
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.sconet.state.oh.us/rod/newpdf/?source=6.
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