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X-6326 COPY IN THE SUPREME COURT OF THE STATE OF IDAHO 416 (No. 5147) G. F. KA2TSBR0UGH, Respondent, vs. P o c a t e l l o , April Term, 1929 D. W. STANDROD & COMPANY, a defunct t a n k i n g c o r p o r a t i o n of the S t a t e of Idaho, D. ¥ . STANDROD, D. L. EVANS, GEORGE F . GAGON and W. F, SORGATZ, As t r u s t e e s and d i r e c t o r s i n o f f i c e • f D-. W. STANDROD & COMPANY, a defunct "banking c o r p o r a t i o n of the S t a t e of , Idaho, K. L. SCOTT AND E. P . DUNLAP, deputies of the Commissioner of Finance of the S t a t e of Idaho, F i l e d , May 31, 1939 Clay Koelsch, Clerk Defendants. and E. W. PORTER, Commissioner of Finance of the S t a t e of Idaho, UNITED STATES FIDELITY & GUARANTY COMPANY, a c o r p o r a t i o n , and FEDERAL RESERVE BANK OF SAN FRANCISCO, a c o r p o r a t i o n , Appellants. Appeal from the D i s t r i c t Court of the S i x t h J u d i c i a l D i s t r i c t , f o r Bingham County. Hon. Ralph W. Adair, Judge. Action to enforce a t t o r n e y ' s l i e n . Judgment f o r p l a i n t i f f , REVERSED. ! John W. Jones and Guy Stevens, f o r a p p e l l a n t s E. W. P o r t e r , Commissioner of Finance, and United S t a t e s F i d e l i t y & Guaranty Co., M e r r i l l & M e r r i l l , f o r a p p e l l a n t Federal Reserve Bank of San Francisco Thomas & Anderson and G. F. Hanshrough, f o r respondent, X-632S - 2 - BHIHCK, D i s t r i c t Judge. 417 The respondent i s a p r a c t i c i n g a t t o r n e y a t law who, i n November, 1921, was employed "by D. V. Standrod & Company, a banking i n s t i t u t i o n , , to "bring a s u i t a g a i n s t a f i r m known as Swauger Brothers and o t h e r s . After the s u i t was commenced, a s e t t l e m e n t was made "between the p l a i n t i f f and. defendants t h e r e i n , whereby the bank r e c e i v e d c e r t a i n notes of the de~ fgndants and, as c o l l a t e r a l s e c u r i t y f o r t h e i r payment, r e c e i v e d 81,999 sljares of the c a p i t a l stock of Swauger Land & Livestock Company, a c o r poration. Upon l e a r n i n g of the s e t t l e m e n t , respondent o b t a i n e d an agree- ment from t h e Standrod "bank t h a t h i s f e e s should "be c r e d i t e d upon n o t e s ho had given to the "bank and which were then h e l d "by the a p p e l l a n t Federal Reserve Bank of San F r a n c i s c o . In February, 1933, respondent and the law f i r m of Thomas & Anderson were employed "by the Standrod bank to b r i n g s u i t upon the Swauger notes which had been obtained i n the previous s e t t l e m e n t . This s u i t , a f t e r i t was commenced, was l i k e w i s e s e t t l e d b e f o r e t r i a l , t h i s time with the consent of counsel, and i n t h i s s e t t l e m e n t the Standrod Bank became the owner of the s h a r e s of stock t h a t had p r e v i o u s l y been pledged to i t , and r e c e i v e d i n a d d i t i o n notes of the Swaugers aggregating some $22,000. In t h i s connection i t was again agreed t h a t the a t t o r n e y ' s f e e s earned by respondent and h i s ' a s s o c i a t e s i n the second s u i t should be c r e d i t e d Tfpon notes they had given to the Standrod Bank, which notes were a l s o i n #ie hands of the Federal Reeerve Bank as p l e d g e s . On November 28, 1923, the Standrod bank c l o s e d i t s doors, and was taken i n charge by the a p p e l l a n t Commissioner of Finance of t h e S t a t e of Idaho; and the attorney* s f e e s of respondent and h i s a s s o c i a t e s were never c r e d i t e d upon t h e i r notes to the Standrod bank, t h e s e notes having been a t a l l times h e r e i n involved i n the p o s s e s s i o n of the Federal Reserve Bank as c o l l a t e r a l s e c u r i n g notes to i t X-6326 -3- of the Standrod t a n k . 