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Stok Folk Kon, P.A. v. Fusion Homes, LLC

United States District Court, S.D. Florida

March 16, 2018

STOK FOLK KON, P.A., Appellant,
v.
FUSION HOMES, LLC, Appellee.

          ORDER REVERSING BANKRUPTCY COURT ORDER AND REMANDING

          MARCIA G. COOKE UNITED STATES DISTRICT JUDGE.

         THIS MATTER is before me on Appellant Stok Folk Kon, P.A.'s (“SFK”) appeal of the bankruptcy court's Order Denying SFK's Motion to Quash Subpoena and for Protective Order (“Bankruptcy Order”). See Notice of Appeal, ECF No. 1. For the reasons stated below, I reverse the ruling of the bankruptcy court and remand for further proceedings consistent with this Order.

         I. BACKGROUND [1]

         This case arises out of a fee dispute between a law firm and its former client. SFK represented Appellee Fusion Homes, LLC (“Fusion”) in a state court proceeding in which Fusion attempted to foreclose on two properties located in Hollywood, Florida, to which it owned the notes and mortgages. See SFK Br., ¶¶ 2-3, 5. While the foreclosure case was pending, the defendant in the state court proceeding, Daniel Alessi, filed a bankruptcy petition. Id. at ¶ 8. SFK participated in Mr. Alessi's bankruptcy proceeding on behalf of Fusion, contesting and filing motions. Id. at ¶¶ 8-9. Mr. Alessi subsequently filed an adversary proceeding against Fusion. Id. at ¶ 10. At some point after the adversary proceeding began, Fusion obtained new counsel. Id. at ¶¶ 9-10. As part of the adversary proceeding, Mr. Alessi issued Requests for Production to Fusion. Id. Believing SFK still possessed documents responsive to Mr. Alessi's discovery requests, Fusion's new counsel sent the requests to SFK, along with a subpoena pursuant to Rule 45. Id. at ¶¶10-11. SFK objected to Fusion's subpoena on the ground that Fusion had not fully paid SFK for its representation, asserted a retaining lien, and moved to quash the subpoena and for a protective order. Id. The bankruptcy court held a hearing on SFK's Motion to Quash and denied the Motion. Id. at ¶ 11. At the hearing, no evidence was taken, but the bankruptcy court gave two reasons for its denial of the motion. Id. at ¶ 11; Hearing Tr., ECF No. 7, 30:1-31:12. First, the court found the existence of a common law or contractual retaining lien is not a specified defense to compliance with, nor a basis for quashing or modifying, a subpoena under Rule 45(d)(3). Hearing Tr., 30:1-6. Second, the court found sufficient allegations of SFK's misconduct in the adversary proceeding to create an exception to the retaining lien based on the court's own observations, including that “Mr. Stok has been as uncooperative and unhelpful as possible.” Id. at 30:13-31:12. However, the court specifically declined to make a finding of misconduct. Id. at 30:14-15. In the subsequent written Bankruptcy Order, SFK was ordered to produce the responsive documents within seven days, while Fusion was not required to post an interim bond as security. Bankruptcy Order, ECF No. 1, 4-5.

         SFK timely filed its Notice of Appeal of the Bankruptcy Order. See ECF No. 1. SFK also filed an Emergency Motion for Stay Pending Appeal in the adversary proceeding. SFK Br., ¶ 13. The bankruptcy court denied the Motion for Stay, so SFK filed an Emergency Motion to Stay Order Pending Appeal in district court. See No. 17-61379, ECF No. 1. I referred the Motion to U.S. Magistrate Judge Jonathan Goodman, who granted SFK's Motion to Stay. Id., ECF No. 15.

         II. LEGAL STANDARDS

         “A bankruptcy court's legal conclusions and application of the law to the facts of a given case are reviewed de novo, and its factual findings for clear error.” HDR Architecture, P.C. v. Maguire Grp. Holdings, 523 B.R. 879, 885 (S.D. Fla. 2014) (citing Carrier Corp. v. Buckley (In re Globe Mfg. Corp.), 567 F.3d 1291, 1296 (11th Cir. 2009)). De novo review is warranted here since the bankruptcy court based its decision on a legal basis and explicitly declined to make findings of fact.

         III. DISCUSSION

         SFK contests both of the bankruptcy court's grounds for denying its Motion to Quash. SFK argues that allowing a Rule 45 subpoena to override a retaining lien is improper and would essentially vitiate the common law right to a retaining lien. Fusion has conceded this point, so I will not address it. SFK's next argument is that the bankruptcy court could not create an exception to the retaining lien based on misconduct without taking any evidence, and doing so violated its due process rights. If a hearing is to be held on the issue, SFK requests that the reference be withdrawn so it can be heard in district court in the first instance.

         A. Standard for Retaining Liens

         Florida law governs attorney retaining liens. In re Beverly Mfg. Corp., 841 F.2d 365, 368 (11th Cir. 1988). “No statutes outline the requirements for valid attorney's liens in Florida. Rather, case law acts as the sole guide for both attorneys and courts as to these liens.” Daniel Mones, P.A. v. Smith, 486 So.2d 559, 561 (Fla. 1986) (citing Sinclair, Louis, Siegel, Heath, Nussbaum & Zavertnik, P.A. v. Baucom, 428 So.2d 1383 (Fla. 1983); St. Ana v. Wheeler Mattison Drugs, Inc., 129 So.2d 184 (Fla. Dist. Ct. App. 1961)). “In Florida an attorney has a right to a retaining lien upon all of the client's property in the attorney's possession, including money collected for the client.” Id. (citing Dowda & Fields, P.A. v. Cobb, 452 So.2d 1140, 1142 (Fla. Dist. Ct. App. 1984)). The purpose of a retaining lien is to cover the balance due for all legal work performed on behalf of the client. Id. “An attorney's retaining lien . . . holds until the fee has been paid or until adequate security for payment has been posted.” Andrew Hall & Assocs. v. Ghanem, 679 So.2d 60, 61 (Fla. Dist. Ct. App. 1996). “The pressure exerted by a retaining lien is directly proportional to the client's need and desire for the things in the attorney's possession.” Id. at 62. “Any requirement to produce the file would destroy the effectiveness of the lien.” Foreman v. Behr, 866 So.2d 705, 706 (Fla. Dist. Ct. App. 2003) Id. (citing Wintter v. Fabber, 618 So.2d 375 (Fla. 4th DCA 1993)).

         “When a [] court is asked to order disclosure of an attorney's file that is subject to a valid retaining lien, it should not order the attorney to turn over the file until it has provided for the client's payment of delinquent fees or arranged for the client to post adequate security for the outstanding balance due.” Id. “Only under rare circumstances will the files be released without payment or the furnishing of adequate security: where there is a clear necessity in a criminal case and a defendant cannot post security or where the lawyer's misconduct caused his withdrawal.” Andrew Hall & Assocs., 679 So.2d at 62.

         B. Exception to Retaining Lien

         It is undisputed that SFK has a valid retaining lien. Where SFK's and Fusion's views differ is on the manner in which an exception to the retaining should be determined. Fusion contends the bankruptcy court had enough information before it to make a finding of misconduct and to compel SFK to produce the requested documents without Fusion posting any security. In support, Fusion goes through the information relayed at the June 28, 2017 hearing. SFK contends that the information in the record was merely the argument of counsel and does not constitute evidence. Either way, the bankruptcy court specifically stated it was “not making any determination that there has been misconduct.” Hearing Tr., 30:14-15. Absent such a determination, an order compelling SFK to hand over its files without adequate security was a departure from the requirements of the law. See Conde & Cohen, P.L. ...


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