97 N.Y.2d 39 (2001)

When competing claims arise from the same transaction or instrument, a party’s right to set off judgments takes priority over an attorney’s charging lien on their client’s award.

Summary

This case addresses the priority between an attorney’s charging lien and an opposing party’s right to set off a judgment. Banque Indosuez (the Bank) sued its customers, the Sopwith defendants, for breach of contract. The Sopwith defendants counterclaimed for conversion. Both parties won judgments. The Bank was also awarded attorneys’ fees per their contract. The Sopwith defendants’ attorneys sought to enforce their lien. The Court of Appeals held that because both judgments arose from the same agreement, the Bank’s right to set off its judgment for attorneys’ fees took priority over the attorneys’ charging lien on the Sopwith defendants’ recovery. The attorney’s lien only attaches to the client’s net recovery.

Facts

Banque Indosuez and the Sopwith defendants (investment firms) had agreements for foreign exchange trading. The agreements allowed the Bank to recover attorneys’ fees related to enforcement. The Bank sued the Sopwith defendants for breach of contract. The Sopwith defendants counterclaimed, alleging unauthorized trading and conversion of collateral. The Bank won a $3.1 million judgment against some defendants, and the Sopwith defendants won a $2.4 million judgment for conversion against the Bank. The Bank sought attorneys’ fees under the agreements.

Procedural History

The cases were consolidated in Supreme Court. After a jury trial, both sides received judgments. The Sopwith defendants’ attorneys moved to enforce their charging lien. The Bank argued its right to set off its attorneys’ fees against the Sopwith defendants’ judgment should take priority. Supreme Court initially sided with the attorneys, but the Appellate Division affirmed. The Bank then obtained a $3.5 million judgment for attorneys’ fees. Supreme Court ordered the Bank to pay the attorneys’ lien before setting off its judgment. The Bank appealed. The Court of Appeals reversed.

Issue(s)

1. Whether an attorney’s charging lien on a client’s award has priority over an adverse party’s right to set off its judgment against that client when both judgments arise from the same transaction or instrument?

Holding

1. No, because where competing claims arise out of the same transaction or instrument, a party’s right to set off judgments takes priority over an attorney’s charging lien on their client’s award; the attorney’s lien is recoverable only against the client’s net recovery.

Court’s Reasoning

The Court reasoned that historically, there has been tension between an attorney’s lien and a right of setoff. Prior cases (e.g., Beecher v Vogt Mfg. Co. and LMWT Realty Corp. v Davis Agency) gave priority to the attorney’s lien when the setoff was unrelated to the judgment. However, this case is distinguishable because both the Bank’s judgment for attorneys’ fees and the Sopwith defendants’ judgment for conversion originated from the same Foreign Exchange Agreements. The Agreements dictated how the Bank managed collateral, which was central to the conversion claim. They also contained the Bank’s right to attorneys’ fees. “[W]here competing claims arise out of the same transaction or instrument, an attorney’s charging lien under section 475 will be recoverable against the client’s net recovery, if any, after offsetting the parties’ judgments.” Since the Bank’s judgment exceeded the Sopwith defendants’ judgment, there was no net recovery to which the attorney’s lien could attach. The court emphasized that Judiciary Law § 475 limits lien rights to outcomes where “proceeds” have been obtained “in [a] client’s favor.”