418 A f t e r the Standrod Bank closed, respondent f i l e d with the Commissioner of Finance a claim f o r h i s a t t o r n e y ' s f e e s and f o r a p r e f erence a s a t r u s t fund, which p r e f e r e n c e was disallowed. He appealed from s a i d r u l i n g to the D i s t r i c t Court which denied the p r e f e r e n c e , but allowed him an a t t o r n e y ' s l i e n upon the massed a s s e t s of the hank. On appeal to t h i s court the judgment of the D i s t r i c t Court allowing a l i e n upon the massed a s s e t s was reversed, "but, the record and "briefs i n d i c a t i n g t h a t the Swauger notes and c e r t i f i c a t e s of stock were then i n the hands of the Commissioner, the D i s t r i c t Court was d i r e c t e d to e n t e r a judgment dec l a r i n g an a t t o r n e y 1 s l i e n on t h a t s p e c i f i c p r o p e r t y and ordering i t s s a l e , gansbrough v . D. T. Standrod & Co., 43 Idaho 119 , 249 Pac. 897 (decided September 24, 1926.) I t now appears, however, t h a t i n October, 1923, the Standrpd bank had t r a n s f e r r e d the Swauger notes and the stock owned by i t i n the Swauger Company t o the Federal Reserve Bank as c o l l a t e r a l to secure i t s own notes to t h a t bank, f o r which i t had been given c r e d i t , and t h a t t h e potes and stock were never i n the hands of the Commissioner of Finance as a s s e t s of the Standrod Bank. I t i s shown t h a t the Federal Reserve Bank a c c e pt e d t h e s e s e c u r i t i e s without knowledge of the l i e n of p l a i n t i f f and h i s a s s o c i a t e s , and t h a t i t was f i r s t advised thereof a f t e r i t had in September, 1924, r e c e i v e d from J . W. Swauger an o f f e r to purchase the Swauger n o t e s and stock f o r $15,000, and had n o t i f i e d the Commissioner of Finance t h a t t h e o f f e r would be accepted i n the absence of o b j e c t i o n w i t h i n a s p e c i f i e d time. The o f f e r was accepted and the s a l e of the c o l l a t e r a l made. A f t e r the d e c i s i o n i n the former case, the respondent, i n h i s -4- X-6326 419 own r i g h t and a s assignee of h i s a s s o c i a t e s , "brought t h i s s u i t a g a i n s t the a p p e l l a n t s Federal Reserve Bank and the Commissioner of Finance and hi'8 s u r e t y , t o recover the amount of the a t t o r n e y ' s f e e s of himself and h i 8 a s s i g n o r s a s damages f o r the a l l e g e d conversion of the Swauger notes d#d stock upon which respondent and h i s a s s i g n o r s had an a t t o r n e y ' s l&en. The t r i a l court found t h a t the a p p e l l a n t s had, by a s a l e of the p r o p e r t y t<^ Swauger, converted i t ; t h a t the l i e n s of respondent and h i ? a s s i g n o r s had not "been a f f e c t e d "by the pledge of the p r o p e r t y to the Federal Reserve Bank; t h a t they were not g u i l t y of l a c h e s fluid had not waived t h e i r l i e n s upon the p r o p e r t y ; and awarded the respondent judgment a g a i n s t the a p p e l l a n t s f o r $7,000 and i n t e r e s t , from which judgment t h i s appeal i s taken. I t i s urged t h a t i n no event could an a c t i o n f o r conversion "be maintained, s i n c e p l a i n t i f f had a more l i e n without r i g h t of p o s s e s s i o n . The complaint may "be t r e a t e d , however, a s s t a t i r g a cause of a c t i o n on the case f o r the d e s t r u c t i o n of the p r o p e r t y subject to t h e l i e n . The p r i n c i p a l q u e s t i o n s p r e s e n t e d a r e as to whether the p r o ceeds of the compromised l i t i g a t i o n can be s u b j e c t e d to a l i e n i n the hands of a t h i r d person who took without knowledge of the claim of l i e n ; and whether, i f such claim can ever be a s s e r t e d , the respondent and h i s a s s i g n o r s were g u i l t y of l a c h e s which would preclude than from now a s serting i t . C. S. s e c . 