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Schepisi & McLaughlin, P.A. v Lofaro

Case No. A-5426-10T2 (NJ Superior Ct. App. Div., Apr. 29, 2013)

This appeal arises from a dispute between a creditor and the debtor’s former attorney over entitlement to funds held in a trust account. The funds were apparently recovered by the creditor in an action he brought in Florida against both the debtor and a Florida corporation that owed the debtor money. The debtor hired counsel to represent it after the creditor obtained judgment against the debtor in New Jersey. When the creditor sought to collect on the judgment by bringing the suit in Florida against the Florida corporation, the debtor entered into a "contingency agreement" with its counsel for representation respecting the "unlawful retention" of money owed by the Florida corporation. The agreement provided for a fee based on a percentage of "money recovered for" the debtor.

We reverse the orders of the Law Division releasing the disputed funds to debtor’s former counsel and remand the matter to the Law Division for further proceedings consistent with our opinion.


Slava Kornilov (Kornilov), a New Jersey resident, purchased two diamonds from East West Precious Metals of New York, Inc. (East West) for $245,865. When Kornilov did not receive the diamonds, he filed suit in Bergen County against East West seeking damages and injunctive relief (the New Jersey Action). Kornilov moved for default judgment after East West failed to answer or otherwise move with respect to the complaint. Kornilov’s motion was granted on January 8, 2010, and the court ordered East West to give the diamonds to Kornilov within ten days, failing which Kornilov would be entitled to "place a hold" of $245,865 "[o]n any bank account held by East West in a Constructive Trust [sic] . . . ."


Judge(s): John C. Kennedy
Jurisdiction: New Jersey Superior Court, Appellate Division
Related Categories: Civil Procedure
Court of Appeals Judge(s)
John Kennedy
Carmen Messano
Mitchel Ostrer

Appellant Lawyer(s) Appellant Law Firm(s)
Andrew Borsen Gambourg & Borsen LLC
Aarti Bridgelal Gambourg & Borsen LLC

Appellee Lawyer(s) Appellee Law Firm(s)
Glenn Finkel Schepisi & McLaughlin PA
Christopher Stewart Schepisi & McLaughlin PA



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smith, 54 n.j. super. 347, 353 (app. div. 1959). we then the debtor hired counsel to represent it after the creditor schepisi, if any, in the florida action pursuant to the an order was entered in the new jersey action on march super. at 508. moreover, to the extent schepisi is owed any heard oral argument from the parties and did not conduct an florida action, although a florida lawyer, aaron resnick, did affected by a settlement between the parties." guernsey v. kennedy, j.a.d. west . . . ." with the exception of the $8,287.33, being the attorney’s lien existed because: (1) the trial court did not a-5426-10t218 order was entered relieving schepisi as counsel for east west in such order, together with a copy of the slava kornilov, obtained judgment against the debtor in new jersey. when the two weeks later, after east west failed to deliver the in equitable considerations, although not a lien in the true gambourg & borsen, disputed funds to debtor’s former counsel and remand the matter 236 (e. & a. 1939). count, schepisi claimed it was owed a contingency fee on the action asserting a claim, "shall have a lien for compensation, party and, therefore, no valid charging lien could be asserted foundation); la mantia, supra, 234 n.j. super. at 539 (same). particular cause of action and . . . attaches to the judgment in both motions on june 30, 2010, and denied east west’s motion for however, this shall not prevent a lawyer the assertion of a "charging lien" on funds schepisi did not seeking damages and injunctive relief (the new jersey action). law division . . . . kornilov contends that the funds in the attorney trust having arguably recovered nothing for east west, schepisi complaint for attorney’s fees. new jersey law is clear that in dispute over schepisi's claim of entitlement to collect its (citation omitted). this appeal arises from a dispute between a creditor and kornilov but failed to deliver the diamonds. schepisi then moved jersey action and consent order executed by the court. kornilov firm's compensation for services rendered on a case that has would not be entitled to recover its contingent legal fee from not appear of record as counsel for east west in the florida the statute’s reach, however, is not unlimited. musikoff, for further proceedings which shall include 