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Federal Deposit Ins. Corp. v. Shain

filed: September 4, 1991.

FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR MOUNTAIN RIDGE STATE BANK, IN RECEIVERSHIP
v.
SHAIN, SCHAFFER & RAFANELLO APPELLANT



Appeal from the United States District Court for the District of New Jersey; D.C. Civil No. 91-00177.

Cowen and Nygaard, Circuit Judges and Louis H. Pollak, District Judge.*fn*

Author: Cowen

Opinion OF THE COURT

COWEN, Circuit Judge

This appeal raises the question whether a law firm, Shain, Schaffer & Rafanello ("SS&R"), may, in lieu of pursuing the claims procedure established by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") at 12 U.S.C. § 1821(d), assert a retaining lien against the legal files of its former client. The client, Mountain Ridge State Bank ("MRSB"), was a federally-insured bank chartered under New Jersey law. On October 5, 1990, the Federal Deposit Insurance Corporation (the "FDIC") became receiver of MRSB, at which time MRSB owed SS&R over $76,000 in unpaid legal fees and disbursements. After the FDIC took over MRSB, it discharged SS&R and requested that SS&R forward all legal files to new counsel. SS&R refused, insisting that it would only turn over the files when it was paid the outstanding fees and disbursements.

The FDIC brought suit in the United States District Court for the District of New Jersey to compel SS&R to turn over the files. The district court ordered SS&R to turn them over because it concluded that the only remedy that a party with a claim to a failed bank's assets had was to file a claim under the FIRREA procedure. This court declined to stay the district court's order pending appeal; accordingly, SS&R has now turned over its MRSB files to FDIC.

SS&R appeals the district court's order on the grounds that it had a valid state law retaining lien which should have entitled it to immediate payment in full before relinquishing the files. Recognizing that return of the files at this late stage would be futile, SS&R seeks preferred administrative status for its claim for fees. Because we conclude that we lack the power to grant SS&R the relief it seeks and that even a valid state law lien cannot be used to circumvent the claims procedure established under FIRREA, we will affirm.

I.

For many years, SS&R was the general and litigation counsel for MRSB. On October 5, 1990, the New Jersey Commissioner of Banking (the "Commissioner") seized the business and property of MRSB, finding that it was in an unsafe and unsound condition, pursuant to N.J. Stat. Ann. § 17:9A-269. On that same date, the Commissioner offered the FDIC the position of receiver. The FDIC accepted that offer and was appointed receiver under N.J. Stat. Ann. § 17:9A-272(D) and 12 U.S.C. § 1821(c)(3)(A).

One of the FDIC's first acts as receiver was to terminate SS&R's representation of MRSB on all matters. The FDIC requested that SS&R turn over all files involving MRSB as plaintiff or defendant to successor counsel. SS&R refused and asserted a retaining lien over the files because MRSB owed it over $76,000. SS&R stated that it would only turn over the files when it was paid the attorneys fees and disbursements that MRSB owed it as of October 5, 1990.

On October 23, 1990, lawyers from SS&R and the FDIC met to discuss the problem. In the course of that meeting, SS&R was informed of the administrative claims procedure under FIRREA. Although SS&R filed a claim with the FDIC pursuant to the FIRREA procedure shortly after that meeting, SS&R continued to refuse to relinquish the files.*fn1 On November 8, 1990, the FDIC acknowledged receipt of SS&R's FIRREA claim and made a written demand for the files.

When SS&R persisted in its refusal, the FDIC filed this action on January 17, 1991 seeking an order requiring SS&R to turn over the files. On January 18, 1991, the district court granted that relief and ordered SS&R to surrender them on or before January 25, 1991. On January 25th, SS&R moved for reconsideration of the January 18th order and sought to vacate the earlier order or to condition any turn-over on the FDIC's payment, irrevocable commitment to pay, or arrangement to secure payment of the outstanding fees. SS&R's motion was denied, but the district court temporarily stayed its order. On January 28th, SS&R filed this appeal and sought a stay of the January 18th order. When we denied the motion to stay on January 29th, SS&R turned over the files.

In this appeal, SS&R seeks preferred administrative status for its claim for fees. We have jurisdiction to review the January 18th order under 28 U.S.C. § 1292(a)(1). Under 12 U.S.C. § 1821(d)(13)(D), we have no jurisdiction to resolve SS&R's claim for fees.

II.

A.

It is not disputed that SS&R has a valid retaining lien in MRSB's files under New Jersey law. See Brauer v. Hotel Assocs., Inc., 40 N.J. 415, 192 A.2d 831 (1963). In Brauer, the New Jersey Supreme Court recognized that:

The common law retaining lien attaches to all papers, books, documents, securities, moneys, and property of the client which comes into the possession of the attorney in the course of, and with reference to, his professional employment. It is a general lien which gives an attorney the right to retain possession of his client's property until the ...


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