A law firm that asserted an attorney charging lien on a contingent fee after apparently contributing little if any work toward the client’s recovery has seen its $100,000 award undone.

The Appellate Division, in a precedential ruling Monday in Schepisi &  McLaughlin v. LoFaro, A-5426-10,  ordered a hearing to resolve procedural questions about the lien and “to ascertain what, if any, services [the firm] performed that would warrant a fee.”

Schepisi & McLaughlin of Englewood Cliffs represented East West Precious Metals of New York Inc., which accepted $245,865 as payment for two diamonds that it never delivered to the customer, Slava Kornilov.

In January 2010, Kornilov obtained a default judgment in Bergen County requiring East West to provide the diamonds within 10 days or else have a hold placed on its bank accounts.

In the meantime, Kornilov discovered that East West was owed $253,972 by Republic Metals Corp. Inc. of Florida.  After East West again failed to provide the diamonds, Kornilov filed a complaint in the 11th Judicial Circuit of Florida against the company and Republic, seeking imposition of a constructive trust for recovery of the money owed. 

East West, who’d already retained Schepisi in the New Jersey suit, signed a second agreement with the firm in connection with the Florida action.  East West agreed to pay Schepisi about one-third of any recovery from Republic. 

The parties settled the Florida suit without a Schepisi attorney entering an appearance or filing any pleadings.  Republic agreed to pay the $253,972 to Schepisi’s trust account.

Kornilov and East West filed cross motions to release the escrowed funds in Bergen County, which were denied.

In December 2010, Schepisi was relieved because East West could no longer satisfy its legal fees.  Bergen County Superior Court Judge Menelaos Toskos ordered an “attorney’s charging lien on any sums received” by East West. 

In settling the New Jersey action, East West agreed to pay Kornilov the $245,865 it collected for the diamonds, to be disbursed from Schepisi’s trust. 

Schepisi in turn filed an order to show cause and complaint against East West and its new counsel, LoFaro & Reiser of Hackensack, seeking to vacate the consent order and claiming the agreement violated its right to collect fees from East West.  Schepisi maintained that it was entitled to a contingency fee for the money paid by Republic, based on the retainer and the lien, as well as hourly fees.

In April 2011, Schepisi agreed to release $141,671 to Kornilov’s counsel and retain, pending a court order, the remaining $104,194.

Bergen County Superior Court Judge Charles Powers Jr. directed Schepisi to keep the $104,194 based on the contingency agreement.  Powers reasoned that the firm had successfully resolved the Florida suit, though Kornilov argued that Schepisi didn’t perform much work on the case. 

Kornilov, after unsuccessfully moving for reconsideration, appealed, calling the lien invalid because Schepisi failed to follow proper procedure or even obtain a recovery for East West. 

On Monday, Appellate Division Judges John Kennedy, Carmen Messano and Mitchel Ostrer agreed and reversed, finding Schepisi “failed to comply with our court rules governing charging liens, and, further, in these circumstances, the terms of the contingency fees may not provide the proper measure of Schepisi’s compensation, assuming Schepisi is entitled to any compensation at all.”

The Attorney Lien Act, N.J.S.A. 2A:13-5, codified a common-law right lawyers have to have a lien placed on any judgment obtained for a client when it appears the client won’t pay the fee, but when there’s no recovery, there’s nothing to which the lien can attach, Kennedy wrote for the panel.

According to Rule 1:20A-6, an attorney must petition the court for the lien, and it cannot be filed until 30 days after giving the client pre-action notice, including advisement that the client may pursue fee arbitration — requirements that Schepisi didn’t meet, Kennedy said.

He added: “There appears to be no verdict, report, decision, award, decree, judgment or final order in East West’s favor in either the New Jersey Action or the Florida Action.”

A plenary hearing “at the very least” is required, Kennedy said, noting that it was Kornilov, not Schepisi or East West, who initiated the Florida proceedings to recover the money owed by Republic.

“The assertion of a charging lien on funds Schepisi did not recover does not create entitlement to fees it was not entitled to receive in the first instance,” Kennedy wrote. 

The state Supreme Court as of April 1 adopted an amendment to Rule of Professional Conduct 1.16(d), establishing an ethical bar to common-law liens, but the change does not apply retroactively, the court noted. 

Andrew Borsen of Gambourg & Borsen in Fort Lee, Kornilov’s lawyer, calls the decision “a how-to, a blueprint” for establishing a valid attorney charging lien, noting that notices of motion and other “improper vehicle[s]” for imposition of a lien are “all too common.”

Powers’ orders “didn’t mention the New Jersey Lien Act once, and that was the whole basis for our argument,” Borsen says, adding that Schepisi cited only two cases in arguing the lien’s validity, both of which predate the statute’s 1938 adoption.   

Two Schepisi attorneys who handled the appeal, Glenn Finkel and Christopher Stewart, are no longer with the firm.  A reporter was referred to managing partner Silvana Raso, who did not return a call.