2 this appeal followed. a-5426-10t25 alleged lien. the petition shall as well upon a percentage of "money recovered" for east west on the initially, we observe that a substantial question exists as initiated suit for collection of funds in florida. in fact, imposition of a lien instead of filing a complaint or giving the florida action and for whom, we are compelled to reverse the two diamonds from east west precious metals of new york, inc. 6 an attorney claims the statutory lien for services in another e.g., ibid. (quantum meruit relief rests on an equitable the charging lien is "a right recognized at common law as rooted 2011 consent order, east west appears to have received no funds 2011 orders are vacated and the matter is remanded to the law ins. co. v. niebuhr, 124 n.j. eq. 372, 375 (ch. 1938) (where contingency fee agreement, and whether, in these circumstances, although an argument can be made that schepisi should have verified complaint against lofaro and east west as defendants, schepisi's right to collect fees from east west "arising out of the determination and enforcement of his order to permit him to attend a status conference in that action lien from attaching to a subsequent matter that stemmed from [ibid.] (citations omitted)). in such a case, the enforcement of an liens. until recently, our courts have recognized "two forms of 2a:13-5. the lien arises on the filing of a claim, attaches to attorney’s lien to be asserted for post-judgment legal days, failing which kornilov would be entitled to "place a hold" the client of the right to request fee representation respecting the "unlawful retention" of money owed approval of the appellate division (republic). east west was also named as a party defendant in fee claim would attach. all of these issues require a plenary it has been termed as "'merely a claim to the equitable schepisi agreeing to pay schepisi a contingent legal fee based pertinent part, that an attorney appearing for a client in any assocs., inc., 40 n.j. 415, 420 (1963) (citation omitted), cert. having obtained judgment for his client, there is a probability event, that rule would not apply retroactively here. decree, judgment or final order in east west’s favor in either ordered east west to give the diamonds to kornilov within ten the attorney is considered an equitable assignee of the judgment 10, 2010, vacating the order of january 8, 2010, and requiring "cannot be used to subvert the contingency fee agreement." the order to show cause. on april 7, 2011, the motion court scheduled for march 4, 2010. further, the record does not action." this procedure requires, at the very least, a plenary schepisi & mclaughlin, p.a., respondent pro lofaro "without prejudice." kornilov moved for default judgment after east west failed to reiser, llp, and east west fees schepisi claimed east west owed the firm as a result of its of the client depriving him of his costs.'" ibid. (citations opportunity to request fee arbitration under the rules. in that by the requirements of the attorney lien act, n.j.s.a. 2a:13-5, jersey action. in the florida action, but concluded that "the december 3, 2010, slava kornilov (kornilov), a new jersey resident, purchased a-5426-10t217 the debtor’s former attorney over entitlement to funds held in a kornilov's argument that schepisi "performed very little work" thereafter, kornilov and east west filed cross-motions in to a petition to establish an attorney’s lien as well as to a the common-law charging lien is for "services rendered in a which it will consider the application for (same), certif. denied, 118 n.j. 181 (1989); fuessel v. cadillac action. of courts of law" as well. norrell v. chasan, 125 n.j. eq. 230, schepisi argues that it is entitled to 33-1/3% of the funds west in the florida action, if, indeed, any were filed at all. kornilov’s attorneys, gambourg & borsen, llc (gambourg). on republic to schepisi’s attorney trust account and the $245,685 dismissed. mateo v. mateo, 281 n.j. super. 73, 79 (app. div. after the enactment of n.j.s.a. 2a:13-5, we noted that the order through "misrepresentation," and thereby impaired (1997); la mantia v. durst, 234 n.j. super. 534, 537 (app. div.) articulated in h. & h., except . . . [it did] not interpret the instead, he or she may be entitled to v. owens, 292 n.j. super. 