6576, which governs a t t o r n e y ' s l i e n s , i s a s follows: "The measure and mode of compensation of a t t o r n e y s and counselors a t law i s l e f t t o the agreement, express o r implied, <?f the p a r t i e s , which i s not r e s t r a i n e d , by law. From the commencement of an a c t i o n , or the s e r v i c e of an answer c o n t a i n i n g a counterclaim, the a t t o r n e y who appears f o r a p a r t y has a l i e n upon h i s c l i e n t ' s cause,of a c t i o n or counterclaim, which a t t a c h e s to a v e r d i c t , report,, d e c i s i o n or judgnent i n h i s c l i e n t ' s f a v o r and the proceeds thereof i n whosesoever hands they may come; and cannot bo a f f e c t e d by any settlement between the p a r t i e s b e f o r e or a f t e r judgment." X-6326 420 As to whether, under a s t a t u t o r y l i e n where p o s s e s s i o n i s not d e l i v e r e d , p r o p e r t y may "be followed i n t o the hands of an innocent p u r chaser, the a u t h o r i t i e s a r e not i n harmony • I t was s a i d i n Be a l l v. White, 94 U.S. 382 (386), 24 L.Ed. 173, t h a t s t a t u t o r y l i e n s have, w i t h out p o s s e s s i o n , the same o p e r a t i o n and e f f i c a c y t h a t e x i s t e d i n conmonlaw l i e n s where the p o s s e s s i o n was d e l i v e r e d . This d o c t r i n e i s r e j e c t e d i n Finney v . Harding, 136 111. 573, 27 N. E. 289. A statutory landlord's l i e n i s i n some s t a t e s allowed to be enforced as a g a i n s t an innocent p u r chaser u n l e s s he i s e x p r e s s l y p r o t e c t e d by the s t a t u t e . Richardson Bros, v . P e t e r s o n , 58 Iowa 724, 13 N. W. 63; Newman v . Bank of Greenville, 66 Misc. 323, 5 So. 753. I n o t h e r s t a t e s a bone f i d e purchaser i s p r o t e c t e d a s a g a i n s t such a l i e n (Finney v . Harding, supra: Thornton v . Carver, 80 Qa. 397, 6 S. E. 915), and a l i k e conclusion was reached a s to a d i f f e r e n t k i n d of s t a t u t o r y l i e n i n Lanterman v. Ltiby, 96 N. J . Law 255, 114 A$l. 325. The l a t t e r view i s favored both by weight of a u t h o r i t y and upon reason by a u t h o r s of some of the t e x t s . 1 Jones on Liens ( 3 r d e d . ) Sec. 1048 ; 2 Underbill on Landlord and Tenant, Sec. 834; 37 C. J . p . 331. Counsel exp r e s s t h e i r i n a b i l i t y t o f i n d d e c i s i o n s d i r e c t l y upon the p o i n t under the a t t o r n e y ' s l i e n s t a t u t e s , and we have found none. d e n t i c a l with the s t a t u t e e x i s t i n g i n New York, C. S. Sec. 6576 i s i The Court of appeals of t h a t s t a t e s a i d i n F i s c h e r Hansen v . Brooklyn Heights R. Co., 173 N. T. 492, 66 N.E. 395, t h a t the l i e n given by t h e s t a t u t e " c l i n g s to any p r o p e r t y or money i n t o which the s u b j e c t can be t r a c e d , u n t i l i t reaches the hands of a bona f i d e p u r c h a s e r ; " and t h i s language i s quoted with approved i n Corikling v . Austin, 111 Mo. app, 292, 86 S . W. 911, which d e c i s i o n i n t u r n i s approved by the Supreme Court of Missouri i n Wait v< f t c h i s o n , T. and S . F . By. Co., 204 Mo. 491, 103 S«W. 60. In P e t t i b q n e y. X-6326 —6- 421 tihomson, 72 Misc. Hep. 486, 130 N. Y. S. 284 (289), and Sargent v s . New York Central & N. R.R.Co. 209 N. Y. 360, 103 N. B. 164 (166), the courts of New York appear to t r e a t as of consequence the m a t t e r of n o t i c e to a t h i r d person i n p o s s e s s i o n qf p r o p e r t y upon which an a t t o r n e y ' s l i e n i s claimed. Because we deem the question of laches determinative of t h i s case i n any event, we do not decide the f i r s t question r a i s e d "by a p p e l lants. Assuming, hut not deciding, t h a t respondent and h i s a s s i g n o r s , i f d i l i g e n t i n a s s e r t i n g t h e i r claim, could have followed the p r o p e r t y h e r e involved i n t o the hands of an innocent p u r c h a s e r , we t h i n k they have l o s t t h a t r i g h t a s a g a i n s t these a p p e l l a n t s . I n s t e a d of proceeding to a t - tach themselves to or to s e q u e s t e r the p r o p e r t y which was t h e f r u i t s of the l i t i g a t i o n , or to otherwise enforce t h e i r l i e n , they l e f t the p r o p e r t y und i s t u r b e d i n the hands of t h e Standrod hank, notwithstanding i t was the i;ind of p r o p e r t y t h a t banks f r e e l y deal i n , hypothecate, and t r a n s f e r i n the o r d i n a r y course of "business. In Iowa, which of a l l the s t a t e s has perhaps most r i g i d l y e n f o r ced a s t a t