St. Clair County Circuit Judge Stephen McGlynn wrongly granted partial summary judgment and awarded statutory and equitable attorney liens, Fifth District appellate justices ruled on Sept. 19.

Justice Stephen Spomer authored the Sept. 19 Rule 23 order. Justice Thomas Welch concurred; Justice Richard Goldenhersh dissented.

According to the underlying complaint, plaintiff Fairchild Corporation sued Arrowood Indemnity Company, also known as Arrowpoint Capital Corporation, and successor in interest to Royal & Sunalliance Insurance USA and National Union Fire Insurance Company, saying it breached a duty to defend and indemnify Fairchild.

According to the Fifth District ruling, Fairchild filed a notice of pendency of case under Chapter 11 of the federal bankruptcy code and of automatic stay in 2009, which suggested Fairchild voluntarily petitioned for relief. As a result, all claims against Fairchild were subject to the automatic stay set forth in the bankruptcy code, the appellate court held.

By June 2011, the law firms Nester & Constance, P.C. and Schopf & Weiss, LLP, filed petitions to enforce attorneys’ liens, to which Arrowood and National Union objected, stating there were no grounds and no recovery for a lien to attach.

Spomer wrote that a liquidating trust had been created in the bankruptcy proceedings, and the trust had been assigned all interest Fairchild had in all insurance policies.

Each insurance company was assigned a specific amount to contribute to the settlement, according to the terms of the settlement agreement, and Fairchild agreed to release all of its insurers from any other claims.

A liquidating trustee had agreed to execute the settlement agreement and signed the agreement, but the agreement was not on record, according to the appellate court.

A hearing was then held on Fairchild’s motion for partial summary judgment on Jan. 12, 2012, regarding National Union’s duty to defend and the petition to enforce attorneys’ liens.

The circuit court entered an order granting the motion for statutory and equitable attorneys liens for a total of $205, 968.69 on July 17, 2012. Both Arrowood and National Union filed notice of appeal.

Regarding the partial summary judgment on National Union’s duty to defend, Spomer wrote that the circuit court erred in granting the motion and reversed, stating that summary judgment should only be granted when “the pleadings, affidavits, and other supportive evidence on file present no genuine issue of material fact.”

“It is clear from the documents from the bankruptcy proceeding that all of Fairchild’s interests in its insurance policies were transferred to the liquidating trustee by order of the bankruptcy court,” Spomer stated, “which had exclusive jurisdiction over all of the property of Fairchild as of the commencement of its bankruptcy.”

When addressing the statutory attorneys liens, Spomer referenced the Attorneys Lien Act. The act states that attorneys have a right to liens upon all claims, demands and causes of action for the amount agreed upon between the attorney and the client. Accordingly, Spomer ruled that the court erred in entering a judgment on Fairchild’s complaint for declaratory judgment and breach of contract because the bankruptcy court had exclusive jurisdiction over Fairchild’s interests.

“Fairchild did not recover any money or property on account of the instant lawsuit of the claims, demands, or causes of action asserted herein,” Spomer wrote. “Absent a recovery in the instant action, there can be no enforcement of an attorneys’ lien. For these reasons, the circuit court erred in enforcing any statutory attorneys’ liens."

Lastly, Spomer found that the equitable attorneys’ liens were proper. However, he found that the court abused its discretion in granting equitable liens. He stated that the circuit court did not have jurisdiction over Fairchild’s interests in the insurance proceedings, “as such interests were assigned to the liquidating trustee in the bankruptcy proceedings, who in turn consummated a settlement.”

Justice Goldenhersh dissented, arguing that the essence of the orders granted by the circuit court was misconstrued, further pointing out that the lack of notice of bankruptcy hearings and an opportunity to participate was crucial to the circuit court’s decision.

He wrote that the attorneys were not given a chance to participate in the bankruptcy proceedings. And rather than focus on this fact, the majority in the appellate court focused on the transfer of Fairchild’s interests to the liquidating trustee and the consummation of the settlement agreement.

“The majority’s position is permeated with the fundamental error of concluding that a res was not formed and its failure to consider that petitioners did not receive notice and were effectively blocked from participating in the disposition of the res,” Goldenhersh wrote. “For the reasons stated, I respectfully dissent."

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