453, 460 (app. div. 1996) (citation its very terms [was] not applicable since plaintiff recovered "pre-action notice to client," which states in pertinent part: attorney trust account to each party. the motion court denied means 'as much as he deserves[,]'" and "enables the performing furthermore, "[w]here there is no recovery, there is schepisi failed to file its lawsuit to recover a fee in the by final judgment. see r. 2:2-3(a)(1). appellate division east west was a defendant in the florida action and schepisi did set forth the facts upon which he relies for under the statute, attorneys "are entitled to a lien as of the we reverse the orders of the law division releasing the a-5426-10t26 the same day, orders on appeal and remand to the trial court for further pretrial conference, and the trial. the a-5426-10t28 a-5426-10t215 florida corporation, republic metals corporation, inc. actually conducting the trial. h. & h., supra, 54 n.j. super. a-5426-10t22 sought to sequester funds to satisfy a writ of execution attorney’s charging lien "on any sums received by . . . east demonstrate that (1) the trial court’s decision was arbitrary, released from further liability upon paying over the funds as 30 days after receiving pre-action notice by (east west) for $245,865. when kornilov did not receive the court of the 11th judicial circuit of florida (the florida [glick v. barclays de zoete wedd, inc., 300 2a:13-5. the order permitting schepisi to withdraw from petition, shall be served upon defendants as consent order, can be fully complied with" in view of the an attorney hired on a contingent fee basis further court order. the $104,193.70 represented attorney’s 2000) (citation omitted)). n.j.s.a. 2a:13-5 provides, in the funds in schepisi's attorney trust account be released to kornilov whereby east west agreed to pay kornilov the sum of "there is brought into chancery for distribution a fund on which representation of east west in the florida action and the new to our jurisdiction. see r. 4:42-9; henderson v. camden cnty. rights where he has been unable to get possession; to this end east west and republic reached a settlement in the florida there appears to be no verdict, report, decision, award, main cause, by way of petition, which shall originally sought by the verified complaint. supra, 292 n.j. super. at 458. also, we are uncertain whether pending in the trial court of if the actions have been dismissed a-5426-10t212 nothing to which the attorney’s lien can attach." cole, schotz, forum where the lien arose; (2) there was no final recovery by which had attached only to a judgment.'" musikoff v. jay martin v. martin, 335 n.j. super. 212, 222 (app. div. the new jersey action to release the funds from schepisi’s on the basis of such contingent agreement; . . . the notice shall specifically advise denied.4 action. apparently, after learning of the pendency of the a-5426-10t23 approved for publication to pay $245,865 to him. trust account. this settlement agreement was intended to make discovery proceedings, the holding of a parrino's the mint, l.l.c., 172 n.j. 133, 139 (2002) (quoting florida action, east west signed a second agreement with apparent failure to comply with rule 1:20a-6. cole, schotz, creditor in an action he brought in florida against both the contain a copy of any pleadings or cross-claims filed by east action. request the court to establish a schedule the claim and to enforce the lien by payment out of the fund." report, decision, award, judgment or final order in his [or her] court, chancery has jurisdiction to determine the validity of answer or otherwise move with respect to the complaint. 534 (citations omitted). accord horowitz v. weishoff, 318 n.j. from east west pursuant to a proceeding that complies with rule the charging lien and contingency agreement." in a second interested party-appellant. in its attorney trust account based on the contingent fee the money, it "[could not] safely" abide by an order in the new account belong to him pursuant to the settlement of the new after kornilov brought the florida action against republic the time the agreement was entered, the florida complaint had into a "contingency agreement" with its counsel for omitted). accord cole, schotz, bernstein, meisel & forman, p.a. april 29, 2013 hearing to resolve relevant, factual disputes. here, a factual see also kopin v. orange prods. inc., 297 n.j. super. 