Martha Irene Weed v. Rosa Beatrice Washington , 242 F.3d 1320 ( 2001 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
FEB 28 2001
________________________
THOMAS K. KAHN
CLERK
No. 99-14373
Non-Argument Calendar
________________________
D. C. Docket No. 98-02142-CIV-T-24C
IN RE: ROSA BEATRICE WASHINGTON,
Debtor.
__________________________________________________________________
_
MARTHA IRENE WEED,
Plaintiff-Appellee,
versus
ROSA BEATRICE WASHINGTON,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(February 28, 2001)
Before CARNES, HULL and MARCUS, Circuit Judges.
PER CURIAM:
Appellant Rosa Beatrice Washington, pro se, appeals the district court’s
order reversing the bankruptcy court’s ruling. The bankruptcy court allowed
Washington to avoid her attorney’s lien on Washington’s homestead property
pursuant to § 522(f)(1) of the Bankruptcy Code, but the district court held that the
lien was not a “judicial lien” avoidable under § 522(f)(1). 11 U.S.C. § 522(f)(1).
After review, we affirm the decision of the district court in part and vacate and
remand in part.
I. BACKGROUND
On December 9, 1993, Washington entered into a retainer agreement with
attorney Martha Irene Weed to secure her services in seeking a divorce. Paragraph
8 of the agreement provided that the attorney would have a lien on all of
Washington’s property, regardless of homestead, as follows:
The undersigned attorney shall have a lien on all of the client’s
documents, property (both real and personal, regardless of
homestead), or money in his or her possession or another’s for his/her
benefit for the payment of all sums due under this agreement, and
upon property or funds received by client by settlement, judgment, or
otherwise, or which was an issue in litigation between the parties.
The assets awarded to Washington in the divorce proceeding included the marital
home -- homestead property under Florida law. On April 25, 1995, the state
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divorce court granted Weed’s motion for a “charging lien” against any and all
assets awarded to Washington in the divorce, including her home, pursuant to the
retainer agreement between Washington and Weed. In so doing, the state divorce
court found that Washington had received proper notice and that Washington was
indebted to the offices of Martha Irene Weed in the amount of $5,296.96 for
professional legal services in that proceeding.
On August 28, 1995, Washington filed a Chapter 7 petition under the
Bankruptcy Code. In the bankruptcy proceedings, Washington filed several
motions to avoid Weed’s lien against her homestead property. The bankruptcy
court denied these motions on procedural grounds. Thereafter, Washington filed a
second amended verified motion to avoid Weed’s lien pursuant to 11 U.S.C.
§ 522(f)(1) because it impaired her homestead exemption. After a hearing, the
bankruptcy court entered a summary order holding that Weed’s lien on
Washington’s homestead property was a “judicial lien” which would be avoided
pursuant to 11 U.S.C. § 522(f)(1).
Weed appealed the bankruptcy court’s order to the district court, which
reversed. Although Washington raised numerous issues in the district court, the
district court focused exclusively on whether an attorney’s “charging lien,” as
defined by Florida state law, is a “judicial lien” that can be avoided pursuant to
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§ 522(f)(1) of the Bankruptcy Code. Assuming that Weed’s lien on Washington’s
property was a valid attorney’s charging lien under Florida law and finding that
such charging liens are not “judicial liens” that may be avoided under § 522(f)(1),
the district court held that Weed’s lien on Washington’s homestead property was
not avoidable under § 522(f)(1). Washington appealed.1
II. DISCUSSION
A. Attorney’s Charging Liens Under Florida Law
While federal law controls the bankruptcy issues in this case, state law
governs the determination of whether a lien has been created in the context of a
bankruptcy proceeding. Grant v. Kaufman, P.A. (In re Hagen), 922 F.2d 742, 744
n.2 (11th Cir. 1991)(“It is agreed that state law applies in determining the creation
of a lien and the consequences and rights attributable to the lien, other than the
bankruptcy statutory issues.”)(citing Matter of Fiterer Eng’g Assoc., Inc., 27 B.R.
878, 880 (Bankr. E.D. Mich. 1983)).
Under Florida law, the equitable right of attorneys to have costs and fees
owed for legal services secured by the judgment or recovery in a lawsuit has been
recognized for over a century. Sinclair, Louis, Siegel, Heath, Nussbaum &
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We review de novo determinations of law, whether made by the bankruptcy court or by
the district court. Williams v. EMC Mortgage Corp. (In re Williams), 216 F.3d 1295, 1296 (11th
Cir. 2000).
