AutoLotto, Inc. v. J. Streicher Financial, LLC

COURT OF CHANCERY OF THE STATE OF DELAWARE MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER VICE CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

March 2, 2023

Jenness E. Parker, Esquire Brian M. Rostocki, Esquire Skadden, Arps, Slate, Meagher & Flom LLP Reed Smith LLP 920 North King Street 1201 North Market Street, Suite 1500 Wilmington, DE 19801 Wilmington, DE 19801

Cheryl A. Santaniello, Esquire Porzio Bromberg & Newman, P.C. 300 Delaware Avenue, Suite 1220 Wilmington, DE 19801

RE: AutoLotto, Inc. v. J. Streicher Financial, LLC, Civil Action No. 2022-0661-MTZ Dear Counsel:

I write to resolve in part the Combined Motion to Withdraw as Counsel and for a Charging Lien filed by Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), particularly the motion for a charging lien (the “Motion”). The Motion is granted, but only with respect to Skadden’s work for petitioner AutoLotto, Inc. in the above-captioned matter, and not with respect to Skadden’s work for AutoLotto in other matters. My reasoning follows.

AutoLotto, Inc. v. J. Streicher Financial, LLC, Civil Action No. 2022-0661-MTZ March 2, 2023 Page 2 of 9

I. BACKGROUND

In 2022, AutoLotto retained Skadden on an hourly basis for the purpose of

obtaining general corporate and transactional advice.1 The engagement letter

includes a choice of law clause selecting New York law:

This agreement and any claim, controversy or dispute arising under or relating to this agreement, the relationship of the parties, and/or the interpretation and enforcement of the rights and duties of the parties, and/or the interpretation and enforcement of the rights and duties of the parties shall be governed by, and construed in accordance with, the laws of the state of New York.2

Under the engagement letter, Skadden represented AutoLotto in this action

to secure the return of $16,500,000 in escrowed funds held by defendant J.

Streicher Financial, LLC (“J. Streicher”).3 On September 26, 2022, I granted

partial summary judgment in AutoLotto’s favor and ordered J. Streicher to return

the escrowed funds.4 I also shifted AutoLotto’s attorneys’ fees in the amount of

$397,036.94 and entered an order reflecting the parties’ stipulation that J. Streicher

would pay those fees no later than November 30, 2022 (the “Fee Order”).5

1 Docket Item (“D.I.”) 45 [hereinafter “Mot.”] ¶ 1. 2 Mot., Ex. 1. 3 Id. 4 D.I. 35. 5 D.I. 38.

AutoLotto, Inc. v. J. Streicher Financial, LLC, Civil Action No. 2022-0661-MTZ March 2, 2023 Page 3 of 9

On December 8, 2022, Skadden filed the Motion seeking a charging lien in

the amount of $3,024,201.17 against the $16,500,000 awarded in this matter,

representing unpaid fees not only for its representation of AutoLotto in this action,

but also for its representation and work for AutoLotto in a variety of other matters.6

The parties briefed the Motion, and I took it under advisement on January 13,

2023.7 Skadden’s motion to withdraw will be granted under separate cover.

II. ANALYSIS

The parties dispute whether all of Skadden’s outstanding fees are properly

subject to a charging lien against the award in this specific action, and whether that

issue should be guided by New York or Delaware law. AutoLotto also contends

that no charging lien against it is necessary because the Court shifted its fees to J.

Streicher; AutoLotto suggests Skadden may and should recover from J. Streicher

instead. This letter concludes that under both New York and Delaware law,

Skadden is entitled to a charging lien against the recovery in this action only for

fees incurred in this action, and the Fee Order cannot substitute for or preclude the

charging lien to which Skadden is entitled.

