        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

623
CA 12-02242
PRESENT: SCUDDER, P.J., PERADOTTO, LINDLEY, SCONIERS, AND WHALEN, JJ.


THOMAS V. CASE, PLAINTIFF,

                    V                             MEMORANDUM AND ORDER

ANTONE R. CASE, ET AL., DEFENDANTS.
---------------------------------------
DAVID A. SHULTS AND BARBARA L.S. FINCH,
RESPONDENTS;

DIBBLE & MILLER, P.C., APPELLANT.


DIBBLE & MILLER, P.C., ROCHESTER (GERARD F. NORTON OF COUNSEL), FOR
APPELLANT.

THE WOLFORD LAW FIRM LLP, ROCHESTER (SARAH SNYDER MERKEL OF COUNSEL),
FOR RESPONDENTS.


     Appeal from an order of the Supreme Court, Livingston County
(Matthew A. Rosenbaum, J.), entered September 7, 2012. The order,
among other things, granted the motion of David A. Shults and Barbara
L.S. Finch for an order directing that funds held by the Livingston
County Clerk in this matter to be paid over to them.

     It is hereby ORDERED that the order so appealed from is
unanimously affirmed without costs.

     Memorandum: Plaintiff commenced this action against his brother,
Antone R. Case, among other defendants, seeking dissolution of the
brothers’ partnership, which operated a potato farm. The complaint
also asserted causes of action for an accounting and partition of real
property owned by the partnership. Plaintiff was initially
represented by Phillips, Lytle, Hitchcock, Blaine & Huber LLP
(Phillips Lytle). While Phillips Lytle was representing plaintiff,
Supreme Court (Alonzo, A.J.) appointed a receiver who took custody of
the partnership’s funds, among other property, and held the funds in
escrow pending resolution of the action. Approximately five months
later, David A. Shults and Barbara L.S. Finch (Shults Creditors)
loaned plaintiff $260,000 to fund a new business that he operated with
his wife. As security for the loan, plaintiff later assigned to the
Shults Creditors all rights, title and interest he had to the proceeds
from the partnership dissolution action, including the funds held by
the receiver. Shortly after the Shults Creditors filed the assignment
with the Livingston County Clerk, Phillips Lytle moved to withdraw as
plaintiff’s attorney on the grounds that it was owed a substantial
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                                                         CA 12-02242

amount for unpaid legal fees and plaintiff had assigned to the Shults
Creditors his interest in the partnership’s funds, from which Phillips
Lytle expected ultimately to be paid. Supreme Court (Donofrio, A.J.)
granted the motion and gave plaintiff 15 days in which to “secure new
counsel.” Plaintiff thereafter retained appellant Dibble & Miller,
P.C. (Dibble & Miller) to represent him in this action. Dibble &
Miller had previously served as special tax counsel for plaintiff.

     The partnership dissolution action eventually proceeded to trial,
during which the brothers reached a settlement that resolved all
claims between them. Pursuant to the settlement, plaintiff was
entitled to $232,255.10 of the funds held in escrow by the receiver,
while his brother was entitled to the remaining $382,255.10. A
dispute then arose between Dibble & Miller and the Shults Creditors
over which party was entitled to plaintiff’s share of the settlement
proceeds. Although Dibble & Miller had been paid an initial retainer
of $20,000, plaintiff owed the firm more than $230,000 for legal
services rendered in this action. At the same time, plaintiff owed
the Shults Creditors for the $260,000 loan that was secured by
plaintiff’s interest in the funds held by the receiver. According to
Dibble & Miller, its charging lien pursuant to Judiciary Law § 475
took precedence over the Shults Creditors’ perfected security interest
in the settlement proceeds.

     Supreme Court (Fisher, J.) ordered, in sum and substance, that
the Shults Creditors were entitled to plaintiff’s share of the
settlement proceeds. Dibble & Miller took an appeal from that order,
but we dismissed the appeal because, at the time, the parties were in
federal court on a related matter and the funds previously held by the
receiver had been transferred to the clerk in federal court (Case v
Case, 78 AD3d 1610, 1610-1611). The parties subsequently stipulated
that the dispute between them in federal court no longer involved a
federal issue, and they thus agreed to have the matter resolved in
state court. The funds were then transferred to the Livingston County
Clerk. The Shults Creditors moved for an order directing that the
funds in question be paid to them. Dibble & Miller cross-moved for
partial vacatur of Justice Fisher’s order, as well as for an order
determining the priority of the liens. Supreme Court (Rosenbaum, J.),
inter alia, granted the motion of the Shults Creditors and distributed
the funds to the Shults Creditors. We affirm.