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Zavertnik, P.A. v. Baucom, 428 So. 2d 1383, 1384 (Fla. 1983). The equitable
mechanism recognized by Florida law for securing this right is an attorney’s
charging lien. Id. In order for an attorney’s charging lien to be imposed, Florida
law requires: (1) a contract between the attorney and client; (2) an express or
implied understanding that payment is either contingent upon recovery or will be
paid from the recovery; (3) an attempt by the client to avoid paying or a dispute as
to the amount of the fee; and (4) a timely notice of a request for a lien. Id. at 1385.
There are no requirements under Florida law for perfecting a charging lien
beyond timely notice. Id. In Sinclair, the Florida Supreme Court found that the
filing of a motion to enforce such a lien provides the notice necessary to perfect it.
Id. Although an attorney’s charging lien attaches to a judgment for the client, this
equitable lien relates back to the commencement of the services rendered by the
attorney on behalf of the client and takes effect from that time. Miles v. Katz, 405
So. 2d 750, 752 (Fla. 4th DCA 1981). An attorney’s charging lien has priority
over any judgment lien obtained after commencement of an attorney’s services. Id.In effect, the interest created by a valid attorney’s charging lien arises by operation
of law when all of the requirements of such a lien are satisfied and is effective from
the commencement of the attorney’s services in advance of any judicial action
recognizing it.
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B. Judicial Liens Under 11 U.S.C. § 522(f)(1)
Section 522(f)(1) of the Bankruptcy Code provides that a debtor may avoid a
“judicial lien” on property to the extent it impairs certain exemptions, as follows:
Notwithstanding any waiver of exemptions but subject to paragraph
(3), the debtor may avoid the fixing of a lien on an interest of the
debtor in property to the extent that such lien impairs an exemption to
which the debtor would have been entitled under subsection (b) of this
section if such lien is–
(A) a judicial lien ...
11 U.S.C. § 522(f)(1). Section 101(36) of the Bankruptcy Code defines a “judicial
lien” as a “lien obtained by judgment, levy, sequestration, or other legal or
equitable process or proceeding.” 11 U.S.C. § 101(36). Courts have described a
judicial lien as “an interest which encumbers a specific piece of property granted to
a judgment creditor who was previously free to attach any property of the debtor’s
to satisfy his interest but who did not have an interest in a specific piece of
property before occurrence of some judicial action.” In re Fischer, 129 B.R.
285, 286 (Bankr. M.D. Fla. 1991)(quoting In re Boyd, 31 B.R. 591, 594 (D. Minn.
1983)(emphasis added)).
Bankruptcy courts have found that liens that arise by operation of law
without judicial action are not “judicial liens” for purposes of § 522(f)(1) because
they are not obtained through the judicial process. See In re Fischer, 129 B.R. at
286 (holding that an equitable lien on a home arising in the context of a divorce
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proceeding was not a judicial lien that could be avoided under § 522(f)(1) as an
impairment on a homestead exemption); In re Davis, 96 B.R. 1021, 1022 (Bankr.
M.D. Fla. 1989)(holding that a final judgment merely recognized a preexisting
equitable vendor’s lien that arose by operation of law and that judgment did not
make the lien a “judicial lien” obtained through the judicial process that could be
avoided under § 522(f)(1)); In re Sacco, 99 B.R. 647, 651-52 (Bankr. W.D. Pa.
1989)(finding that an attorney’s charging lien is not a “judicial lien” under
§ 522(f)(1) because such a lien arises by operation of law and requires no
affirmative judicial action); see also In re O’Connell, 167 B.R. 928, 931 (Bankr. D.
Mont. 1994)(finding that attorney’s charging lien that arose by statute and related
back to commencement of services is not a “judicial lien” that may be avoided
under § 522(f)(1)). Although such liens may be recognized ultimately by a
judgment or other process, liens that arise by operation of law need no judicial
action to establish a creditor’s interest. Davis, 96 B.R. at 1023 (explaining that
because a creditor’s interest in property predates judicial proceedings decreeing the
existence of such a lien, such liens are not judicial liens avoidable under
§ 522(f)(1) of the Bankruptcy Code). Therefore, such liens generally may not be
avoided as judicial liens pursuant to § 522(f)(1).
C. Washington’s Claims
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We now apply these legal principles to Washington’s claims on appeal.
Specifically, in the district court and on appeal, Washington made several
arguments that Weed’s lien against her homestead property was not a valid
attorney’s charging lien under Florida law and was created solely by the judgment
of the state divorce court.
First, Washington argued that there was no valid charging lien created by the
retainer agreement with her lawyer prior to the entry of the divorce court’s order
because: (1) she alone could not give a lien on the homestead property prior to her
divorce because both she and her husband owned the property as tenants by the
entireties at that time; (2) the retainer agreement between Washington and her
lawyer failed to satisfy the requirements for a valid charging lien under Florida law
because the lien provision did not require fees to be paid from the proceeds of the
action alone; and (3) there was an insufficient showing that the attorney’s services
had created the homestead asset or that ownership of the homestead property was
even contested in the divorce. Because her retainer agreement failed to satisfy the
requirements for a charging lien under Florida law, Washington argued that no
valid lien was created prior to the judgment of the state divorce court, thus making
the lien a judicial lien.
