Court Opinion

ID: 9376230
Source: CourtListenerOpinion
Date Created: 2023-03-02 15:02:23.983175+00
Date Added: 2024-06-11T17:17:05.291775
License: Public Domain

COURT OF CHANCERY
                                   OF THE
                             STATE OF DELAWARE
MORGAN T. ZURN                                           LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR                                            500 N. KING STREET, SUITE 11400
                                                          WILMINGTON, DELAWARE 19801-3734

                                    March 2, 2023

Jenness E. Parker, Esquire                   Brian M. Rostocki, Esquire
Skadden, Arps, Slate, Meagher & Flom LLP     Reed Smith LLP
920 North King Street                        1201 North Market Street, Suite 1500
Wilmington, DE 19801                         Wilmington, DE 19801

Cheryl A. Santaniello, Esquire
Porzio Bromberg & Newman, P.C.
300 Delaware Avenue, Suite 1220
Wilmington, DE 19801

      RE:    AutoLotto, Inc. v. J. Streicher Financial, LLC,
             Civil Action No. 2022-0661-MTZ
Dear Counsel:

      I write to resolve in part the Combined Motion to Withdraw as Counsel and

for a Charging Lien filed by Skadden, Arps, Slate, Meagher & Flom LLP

(“Skadden”), particularly the motion for a charging lien (the “Motion”). The

Motion is granted, but only with respect to Skadden’s work for petitioner

AutoLotto, Inc. in the above-captioned matter, and not with respect to Skadden’s

work for AutoLotto in other matters. My reasoning follows.
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 2 of 9

                 I.       BACKGROUND

                 In 2022, AutoLotto retained Skadden on an hourly basis for the purpose of

       obtaining general corporate and transactional advice.1         The engagement letter

       includes a choice of law clause selecting New York law:

                 This agreement and any claim, controversy or dispute arising under or
                 relating to this agreement, the relationship of the parties, and/or the
                 interpretation and enforcement of the rights and duties of the parties,
                 and/or the interpretation and enforcement of the rights and duties of
                 the parties shall be governed by, and construed in accordance with,
                 the laws of the state of New York.2

                 Under the engagement letter, Skadden represented AutoLotto in this action

       to secure the return of $16,500,000 in escrowed funds held by defendant J.

       Streicher Financial, LLC (“J. Streicher”).3 On September 26, 2022, I granted

       partial summary judgment in AutoLotto’s favor and ordered J. Streicher to return

       the escrowed funds.4 I also shifted AutoLotto’s attorneys’ fees in the amount of

       $397,036.94 and entered an order reflecting the parties’ stipulation that J. Streicher

       would pay those fees no later than November 30, 2022 (the “Fee Order”).5

       1
           Docket Item (“D.I.”) 45 [hereinafter “Mot.”] ¶ 1.
       2
           Mot., Ex. 1.
       3
           Id.
       4
           D.I. 35.
       5
           D.I. 38.
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 3 of 9

                On December 8, 2022, Skadden filed the Motion seeking a charging lien in

       the amount of $3,024,201.17 against the $16,500,000 awarded in this matter,

       representing unpaid fees not only for its representation of AutoLotto in this action,

       but also for its representation and work for AutoLotto in a variety of other matters.6

       The parties briefed the Motion, and I took it under advisement on January 13,

       2023.7 Skadden’s motion to withdraw will be granted under separate cover.

                II.      ANALYSIS

                The parties dispute whether all of Skadden’s outstanding fees are properly

       subject to a charging lien against the award in this specific action, and whether that

       issue should be guided by New York or Delaware law. AutoLotto also contends

       that no charging lien against it is necessary because the Court shifted its fees to J.

       Streicher; AutoLotto suggests Skadden may and should recover from J. Streicher

       instead.        This letter concludes that under both New York and Delaware law,

       Skadden is entitled to a charging lien against the recovery in this action only for

       fees incurred in this action, and the Fee Order cannot substitute for or preclude the

       charging lien to which Skadden is entitled.