353, 367 the money recovered from republic by the efforts of kornilov. rendered." kopin, supra, 297 n.j. super. at 367. numerous cases accordingly, the law division’s april 12, 2011 and june 13, obtained by kornilov against east west in the new jersey action. appellate division terminated by the consensual substitution of counsel. ibid. the establishment of a schedule. a copy of time limitations for the filing of an answer factors, inc. v. carteret work uniforms, 24 n.j. 525, 534 (1957) obtained the funds in florida, and, pursuant to the settlement to be relieved as counsel before the trial on the kornilov devised the following procedure: superior court of new jersey hold onto client files and papers to collect fees. in any the lawyer, the client shall lose the right by defendants, the completion of pretrial republic was not a party to the new jersey action. east west to which an attorney’s lien could attach; and (3) process to require an attorney to file and enforce a lien does not promptly communicate with the fee april 29, 2013 were to stay in schepisi’s attorney trust account pending the judgment or recovery, and does not depend on the attorney 3 to ascertain what, if anything, schepisi did to recover money in iii. written rider to the order, the motion judge explained that a-5426-10t211 action whereby republic agreed to pay the money it owed and see n.j.s.a. stewart, on the brief). form of request for fee arbitration within counsel in the new jersey action, we question whether the pre-action notice." this is because a client should have the were not known at the time of the prior order which may be original pleadings). schepisi failed to provide east west with a pre-action notice in before judges messano, ostrer and kennedy. tried either with or without a jury, in the file a "notice of limited appearance" on behalf of east west in resolve these issues and to ascertain what, if any, services agreement, the funds were transferred to schepisi’s attorney client’s favor, and the proceeds thereof in whosesoever hands existed at common law, but also "'expand[ed] the common law lien n.j.s.a. 2a:13-5 not only modified the charging lien that a-5426-10t27 kornilov, as plaintiff, appears to have successfully a-5426-10t24 schepisi, it is unclear to us whether the actions are still defendants, bar corp., 63 n.j. super. 430, 436 (app. div. 1960) (same), statute did not set out a specific procedure for determining and neither party stated precisely what precipitated entry of the agreement associated with the work it performed for east west. the absence of compliance with the rule, such a petition must be the motion judge added that the february 9, 2011 consent order a-5426-10t210 omitted) (stating same). in other words, the common-law based on a percentage of "money recovered for" the debtor. owed to east west and that while republic "ha[d] no interest" in by the florida corporation. the agreement provided for a fee to the validity of the "charging lien" in view of schepisi's the opinion of the court was delivered by trust account pending further order of the court.1 to the law division for further proceedings consistent with our and the retaining lien." michels, new jersey attorney ethics § order and the contingent fee agreement demonstrate that in response, schepisi filed an order to show cause and a compensation at all. an evidentiary hearing is required to a-5426-10t213 in florida against the florida corporation, the debtor entered party to recover the reasonable value of services he/she trust account to gambourg. the remaining funds - $104,193.70 - "schepisi . . . successfully resolved" the florida action and $253,972.33. later, schepisi dismissed its claims against recover does not create entitlement to fees it was not entitled as of april 1, 2013, pursuant to an amendment to rules of the cause for which the services were rendered." brauer v. hotel debtor and a florida corporation that owed the debtor money. hearing, which was not undertaken here. h. & h., supra, 54 n.j. kornilov instituted the florida action upon discovery that action to establish a "constructive trust" on the money republic terms of the settlement agreement." 180 (ch. div. 1998) (holding that the statute did not prevent a (ch. div. 1990). cf. steiger v. armellino, 315 n.j. super. 176, of the contingency fees may not provide the proper measure of prior to the adjourned return date of the order to show this order was entered as "unopposed." we have not been thereafter proceed as a plenary suit and be appellant slava kornilov (andrew borsen and the florida action, which sought to recover and impose a professional conduct 1.16(d), lawyers are no longer able to as a result of either the new jersey action or the florida orders of april 12 and june 13, 2011, and remand the matter to directed by the court. the matter should a-5426-10t29 herein giving pre-action notice to a client; 14 (describing expansive character of lien). specifically "affirm[ed] the basic elements of the process on appeal from superior court of new jersey, to receive in the first instance. wheeler, supra, 52 n.j. order of april 12, 2011. presumably, it was the return date of denied, 387 u.s. 944, 87 s. ct. 2077, 18 l. ed. 2d 1330 (1967). (app. div.) (quantum meruit is proper measure of a former law the new jersey action or the florida action.6 37:2-2a at 910 (2013).5 forums. the fund at issue is in new jersey, and hence subject notice required by this rule or it shall be 1995) (citing rosenfeld v. rosenfeld, 239 n.j. super. 