6 Mot. ¶ 5. 7 D.I. 51; D.I. 58; D.I. 55.

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When faced with a dispute over which law governs, the Court’s first step is

to determine whether there is an actual conflict of law between the proposed

jurisdictions.8 Where the result would be the same under either proposed

jurisdiction, there is no actual conflict: rather, “there is a ‘false conflict,’ and the

Court should avoid the choice-of-law analysis altogether.”9

A. Scope of the Charging Lien

In New York, charging liens are governed by a statute providing that “the

attorney who appears for a party has a lien upon his or her client’s cause of action,

claim or counterclaim, which attaches to a verdict, report, determination, decision,

award, settlement, judgment or final order in his or her client’s favor.”10 New

York courts have consistently held an attorney’s charging lien only covers fees

incurred for services provided in the particular action that yielded the recovery, not

other matters.11 Under New York law, the scope of Skadden’s charging lien is

8 Bell Helicopter Textron, Inc. v. Arteaga, 113 A.3d 1045, 1050 (Del. 2015). 9 Deuley v. DynCorp Int’l, Inc., 8 A.3d 1156, 1161 (Del. 2010) (quoting Berg Chilling Sys., Inc., v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006)). 10 N.Y. Jud. Law § 475 (McKinney 2022). 11 See 7 Russell J. Davis et al., N.Y. Jur. 2d Attorneys at Law § 310 (2023) (“As a general rule, an attorney’s charging lien extends only to disbursements and services in the particular action or proceeding in which they were incurred or rendered, and does not cover a general balance due the attorney or charges incurred for services rendered in other matters . . . .”); see e.g., Kaplan v. Reuss, 495 N.Y.S.2d 404, 406 (1985), aff’d, 68 N.Y.2d 693 (1986) (“A charging lien . . . applies only to the proceeds obtained from a

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therefore limited to its fees incurred while representing AutoLotto in the above-

captioned matter, and does not extend to its other work for AutoLotto.

Delaware law is in accord. Delaware recognizes charging liens as a

common law equitable right.12 The Delaware Supreme Court has defined a

charging lien such that its scope covers only fees incurred to prosecute the

litigation in which the lien is sought. In Katten Muchin Rosenman v. Sutherland,

the Delaware Supreme Court defined a charging lien as “an equitable right to have

costs advanced and attorney’s fees secured by the judgment entered in the suit

wherein the costs were advanced and the fee earned.”13 Under

the Katten definition, Skadden may seek a charging lien secured by the judgment

in this matter for its work “in the suit wherein the costs were advanced and the fee

earned,” meaning only in this matter.

particular litigation and may be enforced only to obtain the reasonable value of the attorney’s services and disbursements in connection with that litigation.”); First Nat. Bank & Tr. Co. of Ellenville v. Hyman Novick Realty Corp., 421 N.Y.S.2d 733, 734 (1979) (“A statutory attorney’s lien pursuant to section 475 of the Judiciary Law is a lien only for the value of services rendered in the particular action which produced the recovery sought to be charged.”). 12 See Katten Muchin Rosenman v. Sutherland, 153 A.3d 722, 726 (Del. 2017). 13 Id. at 726 (emphasis added) (adopting the definition set forth in Zutrau v. Jansing, 2014 WL 7013578 (Del. Ch. Dec. 8, 2014), aff’d, 123 A.3d 938 (Del. 2015), and 7A Kristina E. Music Biro et al., C.J.S. Attorney & Client § 523 (2023)).

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In attempting to skirt this plain definition, Skadden cites other language in

Katten providing that unpaid fees need not “directly relate to a client’s recovery” to

be encompassed by a charging lien.14 But that language clarified a lien is available

for all unpaid fees incurred within a matter.15 Nothing in Katten suggests a

charging lien could encompass unpaid fees in other matters.

Second, Skadden asserts that whether a charging lien can cover fees beyond

those incurred in the litigation in which the lien is sought is an “unsettled issue of

Delaware law” based on Zutrau v. Jansing.16 I read Zutrau differently: the issue

this Court declined to decide was whether a lien could be asserted on a plaintiff’s

entire recovery, or only that amount over and above an amount the defendant

initially offered, i.e., the “amount of the benefit recovered.”17 Zutrau has no

bearing on whether a charging lien is properly asserted for unpaid fees in other

matters.

Thus, there is no conflict between New York and Delaware law, and I need

not decide which governs. Delaware and New York law reach the same result with

respect to the scope of the charging lien: Skadden is entitled to a charging lien on

14 Mot. ¶ 18. 15 Katten, 153 A.3d at 727. 16 D.I. 53 ¶ 5; Zutrau, 2014 WL 7013578. 17 2014 WL 7013578, at *2–3.

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AutoLotto’s recovery in this matter for its fees earned in this matter, and not its

other matters. I grant Skadden’s motion for a charging lien with respect to the

$397,036.94 in attorneys’ fees earned in this action.