       6
           Mot. ¶ 5.
       7
           D.I. 51; D.I. 58; D.I. 55.
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 4 of 9

                When faced with a dispute over which law governs, the Court’s first step is

       to determine whether there is an actual conflict of law between the proposed

       jurisdictions.8      Where the result would be the same under either proposed

       jurisdiction, there is no actual conflict: rather, “there is a ‘false conflict,’ and the

       Court should avoid the choice-of-law analysis altogether.”9

                       A.     Scope of the Charging Lien

                In New York, charging liens are governed by a statute providing that “the

       attorney who appears for a party has a lien upon his or her client’s cause of action,

       claim or counterclaim, which attaches to a verdict, report, determination, decision,

       award, settlement, judgment or final order in his or her client’s favor.”10 New

       York courts have consistently held an attorney’s charging lien only covers fees

       incurred for services provided in the particular action that yielded the recovery, not

       other matters.11 Under New York law, the scope of Skadden’s charging lien is

       8
           Bell Helicopter Textron, Inc. v. Arteaga, 113 A.3d 1045, 1050 (Del. 2015).
       9
        Deuley v. DynCorp Int’l, Inc., 8 A.3d 1156, 1161 (Del. 2010) (quoting Berg Chilling
       Sys., Inc., v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006)).
       10
            N.Y. Jud. Law § 475 (McKinney 2022).
       11
         See 7 Russell J. Davis et al., N.Y. Jur. 2d Attorneys at Law § 310 (2023) (“As a general
       rule, an attorney’s charging lien extends only to disbursements and services in the
       particular action or proceeding in which they were incurred or rendered, and does not
       cover a general balance due the attorney or charges incurred for services rendered in
       other matters . . . .”); see e.g., Kaplan v. Reuss, 495 N.Y.S.2d 404, 406 (1985), aff’d, 68
       N.Y.2d 693 (1986) (“A charging lien . . . applies only to the proceeds obtained from a
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 5 of 9

       therefore limited to its fees incurred while representing AutoLotto in the above-

       captioned matter, and does not extend to its other work for AutoLotto.

                Delaware law is in accord.        Delaware recognizes charging liens as a

       common law equitable right.12         The Delaware Supreme Court has defined a

       charging lien such that its scope covers only fees incurred to prosecute the

       litigation in which the lien is sought. In Katten Muchin Rosenman v. Sutherland,

       the Delaware Supreme Court defined a charging lien as “an equitable right to have

       costs advanced and attorney’s fees secured by the judgment entered in the suit

       wherein      the   costs   were   advanced     and    the    fee   earned.”13       Under

       the Katten definition, Skadden may seek a charging lien secured by the judgment

       in this matter for its work “in the suit wherein the costs were advanced and the fee

       earned,” meaning only in this matter.

       particular litigation and may be enforced only to obtain the reasonable value of the
       attorney’s services and disbursements in connection with that litigation.”); First Nat.
       Bank & Tr. Co. of Ellenville v. Hyman Novick Realty Corp., 421 N.Y.S.2d 733, 734
       (1979) (“A statutory attorney’s lien pursuant to section 475 of the Judiciary Law is a lien
       only for the value of services rendered in the particular action which produced the
       recovery sought to be charged.”).
       12
            See Katten Muchin Rosenman v. Sutherland, 153 A.3d 722, 726 (Del. 2017).
       13
         Id. at 726 (emphasis added) (adopting the definition set forth in Zutrau v. Jansing,
       2014 WL 7013578 (Del. Ch. Dec. 8, 2014), aff’d, 123 A.3d 938 (Del. 2015), and 7A
       Kristina E. Music Biro et al., C.J.S. Attorney & Client § 523 (2023)).
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 6 of 9

                In attempting to skirt this plain definition, Skadden cites other language in

       Katten providing that unpaid fees need not “directly relate to a client’s recovery” to

       be encompassed by a charging lien.14 But that language clarified a lien is available

       for all unpaid fees incurred within a matter.15       Nothing in Katten suggests a

       charging lien could encompass unpaid fees in other matters.

                Second, Skadden asserts that whether a charging lien can cover fees beyond

       those incurred in the litigation in which the lien is sought is an “unsettled issue of

       Delaware law” based on Zutrau v. Jansing.16 I read Zutrau differently: the issue

       this Court declined to decide was whether a lien could be asserted on a plaintiff’s

       entire recovery, or only that amount over and above an amount the defendant

       initially offered, i.e., the “amount of the benefit recovered.”17 Zutrau has no

       bearing on whether a charging lien is properly asserted for unpaid fees in other

       matters.

                Thus, there is no conflict between New York and Delaware law, and I need

       not decide which governs. Delaware and New York law reach the same result with

       respect to the scope of the charging lien: Skadden is entitled to a charging lien on

       14
            Mot. ¶ 18.
       15
            Katten, 153 A.3d at 727.
       16
            D.I. 53 ¶ 5; Zutrau, 2014 WL 7013578.
       17
            2014 WL 7013578, at *2–3.
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 7 of 9

       AutoLotto’s recovery in this matter for its fees earned in this matter, and not its

       other matters. I grant Skadden’s motion for a charging lien with respect to the

       $397,036.94 in attorneys’ fees earned in this action.