     The priority of conflicting perfected security interests is
determined by the date of filing or perfection (see UCC § 9-322 [a]
[1]). Relying on Judiciary Law § 475, which provides that an
attorney’s charging lien attaches by operation of law upon the
“commencement” of an action or proceeding (see LMWT Realty Corp. v
Davis Agency, 85 NY2d 462, 467), Dibble & Miller contends that its
charging lien arose before the Shults Creditors perfected their
security interest. In support of that contention, Dibble & Miller
notes that its notice of appearance in this action was filed on April
14, 2004, whereas the Shults Creditors’ assignment was filed almost
two years later, on February 2, 2006. The record is clear, however,
that Dibble & Miller’s representation of plaintiff in April 2004 was
limited to providing tax advice. Dibble & Miller did not become
                                 -3-                           623
                                                         CA 12-02242

attorney of record for plaintiff in this action until after May 3,
2006, when the court granted Phillips Lytle’s motion to withdraw as
plaintiff’s counsel. Indeed, if Dibble & Miller were co-counsel with
Phillips Lytle, as Dibble & Miller suggests, there would have been no
need for Judge Donofrio to state in her order that plaintiff had 15
days in which to secure new counsel. There would have also been no
need for Judge Donofrio to hold the case in “abeyance” for “an
additional period of 30 days after Plaintiff or his new counsel have
received from Phillips Lytle the documents specified in paragraph 4
[of the instant order].”

     In fact, as the Shults Creditors point out, Dibble & Miller’s own
billing records show that it was not plaintiff’s attorney of record
until after the court allowed Phillips Lytle to withdraw as
plaintiff’s counsel. In addition, in a sworn statement given in
federal court, Gerald Dibble, Esq., of Dibble & Miller, stated that
his firm “succeeded the firm of Phillips Lytle in representing
[plaintiff], having first been engaged by [plaintiff] on or about
March 10, 2004 as special tax counsel for [plaintiff] in connection
with claims of the IRS relating to income taxes . . . Thereafter, on
or about March 15, 2006, [plaintiff] asked this firm to represent him
in the State Action because Phillips Lytle moved to withdraw as
[plaintiff’s] counsel.”

     Based on the above, we conclude that Dibble & Miller’s reliance
on its April 2004 notice of appearance is misplaced. That notice of
appearance was limited to Dibble & Miller’s role as special tax
counsel for plaintiff. Dibble & Miller was not then the attorney of
record for plaintiff in this action, and it is well settled that
“[o]nly the attorney of record . . . is entitled to an attorney’s . .
. charging lien” (Matter of Barnum v Srogi, 96 AD2d 723, 724; see
Rodriguez v City of New York, 66 NY2d 825, 827-828).

     Dibble & Miller further contends that its charging lien arose
first because it relates back to the date of commencement of the
action, notwithstanding that Dibble & Miller did not become
plaintiff’s attorney of record until more than three years after such
date. According to Dibble & Miller, its charging lien relates back to
the date of commencement of the action because Judge Donofrio’s order
gave its charging lien priority over Phillips Lytle’s charging lien.
We reject that contention, for which Dibble & Miller cites no
authority. The order signed by Judge Donofrio simply gave priority to
Dibble & Miller’s charging lien over that of Phillips Lytle; she did
not order that Dibble & Miller’s charging lien relates back to the
date of commencement of the action, which would have the effect of
giving Dibble & Miller’s lien priority over the Shults Creditors’
perfected security interest. The Shults Creditors were not given an
opportunity to be heard before Judge Donofrio’s order was entered, and
we will not presume that Judge Donofrio implicitly intended to give
preference to Dibble & Miller over the Shults Creditors.

     In sum, we conclude that the Shults Creditors’ perfected security
interest in the partnership funds was filed before Dibble & Miller’s
charging lien arose by operation of law under Judiciary Law § 475.
                                 -4-                           623
                                                         CA 12-02242

The law is clear that “a claim may . . . supersede an attorney’s lien
if the claim is both prior in time and a charge against the specific
fund upon which the attorney’s lien attaches, not merely general
indebtedness asserted against the client” (LMWT Realty Corp., 85 NY2d
at 468).

     We reject Dibble & Miller’s further contention that its efforts
on plaintiff’s behalf in this action “created” the funds at issue
(id.). Notably, the partnership funds were in the receiver’s hands
before Dibble & Miller became attorney of record for plaintiff. The
receiver was appointed on January 20, 2005, and the funds were in his
account no later than February 6, 2006, when the Shults Creditors
filed their UCC financing statement. Phillips Lytle did not move to
withdraw as plaintiff’s counsel until March 3, 2006, and plaintiff
later retained Dibble & Miller. Under the circumstances, it cannot be
said that the funds held by the receiver were created as a result of
Dibble & Miller’s legal services rendered to plaintiff,
notwithstanding the fact that Dibble & Miller’s efforts led to the
settlement that established plaintiff’s rights to the funds in
question. As one observer has noted, “[i]f the collateral or its
proceeds exist independent of the attorney’s efforts . . . , equitable
considerations cannot avoid the priority of a security interest
created before the involvement of the attorney” (James N. Blair,
Wolman Blair PLLC, Practice Insights, NY CLS, Book 36, UCC § 9-322,
2013 Cum Supp at 230).




Entered:   July 19, 2013                       Frances E. Cafarell
                                               Clerk of the Court