B. The Fee Order

AutoLotto also argues that no charging lien is warranted at all. AutoLotto

suggests that “[i]f the Fee Order does not clearly or specifically entitle Skadden to

directly enforce it against J. Streicher on Skadden’s behalf . . . Skadden may do so,

subject to AutoLotto’s claims and defenses against Skadden, including any breach

of contract or breach of fiduciary duty.”18 AutoLotto urges this Court to accept

this alternative rather than impose a charging lien, pressing it offers Skadden a

“superior right” to obtain payment directly from J. Streicher, and that Skadden is in

18 D.I. 51 ¶ 4. AutoLotto provides no authority under New York or Delaware law to suggest that the amount of a charging lien could be reduced by its “claims and defenses against Skadden.” However, “the premise for imposing a charging lien is that an attorney is owed money” for services performed. Zutrau, 2014 WL 7013578, at *4. In Katten, the court expressed that attorneys are owed all unpaid fees from litigation, and the balance due could not be reduced depending on whether the client won or lost. There, the court noted that “[t]o permit a client who is a party to such an [hourly fee] agreement to escape a charging lien . . . is to judicially rewrite the contract at the expense of the attorney and to undermine the traditional purpose of a charging lien.” Katten, 153 A.23d at 728. Thus, Katten suggests that Delaware courts strongly disfavor interfering with the amount of fees that attorneys are owed for services performed in accordance with hourly fee agreements. Moreover, AutoLotto has not asserted any such breach of contract or breach of fiduciary duty claims.

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a “better position to bear” the costs of collection.19 AutoLotto’s suggestion has no

bearing on Skadden’s established right under both Delaware and New York law to

assert a charging lien against AutoLotto’s recovery.

AutoLotto provides no authority under either New York or Delaware law

supporting its suggestion that Skadden’s entitlement to secure its debt against

AutoLotto’s recovery could be satisfied by allowing Skadden to pursue an

ancillary recovery from J. Streicher. And hornbook authority refutes AutoLotto’s

suggestion: “[T]hat an allowance has been made for attorney’s fees to be paid by a

third person may not affect the lien of an attorney as against the attorney’s own

client.”20 In New York, where charging liens are governed by statute, “[t]he statute

has provided a lien in all cases, and not merely where the client fails to provide

some other form of security or protection, and the courts cannot themselves

substitute another form of protection for that provided in the statute.”21 And in

19 D.I. 51 ¶ 24. 20 7A Kristina E. Music Biro et al., C.J.S. Attorney & Client § 523 (2023); see also id. § 540 (“The attorney’s charging lien is only a lien on the fruits of the attorney’s labor and is not intended to give a general lien on any other assets of the client.”). 21 Robinson v. Rogers, 237 N.Y. 467, 472 (1924). The New York statute specifies that a charging lien may “attach[] to a verdict, report, determination, decision, award, settlement, judgment or final order in his or her client’s favor.” N.Y. Jud. Law § 475 (McKinney 2022). Therefore, “[t]he tangible ‘fruit’ of an attorney’s services to which a charging lien can attach is generally money, property, or other actual proceeds gained by means of the claims asserted for the client in the litigation.” 7 Russell J. Davis et al., N.Y. Jur. 2d Attorneys at Law § 327 (2023).

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Delaware, “[t]o permit a client who is a party to such an [hourly fee] agreement to

escape a charging lien . . . is to judicially rewrite the contract at the expense of the

attorney and to undermine the traditional purpose of a charging lien,”22 namely to

“compensat[e] the attorney for her efforts” and “encourag[e] attorneys to provide

legal services to clients.”23 Allowing counsel to pursue a fee award against its

client’s adversary is a poor substitute for a charging lien in view of those purposes.

Skadden has the right to secure its debt, in the amount of unpaid fees owed in this

action, against AutoLotto’s recovery.

III. CONCLUSION

For the foregoing reasons, the Combined Motion to Withdraw as Counsel

and for a Charging Lien is GRANTED IN PART.

Sincerely,

/s/ Morgan T. Zurn

Vice Chancellor

MTZ/ms

cc: All Counsel of Record, via File & ServeXpress

22 Katten, 153 A.23d at 728. 23 Id. at 726–27; see also Zutrau, 2014 WL 7013578, at *4 (“[T]he premise for imposing a charging lien is that an attorney is owed money.”).