                     B.     The Fee Order

              AutoLotto also argues that no charging lien is warranted at all. AutoLotto

       suggests that “[i]f the Fee Order does not clearly or specifically entitle Skadden to

       directly enforce it against J. Streicher on Skadden’s behalf . . . Skadden may do so,

       subject to AutoLotto’s claims and defenses against Skadden, including any breach

       of contract or breach of fiduciary duty.”18 AutoLotto urges this Court to accept

       this alternative rather than impose a charging lien, pressing it offers Skadden a

       “superior right” to obtain payment directly from J. Streicher, and that Skadden is in

       18
          D.I. 51 ¶ 4. AutoLotto provides no authority under New York or Delaware law to
       suggest that the amount of a charging lien could be reduced by its “claims and defenses
       against Skadden.” However, “the premise for imposing a charging lien is that an attorney
       is owed money” for services performed. Zutrau, 2014 WL 7013578, at *4. In Katten,
       the court expressed that attorneys are owed all unpaid fees from litigation, and the
       balance due could not be reduced depending on whether the client won or lost. There, the
       court noted that “[t]o permit a client who is a party to such an [hourly fee] agreement to
       escape a charging lien . . . is to judicially rewrite the contract at the expense of the
       attorney and to undermine the traditional purpose of a charging lien.” Katten, 153 A.23d
       at 728. Thus, Katten suggests that Delaware courts strongly disfavor interfering with the
       amount of fees that attorneys are owed for services performed in accordance with hourly
       fee agreements. Moreover, AutoLotto has not asserted any such breach of contract or
       breach of fiduciary duty claims.
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 8 of 9

       a “better position to bear” the costs of collection.19 AutoLotto’s suggestion has no

       bearing on Skadden’s established right under both Delaware and New York law to

       assert a charging lien against AutoLotto’s recovery.

                AutoLotto provides no authority under either New York or Delaware law

       supporting its suggestion that Skadden’s entitlement to secure its debt against

       AutoLotto’s recovery could be satisfied by allowing Skadden to pursue an

       ancillary recovery from J. Streicher. And hornbook authority refutes AutoLotto’s

       suggestion: “[T]hat an allowance has been made for attorney’s fees to be paid by a

       third person may not affect the lien of an attorney as against the attorney’s own

       client.”20 In New York, where charging liens are governed by statute, “[t]he statute

       has provided a lien in all cases, and not merely where the client fails to provide

       some other form of security or protection, and the courts cannot themselves

       substitute another form of protection for that provided in the statute.”21 And in

       19
            D.I. 51 ¶ 24.
       20
          7A Kristina E. Music Biro et al., C.J.S. Attorney & Client § 523 (2023); see also id.
       § 540 (“The attorney’s charging lien is only a lien on the fruits of the attorney’s labor and
       is not intended to give a general lien on any other assets of the client.”).
       21
         Robinson v. Rogers, 237 N.Y. 467, 472 (1924). The New York statute specifies that a
       charging lien may “attach[] to a verdict, report, determination, decision, award,
       settlement, judgment or final order in his or her client’s favor.” N.Y. Jud. Law § 475
       (McKinney 2022). Therefore, “[t]he tangible ‘fruit’ of an attorney’s services to which a
       charging lien can attach is generally money, property, or other actual proceeds gained by
       means of the claims asserted for the client in the litigation.” 7 Russell J. Davis et al., N.Y.
       Jur. 2d Attorneys at Law § 327 (2023).
AutoLotto, Inc. v. J. Streicher Financial, LLC,
Civil Action No. 2022-0661-MTZ
March 2, 2023
Page 9 of 9

       Delaware, “[t]o permit a client who is a party to such an [hourly fee] agreement to

       escape a charging lien . . . is to judicially rewrite the contract at the expense of the

       attorney and to undermine the traditional purpose of a charging lien,”22 namely to

       “compensat[e] the attorney for her efforts” and “encourag[e] attorneys to provide

       legal services to clients.”23 Allowing counsel to pursue a fee award against its

       client’s adversary is a poor substitute for a charging lien in view of those purposes.

       Skadden has the right to secure its debt, in the amount of unpaid fees owed in this

       action, against AutoLotto’s recovery.

                III.   CONCLUSION

                For the foregoing reasons, the Combined Motion to Withdraw as Counsel

       and for a Charging Lien is GRANTED IN PART.

                                                      Sincerely,

                                                      /s/ Morgan T. Zurn

                                                      Vice Chancellor

              MTZ/ms

              cc: All Counsel of Record, via File & ServeXpress

       22
            Katten, 153 A.23d at 728.
       23
          Id. at 726–27; see also Zutrau, 2014 WL 7013578, at *4 (“[T]he premise for imposing
       a charging lien is that an attorney is owed money.”).