77 (ch. petition prior to settlement or judgment of the underlying carmine lofaro, lofaro & both kornilov and east west, memorializing these terms. the order provided that the amounts due schepisi would be and east west, east west filed a motion in new jersey to vacate finally, having successfully moved to be relieved as and kornilov and gambourg as "interested parties," seeking to jersey action until that order was "domesticated in the state of vacate the consent order. the verified complaint asserted that "unlawful retention" of money "due and owing" by republic. by not for publication without the schepisi's compensation, assuming schepisi is entitled to any n.j. super. 299, 310 (app. div. 1997) plaintiff-respondent, "constructive trust" for the benefit of kornilov on the money parties reconciled, there was no decree favorable to either nothing to which her attorney’s lien could attach"); cole v. republic to transfer $253,972.33 to schepisi's attorney trust that it could no longer pay its legal fees, and ordering an the services is not entitled to recover fees upon his client's [claim]" which shall attach to any "verdict, florida." the parties then stipulated that republic would be evidentiary hearing. further, the order of april 12, 2011, did super. at 353. and dismissed. february 10, 2011, lofaro forwarded schepisi a consent order schepisi ever filed a "pleading containing a . . . cross-claim" this procedure must be considered in light of rule 1:20a-6, entitlement to compensation, even assuming it can show it n.j. super. at 458. the pre-action notice requirement applies and later discharged before completion of super. 196, 206 (app. div. 1999) (citation omitted), opinion schepisi & mclaughlin, p.a., in cole, schotz, supra, 292 n.j. super. at 459, we held an certif. denied, 34 n.j. 65 (1961). "'quantum meruit' simply a-5426-10t214 of $245,865 "[o]n any bank account held by east west in a account, out of which $245,865 was to be held in escrow in that the order of january 8, 2010. shortly thereafter, kornilov, east west filed its answer to the complaint in the new jersey div. 1989)). case, the fee arbitration committee determines the amount of the gambourg & borsen, llc, attorneys for diamonds, he filed suit in bergen county against east west from instituting any ancillary legal action. not "vacate" the earlier consent order of february 9, 2011, as action) upon discovering east west was owed $253,972.33 by a action. aarti bridgelal, on the brief). opinion. and forward $253,972.33 to new jersey counsel. a stipulation filed attorney's charging lien "is within the equitable jurisdiction republic owed east west funds in florida. the florida action n.j. super. 504, 508 (app. div. 1958) (holding the statute "by law division, bergen county, docket no. l- it was kornilov, not schepisi or its client east west, who on april 19, 2010, but "retain[ed] jurisdiction to enforce the further argues that the motion judge erred by failing to abide constructive, of the thing upon which it operates." republic on behalf of east west in the florida action. see n.j.s.a. schepisi pursuant to the "contingent fee agreement."3 by the attorney). interested party, the attorney should make application to the money by east west, schepisi would have had to pursue such fees services." panarello v. panarello, 245 n.j. super. 318, 322 to initiate fee arbitration. the attorney’s "attorney’s charging lien on any sums received” by east west. reconsideration on october 5, 2010. on december 3, 2010, an in the florida action recited that kornilov had commenced the no lawsuit to recover a fee may be filed 1607-11. 5 young, 49 n.j. super. 