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Second, Washington argued that, even if the lien were otherwise a valid
charging lien prior to the state court order, it was not enforceable as to her
homestead property before the entry of the order because Florida law requires
judicial action to create an interest in real property. Thus, Weed argued that the
lien, as to her home only, was avoidable as a judicial lien under § 522(f)(1)
because it was nonexistent prior to the judgment of the state divorce court.
In reversing the order of the bankruptcy court, the district court did not
address any of these issues concerning the validity and enforceability of Weed’s
lien. Instead, assuming that Weed’s lien against Washington’s homestead
property was a valid attorney’s charging lien under Florida law, the district court
held that an attorney’s charging lien under Florida law does not constitute a
“judicial lien” for purposes of § 522(f)(1) of the Bankruptcy Code because it arises
in advance of judicial proceedings and relates back to the date that legal services
commenced. Weed v. Washington (In re Washington), 238 B.R. 852, 856 (M.D.
Fla. 1999)(“[T]his Court holds that the attorney’s charging lien in this case is not a
‘judicial lien’, and is thus not avoidable under section 522(f)(1).”).2 We agree that
2
Relying on the Supreme Court decision in Farrey v. Sanderfoot, 500 U.S. 291 (1991),
the district court noted in a footnote that Weed’s lien could not be avoided under § 522(f)(1) for
the additional reason that the lien “fixed” to the homestead property before Washington received
a fee simple interest in it – at a time when it was owned as a tenancy by the entireties. Because
the Supreme Court has held that § 522(f)(1) does not allow for the avoidance of liens that fixed
to property in advance of a debtor’s ownership, the district court noted that the lien was
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a valid attorney’s charging lien under Florida law arises by operation of law in
advance of judicial proceedings and thus is not “obtained by judgment” as required
for a judicial lien pursuant to § 101(36) of the Bankruptcy Code. 11 U.S.C.
§ 101(36). Similarly, because an attorney’s charging lien under Florida law vests
an effective interest in a creditor before the occurrence of some judicial action,
such a lien does not conform to the statutory definition of judicial liens. See In re
Fischer, 129 B.R. at 286. Thus, we affirm the decision of the district court to the
extent that it so held.
This legal principle alone does not fully answer all of the questions raised in
the district court, however. Only if Weed’s lien was a valid charging lien under
Florida law was the district court correct in reversing the bankruptcy court’s ruling
that the lien could be avoided as a judicial lien. The district court did not address
Washington’s arguments that the lien failed to meet the requirements of a valid
attorney’s charging lien and that charging liens are insufficient to create an interest
in real property under Florida law in any event. Even assuming that all of the
prerequisites of a valid charging lien under Florida law had been satisfied by the
retainer agreement between Washington and Weed, questions of Florida law
unavoidable for this additional reason. This reasoning also assumes that Weed’s lien on
Washington’s homestead property was a valid charging lien that properly vested in advance of
the order of the Florida divorce court.
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remain regarding the enforceability of such a lien as against homestead property in
advance of judicial action, either as a matter of public policy or real property law.
See e.g., Bakst, Cloyd & Bakst, P.A. v. Cole, 750 So. 2d 676, 676-77 (Fla. 4th
DCA 1999)(holding that a former wife’s homestead property was not subject to her
attorney’s otherwise valid charging lien in light of public policy considerations
generally prohibiting waiver of homestead protections in case where retainer
agreement made no express mention of homestead property). The district court
also did not address these issues.
III. CONCLUSION
Accordingly, we affirm the conclusion of the district court that a valid
attorney’s charging lien under Florida law is not a “judicial lien” that may be
avoided pursuant to § 522(f)(1) of the Bankruptcy Code. Nonetheless, we vacate
the district court’s order, dated September 16, 1999, which reversed the bankruptcy
court’s order, dated July 29, 1998, and remand to the district court to address, in
the first instance, the issues of state law raised by Washington. 3
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We note that Appellant filed the same brief in this Court that she filed in the district
court in support of the bankruptcy court’s order allowing her to avoid the lien. Further, Appellee
has filed no brief in this Court at all. The inadequacy of the briefing to assist the Court in
resolving the state law issues presented by this appeal further warrants our remand to the district
court where the issues can be more fully addressed. Furthermore, our recognition of the state
law issues remaining to be decided shall not be construed as expressing any opinion with respect
to the merits of such issues under Florida law.
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AFFIRMED IN PART AND VACATED AND REMANDED IN PART.
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