In The Shadow Of John Lennon

The New York Court of Appeals reversed an Appellate Division decision regarding a lien for unpaid legal fees

On this appeal, we must determine whether a lienholder nonparty to an action that resulted in a fee award against a debtor may challenge the legal basis of the judgment in a separate proceeding to recover those fees. We conclude that because the nonparty was neither joined nor required to intervene in the action against the debtor, it had no prior opportunity to challenge the award and thus is not barred from doing so in this proceeding. Therefore, we reverse the contrary order of the Appellate Division and remit to that Court for further proceedings.

The litigation 

In 2001, Alphonse Fletcher, Jr. acquired certain property associated with two apartment units in a residential cooperative corporation, controlled by The Dakota, Inc. (“The Dakota”). The Dakota holds a perfected lien against that property. In 2008, JP Morgan Chase Bank, N.A. (“Chase”) approved a multimillion-dollar loan to Fletcher, which he secured by immediately assigning to Chase his rights, title, and interest in the property. Shortly thereafter, Fletcher, Chase, and The Dakota entered into an agreement whereby Chase recognized The Dakota’s priority to the proceeds of any sale or subletting of Fletcher’s apartments (“the Agreement”).

In 2011, Fletcher sued The Dakota for, among other things, alleged racial discrimination (“the Fletcher action”). The Dakota counterclaimed for legal fees and costs…

The lienholder

While the Fletcher action was pending, and before Supreme Court issued its fee award on The Dakota’s counterclaim against Fletcher’s former law firm, petitioner Kasowitz, Benson, Torres & Friedman, LLP (“Kasowitz”), commenced this CPLR 5225 proceeding against Chase, The Dakota and Fletcher that is the subject of this appeal. Kasowitz sought the seizure and sale of Fletcher’s apartments to satisfy a judgment against Fletcher for unpaid legal fees. The Dakota answered, claiming, first, that it held an interest in Fletcher’s property arising from the fee judgment in the Fletcher action and, second, that this interest was superior to that held by Chase. Chase countered that The Dakota did not hold a superior lien because Paragraph Fifteenth authorized attorneys’ fees only in actions against The Dakota initiated by lessees in default and Fletcher was not in default when he sued The Dakota. In the alternative, Chase argued that if Paragraph Fifteenth were to apply to actions initiated by lessees not in default, the provision would be unconscionable.

In 2021, Supreme Court granted summary judgment to The Dakota, concluding that Paragraph Fifteenth “clearly and unambiguously” allowed The Dakota to recover attorneys’ fees from Fletcher. The Appellate Division affirmed (209 AD3d 529 [1st Dept 2022]). The Appellate Division concluded, in relevant part, that Chase’s contentions amounted to an “impermissible collateral attack on the Dakota’s judgment” in the Fletcher action (id. at 530-531). The Court further stated that “[i]f Chase wants to vacate the Dakota’s judgment, it must move before ‘the court which rendered the judgment’ ” (id. at 530, quoting CPLR 5015 [a]).

Intervention

To the extent that the Appellate Division suggested that Chase was required to intervene in the Fletcher action to protect its interests, we disagree. Such requirement is inconsistent with New York’s Civil Practice Law and Rules and with federal due-process principles.

(Mike Frisch)