u t o r y l a n d l o r d ' s l i e n as a g a i n s t innocent p u r c h a s e r s , an except i o n was c r e a t e d to the l i e n , making i t s u b j e c t to the course of business of t h e t e n a n t , so a s not to i n t e r f e r e with s a l e s of p r o p e r t y contemplated by t h e c h a r a c t e r of t h e b u s i n e s s prose cured by the t e n a n t , to which the l a n d l o r d i s presumed to have a s s e n t e d upon the l e a s i n g of the premises, pichardson Bros. v . P e t e r s o n , supra. By f a i l i n g to a s s e t t and enforce t h e i r l i e n when t h e i r r i g h t s accrued, respondent and h i s a s s i g n o r s made i t p o s s i b l e f o r the Standrod bank, upon the s t r e n g t h of i t s apparent unincumbered ownership of the p r o p e r t y , to o b t a i n a c r e d i t from the Federal Reserve Bank, which had no X-6326 -7knowledge ot n o t i c e of t h e i r s e c r e t l i e n . £ 2 2 The r i g h t to e n f o r c e an a t t o r n e y ' s l i e n may "be l o s t "by l a c h e s , Lee v. Vacuum Oil Co., 126 N« Y. 579, 27 H. B. 1018 Fillmore v.^Wells, 10 Cdlo, 228, 15 Pac. 343; Colorado S t a t e Bank v . Davidson, 7 Colo. App. : i 91, 42 Pac. 687. Laches i s delay t h a t works disadvantage to a n o t h e r . 4 Pomeroy's Equity Jurisprudence ( 4 t h e d . ) Sec. 1442. With r e f e r e n c e to the l i e n i n t h i s case, i t was s#id i n Hansbrough v . D. W. Standrod & Co. Supra: "The l i e n could have been discharged only "by payment, exp r e s s agreement "backed "by a c o n s i d e r a t i o n , or l a c h e s i t i s urged t h a t r e s p o n d e n t ' s f a i l u r e to a s s e r t h i s l i e n f o r npre than two y e a r s c o n s t i t u t e d l a c h e s . But, so long as no one was "being i n j u r e d , he was e n t i t l e d to the f u l l p e r i o d of l i m i t a t i o n s , which had not e x p i r e d when he appealed from the Commissioner's decision." I t now appears t h a t to e n f o r c e the l i e n would i n j u r e the Federal Reserve Bank to which the Standrod Bank s t i l l owes some $300,000. We think i t c l e a r t h a t whatever the r i g h t respondent and h i s a s s i g n o r s m i ^ i t have had when the p r o p e r t y f i r s t came i n t o the hands of t h e i r c l i e n t , they, "Jjy t h e i r delay i n e n f o r c i n g i t , l o s t the p r i v i l e g e of a s s e r t i n g i t as a g a i n s t the subsequent innocent pledgee, the Federal Reserve Bank. The d e c i s i o n i n Hansbrough v . D. W. Standrod & Co. d e c l a r i n g p l i e n upon the p r o p e r t y , i s not an a d j u d i c a t i o n of the r i g h t s of the Federal Reserve Bank, which was not a p a r t y t o t h a t a c t i o n . As to Ifhe Commissioner of Finance, i t i s shown i n t h i s case t h a t he never had p o s s e s s i o n of t h e p r o p e r t y , and could not have converted i t . I t is true t h a t n e a r l y two y e a r s b e f o r e t h a t d e c i s i o n was rendered, the Federa^. Reserve Bank, d e s i r i n g to h o l d some of the stock i n i t s own name so a# to have a c c e s s to the corporate books of the Swauger Land & Livestock Company, with the consent of the Commissioner had the c e r t i f i c a t e s r e w r i t t e n , a p o r t i o n -8- X-6326 • . i 4Z of tho stock "being roi'f suod in the namo of t h a t "bank and a p o r t i o n i n the namo of tho Commissioner, who indorsed the c e r t i f i c a t e so made out to him over to the Federal Rosdrvo Bank. This was a mere change i n form, without •f any i n t e n t i o n of r e l e a s i n g the l i e n , and the Commissioner did not thereby have o r become e n t i t l e d to p o s s e s s i o n of the c e r t i f i c a t e s of stock, which were a t a l l times s u b j e c t to the pledge agreement under which the Federal Reserve Bank had r e c e i v e d i t from the Standrod bank. I t i s unnecessary to consider the other e r r o r s assigned, The Judgment of the t r i a l court i s reversed, with c o s t s to a p p e l l a n t s . GIVENS, T. BAILEY LEE, WM. E, LEE AND VARIAN, J J . , Concur.
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