Opinion ID: 482049
Heading Depth: 2
Heading Rank: 1

Heading: State Court Fees.

Text: 19 McEwen does not appeal the bankruptcy court's denial of his state court fees on the ground that they did not qualify as administrative expenses. Rather, McEwen argues that the district court erred in holding that he had to file notice of his attorney's lien under Minn.Stat. Sec. 481.13 in order to perfect his interest. He therefore maintains that his lien was not subject to the trustee's avoidance powers under 11 U.S.C. Sec. 545(2). 20 Under 11 U.S.C. Sec. 545(2), the trustee in bankruptcy has the power to avoid a statutory lien on a debtor's property if the lien is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case, whether or not such a purchaser exists. 11 U.S.C. Sec. 545(2) (1979 & Supp.1985). This section gives the trustee the status of a hypothetical bona fide purchaser as of the date the bankruptcy petitions were filed. 4 Collier on Bankruptcy p 545.04, at 545-19 (15th ed. 1986). Thus, if a statutory attorney's lien is not perfected or enforceable, the trustee can avoid the lien under Section 545(2). See, e.g., In re Burnham, 12 B.R. 286, 291 (Bankr.N.D.Ga.1981). 21 The nature, extent, and validity of the statutory lien are matters governed by state law. See In re Sea Catch, Inc., 36 B.R. 226, 228-30 (Bankr.D.Alaska 1983); 4 Collier on Bankruptcy p 545.04, at 545-19. In this case, the applicable law is that of Minnesota. 22 The only method of obtaining an attorney's lien in Minnesota is by complying with Minn.Stat. Sec. 481.13, which has preempted the common law in this area. Village of New Brighton v. Jamison, 278 N.W.2d 321, 324 (Minn.1979); Boline v. Doty, 345 N.W.2d 285, 288 (Minn.Ct.App.1984). 11 In analyzing McEwen's claim, the bankruptcy court focused on subsection (1), which provides that, whether or not there is a contract for fees, an attorney has a lien for compensation: 23 Upon the cause of action from the time of the service of the summons therein, or the commencement of the proceedings, and upon the interest of the attorney's client in any money or property involved in or affected by any action or proceeding in which the attorney may have been employed, from the commencement of the action or proceeding, and, as against third parties, from the time of filing the notice of such lien claim, as provided in this section [.] 24 Minn. Stat. Sec. 481.13(1) (emphasis added). Subsection (4) provides that if the lien is claimed on a client's interest in personal property, notice of the lien must be filed in the same manner as provided by law for the filing of a security interest. Id. Sec. 481.13(4). 12 25 Despite the seemingly clear statutory mandate, McEwen argues that notice is not required to perfect his lien. He claims that it is not the intent of the statute that a contingent fee contract on a cause of action seeking a money judgment is to be recorded under subsection (4). We cannot agree. 26 The plain language of subsection (1) requires that, whether or not there is a contract for compensation, notice of a lien claim upon a cause of action or upon the interest of the client in any property involved in the proceeding must be filed by the attorney in order for the lien to be effective against third parties. Minn.Stat. Sec. 481.13(1). Whether McEwen had a lien on the state cause of action, or on the money judgment because of his contingent fee contract, the statute clearly required him to file notice of the lien in order for his interest to be protected against the claims of third parties. 13 Moreover, because subsection (1) requires the attorney to record as provided in this section, id. Sec. 481.13(1), and because subsection (4) requires notice for a lien on the type of personal property involved in this case to be filed in the same manner as for a security interest, 14 it appears that the legislature intended this procedure to amount to perfection of the attorney's interest. 27 Furthermore, the Minnesota Court of Appeals has recently indicated that under Minn.Stat. Sec. 481.13, an attorney's lien can be enforced only after it is established, see Boline, 345 N.W.2d at 289, and that prior to establishing the lien a notice of attorney's lien must be filed in accordance with the requirements of Minn.Stat. Sec. 481.13, subd. 4. Id. (citing Schroeder, Siegfried, Ryan and Vidas v. Modern Electronic Products, Inc., 295 N.W.2d 514, 515 (Minn.1980)). Thus, whether notice is required to perfect the lien against third parties, as the bankruptcy and district courts held, or whether notice is required to establish the lien and thus make it enforceable, as the Minnesota Court of Appeals has stated, it is clear that McEwen's failure to file notice allows the trustee to avoid the lien. See 11 U.S.C. Sec. 545(2) (trustee may avoid statutory lien if it is not perfected or enforceable). 15 28 Alternatively, McEwen argues that he is entitled to his state court fees because the trustee had actual and constructive notice of the contingent fee arrangement, and presumably therefore, notice of his lien. This claim, however, is without merit. Under Section 545(2) of the Code, the trustee has the power to avoid a statutory lien if the lien is not perfected or enforceable at the commencement of the case against a bona fide purchaser   . 11 U.S.C. Sec. 545(2). It is clear, therefore, that notice is irrelevant in this case; McEwen's lien was never perfected or enforceable against the trustee, who is given the status of a hypothetical bona fide purchaser as of the date the petitions are filed. See 4 Collier on Bankruptcy p 545.04, at 545-19. 29 Finally, McEwen argues that it would be inequitable to deny him the fruits of his labor. The bankruptcy court, however, found that this was not a case where equitable considerations should apply. In re Pierce, 53 B.R. at 827 n. 4. 16 We find, as did the district court, that the bankruptcy court did not abuse its discretion in declining to apply its equitable powers in this case. We further note that the effect of the bankruptcy court's order is not to totally deny McEwen's fees and expenses, but rather, to relegate his status in claiming those fees to that of the other general, unsecured creditors. 30 In summary, we hold that the bankruptcy court did not err in allowing the trustee to avoid McEwen's lien. Because McEwen failed to file notice of his lien under Minn.Stat. Sec. 481.13, the lien was either unperfected, or not established and therefore unenforceable. Thus, the trustee could avoid the lien under 11 U.S.C. Sec. 545(2). 31