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NOT FOR PUBLICATION WITHOUT THE APPROVAL
OF THE TAX COURT COMMITTEE ON OPINIONS
PINE STREET MANAGEMENT : TAX COURT OF NEW JERSEY
(30 EVERGREEN PLACE), :
:
Plaintiff, : DOCKET NOS. 005118-93
: 006199-92
:
v. :
:
CITY OF EAST ORANGE, :
:
Defendant. :
Decided: April 13, 1995
Opinion Pursuant to R. 2:5-1(b): May 8, 1995
Appellate Division Docket No.: A-4276-94T5
Loren B. Schindler, for plaintiff Pine Street
Management and Applicant Saul Fenchel, P.A.
(Saul Fenchel, P.A., attorney).
Michael I. Schneck, for intervenors Evergreen
Orange Corp. and Clinton Corp. (Brach, Eichler,
Rosenberg, Silver, Bernstein, & Gladstone,
attorneys; Michael P. Martirano, on the brief).
Edna Y. Baugh, for defendant (Medvin & Elberg,
attorneys).
SMALL, J.T.C.
Pursuant to R. 2:5-1(b) this opinion supplements and amplifies
my bench opinion of April 13, 1995, in the above-captioned matters.
The facts in the case, and the reasons for my determination are
more fully described in my bench opinion. Because the argument and
determination on the motion took some time, it seemed advisable to
summarize the facts and reasoning in a more organized and concise
fashion in this opinion. In essence I have held that under the
facts in this case, the municipal right to set-off delinquent taxes
against tax refunds codified at N.J.S.A. 54:4-134 takes priority
over the attorney's lien codified at N.J.S.A. 2A:13-5. Were the
press of court business not so great I might have prepared a more
comprehensive written analysis of this interesting and novel issue
discussing in greater detail the facts in this case, the
authorities cited below, and the older cases cited therein.
In bri ef, the firm of Saul Fenchel, P.A., was engaged by Pine
Street Management to prosecute tax appeals on its behalf for 1992
and 1993 with respect to two properties (30 Evergreen Place and 50
South Clinton Avenue). The firm was engaged under a contingent fee
contract. Settlements with regard to both years and both
properties were negotiated with the City of East Orange and
judgments were entered on July 8, 1994. Under the terms of the
settlement and the effective tax rates for the relevant years, a
refund in the amount of $261,193.84 was calculated with respect to
the property at 30 Evergreen Place.
Prior to the payment of the refund with respect to 30
Evergreen Place, the City of East Orange discovered that the
subject property was delinquent in its tax payments for the years
1992, 1993, and 1994. Pursuant to the Tax Sale Law, N.J.S.A.
54:5-1 to -129, a tax lien certificate had been sold for delinquent
taxes in 1992 and the first part of 1993. However, the remaining
delinquencies at July 8, 1994 (the date on which the judgments were
entered), for the years 1993 and 1994 exceeded the amount of the
refund that was due as a result of the settlement. Accordingly,
the City of East Orange exercised its option under N.J.S.A. 54:4-134 to set-off against the amount of the refund due, the amount of
delinquent taxes. Because the amount of delinquent taxes exceeded
the refund amount, no refund was paid.
The successor owner of the properties by motion challenged the
settlements of the tax appeals negotiated on behalf of the
plaintiffs and asked that the court set aside the judgments
pursuant to the settlement. I denied that motion, from which the
successor owner then took an appeal to the Appellate Division. The
appeal remains pending with respect to 50 South Clinton Street
(App. Div. Docket No. A-387-94T5), but was by consent of all
parties, dismissed with respect to the property at 30 Evergreen
Place (App. Div. Docket No. A-388-94T5).
I had previously ruled that although I would impose an
attorney's lien on the proceeds of the judgment reducing the tax
assessments, i.e. the refund, I could not quantify the lien until
the amount of the refund was fixed and final. At that time I did
not know that the municipality was entitled to a set-off in the
full amount of the refund. I refused to quantify the lien until
the appeal procedure was completed and the amount of the refund was
final because the amount of the attorney's fee lien was in part a
function of the refund amount. Once the appeal with respect to 30
Evergreen Place was dismissed, the amount of the refund was fixed
and I was then in a position to quantify the attorney's lien.