339, 340 (ch. div. 1958). dated february 9, 2011, entered by the court and executed by on april 12, 2011, the court ordered that the remainder of (citations omitted).] having not been provided with a judgment or order of dismissal until the expiration of the 30 day period sense of a right resting in the possession, actual or they may come." see also michels, supra, § 37:2-2(b)(2) at 912- have jurisdiction to establish an attorney’s lien because a-5426-10t216 describe quantum meruit as rooted in equitable principles. see, ii. capricious, or unreasonable; (2) the trial court failed to cause, the parties executed a consent order dated april 7, 2011, the new jersey action, after east west represented to schepisi se (glenn m. finkel and christopher a. schepisi failed to comply with our court rules governing representation stated only that schepisi would have an kornilov whole, after east west allegedly took $245,865 from creditor sought to collect on the judgment by bringing the suit settlement of the new jersey action between east west and at 352. it is not affected by a settlement and is not $245,865 and schepisi would be required to transfer that amount in a because no hearings were held to consider these issues, or proceedings consistent with our opinion. the record before us agreed. the florida circuit court dismissed the florida action supra, 292 n.j. super. at 460. see also wheeler v. wheeler, 52 charging liens, and, further, in these circumstances, the terms court, as a step in the proceeding of the diamonds, kornilov filed a verified complaint in the circuit pursued its lien in the florida action, see n.j.s.a. 2a:13-5, we the law division for further proceedings. it appears that corrected on recon., 346 n.j. super. 165 (app. div. 2001). kornilov filed a motion for reconsideration, which was with these principles guiding our analysis, we reverse the retained lofaro & reiser, llp (lofaro). lofaro negotiated a i. provided with copies of the motion, however. precious metals of new york, difference between the $253,972.33 that was transferred from claim. east west thereafter settled with kornilov by agreeing republic owed to east west. and rule 1:20a-6. specifically, kornilov contends that no valid contingency agreement remains the proper measure of schepisi's whereby schepisi agreed to release $141,671.30 from its attorney contingency fee from the funds. the motion judge acknowledged attorney’s lien invalid when the plaintiff "moved for the supra, 172 n.j. at 139. there is no authorization for "an complaint shall allege the giving of the reasonable value of the services rendered. that was to be released to kornilov pursuant to the february 9, following schepisi’s withdrawal as counsel, east west been removed from its office), certif. denied, 149 n.j. 409 constructive trust [sic] . . . ." dispute exists as to the extent of the services performed by enforcing an attorney’s lien. h. & h. ranch homes, inc. v. intervention of the court' for the attorney's 'protection, when, assert the "common law retaining lien[,]" enabling attorneys to east west "recovered" anything at all against which schepisi's choose not to require the parties to litigate this issue in two charging lien "is a judicial device to protect the attorney's schepisi further maintains that kornilov has failed to docket no. a-5426-10t2 from its attorney trust account to the trust account of east west and lofaro obtained the february 9, 2011, consent we begin by setting forth general principles that govern determined by the court at the end of trial.2 already been filed. schepisi never entered an appearance in the schepisi" is entitled to payment of its claimed contingent fee. mun. util. auth., 176 n.j. 554, 564-65 (2003). cf. am. auto. liens for the collection of fees, the charging (or special) lien 4 date of the filing of the complaint, which lien cannot be submitted october 2, 2012 – decided is too unclear to permit further appellate review. order to resolve the lien dispute. cole, schotz, supra, 292 court shall, by order, set a short day upon recover on a quantum meruit basis for the committee secretary and file the approved division. we do not retain jurisdiction. 1:20a-6. schepisi performed that would warrant a fee. "[t]he issue now is whether the settlement, memorialized in the (schepisi) on an hourly basis to represent it in the new jersey cole, 30 n.j. super. 433, 435-38 (ch. div. 1954) (where the in either the new jersey action or the action commenced by arbitration and . . . that if the client actually "recovered" money "on behalf of" east west. relevant to this matter. moreover, the court in musikoff, supra, 172 n.j. at 146, 1 east west had earlier retained schepisi & mclaughlin, p.a. to the extent of his debt." republic factors, supra, 24 n.j. at v. kornilov’s motion was granted on january 8, 2010, and the court trust account. the funds were apparently recovered by the accordance with rule 1:20a-6. fee arbitration, the court will conduct a plenary hearing in a-5426-10t219 __________________________________ consider all probative evidence; or (3) there are new facts that attorney’s lien. r. 1:20a-3. if the client does not request

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