AutoLotto, Inc. v. J. Streicher Financial, LLC ( 2023 )

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,
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March 2, 2023
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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
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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,
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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
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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,
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March 2, 2023
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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.
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March 2, 2023
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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
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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.”).