Saul Fenchel, P.A., renewed its application for the
quantification and enforcement of its attorney's lien on the refund
pursuant to N.J.S.A. 2A:13-5. The City of East Orange argued that
there is no fund to which the lien can attach (the entitlement to
a refund has been extinguished by the enforcement of the City's
right of set-off pursuant to N.J.S.A. 54:4-134) and therefore the
attorney's lien cannot be enforced.
I declined to quantify the attorney's lien because I found
that it would be unnecessary as there is no fund on which to impose
the lien. The basis of my opinion is that in this case N.J.S.A.
54:4-134, the municipal right to set-off refunds against taxes due
and owing for a given property, takes precedence over N.J.S.A.
2A:13-5, the attorney's charging lien for his or her fee. The
authority for my determination, which is more fully set forth in
the record of the argument and bench determination, is based on two
cases, Hobson Construction Co., Inc. v. Max Drill, Inc.
158 N.J.
Super. 263 (App. Div. 1978) and Montefusco Excavating and
Contracting v. Middlesex County,
82 N.J. 519 (1980).
I further note that although some states give an explicit
statutory priority to attorney's charging liens, New Jersey does
not give such a priority. See N.J.S.A. 2A:13-5 and John H. Derrick,
Annotation, Priority Between Attorney's Lien for Fees Against a
Judgment and Lien of Creditor Against Same Judgment,
34 A.L.R. 4th
665 (1984). Further, even when by common law attorney's liens
might have priority over other liens or the right of set-off, there
is in general an exception for liens for taxes.
34 A.L.R. 4th, 665,
667, supra and see Michigan Dept. of Treasury v. Campbell,
309 N.W.2d 668 (Mich. App. 1981). In New Jersey, taxes on lands are a
lien on the land, N.J.S.A. 54:5-6, and are a first lien on such
land. N.J.S.A. 54:5-9. Thus, the right of set-off under N.J.S.A.
54:4-134 which derives from the municipal lien for taxes would seem
to enjoy a higher status than the attorney's lien for services.See footnote 1
Finally my discomfort expressed on the record relates to the
fact that Saul Fenchel, P.A., the plaintiff's lawyer, did good
work. They worked hard. They got a result for their client
entitling their client to a refund of $261,193.84. The lawyer
entered into a contract. He expected to receive a contingent fee.
The failure of the City to receive its taxes because of the failure
of the law firm's client, its client's landlord, its client's
landlord's successor, their lender, or some other person or entity
to pay those taxes, deprived the law firm of its ability to attach
a lien to the product of the judgment which it obtained. The City
had a right under N.J.S.A. 54:4-134 to a set-off for delinquent
taxes in the full amount of the refund. The lawyers right to a fee
from a refund can be no greater than his client's right to the
refund. This is not to say that the law firm is not entitled to a
fee based on a theory of contract and/or quantum meruit. I
indicated that the law firm would have to pursue those rights in a
separate action or actions (or amendments to and/or motions in this
action, see R. 4:30A, N.J.S.A. 2B:13-2 and N.J.S.A. 2B:13-3) in
contract and/or quantum meruit against those who owe it the fee
rather than for enforcement of an attorney's lien against a non-existent refund. There simply is no fund on which to enforce the
attorney's lien; there is no res to which the lien can attach.
Footnote: 1 I note that the determination in this case is consistent
with the logic and specific language of the Internal Revenue Code.
The Code gives attorney's liens priority over tax liens of the IRS
unless the attorney's lien applies to a judgment or settlement of
a claim against the United States in which the United States has a
right of set-off. I.R.C. § 6323(b)(8) and see Piontek v. Ceritiro,
177 N.J. Super. 610 (App. Div. 1981)
When a taxing authority had a lien for unpaid taxes, a court
has allowed an attorney to recover his contingent fee from a New
Jersey local property tax refund at the expense of the taxing
authority. That case is distinguishable from this case because,
the taxing authority seeking to impose its lien (the Internal
Revenue Service) was not the taxing authority holding the refund
(the City of Newark), the creation of the refund, to which the IRS
laid claim, was the product of the attorney's labors in his
client's case against the City of Newark, not against the Internal
Revenue Service, and the City of Newark had neither an interest in,
nor a right of, set-off from the refund. United States v.
Arlington Arms, Inc.,
151 F.Supp. 957 (D.N.J. 1957).
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