Stok Folk + Kon, P.A. v. Fusion Homes, LLC

Citation: 584 B.R. 376Docket: Case No. 17–Civ–61398–COOKE

Court: District Court, S.D. Florida; March 16, 2018; Federal District Court

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Appellant Stok Folk, Kon, P.A. (SFK) appeals the bankruptcy court's Order Denying SFK's Motion to Quash a subpoena and for a protective order regarding a fee dispute with its former client, Fusion Homes, LLC. SFK had represented Fusion in a foreclosure case involving properties in Hollywood, Florida, while Fusion's former adversary, Daniel Alessi, filed for bankruptcy and later initiated an adversary proceeding against Fusion. After Fusion engaged new counsel, it issued a subpoena to SFK for documents believed to be relevant to the case. SFK objected, citing an unpaid fee and asserting a retaining lien, and sought to quash the subpoena.

The bankruptcy court held a hearing without evidence presentation and denied SFK's motion, reasoning that a retaining lien was not a valid defense against compliance with a subpoena under Rule 45(d)(3) and suggesting SFK's alleged misconduct warranted an exception to the lien. However, the court did not formally find SFK guilty of misconduct. Subsequently, SFK was ordered to produce the requested documents. SFK filed a timely appeal and an Emergency Motion for Stay, which led to a stay granted by U.S. Magistrate Judge Jonathan Goodman.

The legal standards indicate that the bankruptcy court's legal conclusions are subject to de novo review while factual findings are reviewed for clear error. SFK contests the bankruptcy court's reasoning, arguing that allowing a subpoena to override a retaining lien undermines common law rights and that the court's creation of an exception to the lien without evidence violated due process rights. Fusion has conceded the issue regarding the retaining lien.

SFK requests withdrawal of the reference for a hearing on its attorney retaining lien, which is governed by Florida case law, as no statutes specify the requirements for such liens. In Florida, attorneys have a retaining lien on all client property in their possession, including collected funds, to secure payment for legal services. This lien persists until fees are paid or adequate security is provided. The lien's force correlates with the client's need for the attorney's possessions, and any requirement to produce the file could undermine the lien. Courts should not mandate file disclosure under a valid retaining lien without ensuring payment or security unless in exceptional circumstances, such as criminal cases or attorney misconduct.

SFK's lien is valid, but Fusion argues the bankruptcy court had sufficient information to determine misconduct and compel file production without requiring security. SFK contends the bankruptcy court's information was merely counsel's argument, not evidence, and that the court did not find misconduct. Consequently, compelling file turnover without finding misconduct contravenes legal requirements. The matter will be remanded for factual determination on potential misconduct, with the issue of whether an evidentiary hearing is necessary remaining unresolved. SFK claims the bankruptcy court violated its due process rights by not holding a hearing, while Fusion asserts the existing record was adequate for a misconduct finding. SFK has not cited case law supporting its entitlement to a hearing, which is typically necessary only when material facts are disputed.

An evidentiary hearing is typically required when an injunction hinges on resolving disputed facts, as established in All Care Nursing Serv. Inc. v. Bethesda Mem'l Hosp. Inc. The necessity for such a hearing arises when factual issues and credibility must be evaluated, as seen in cases like United States v. Poe and Bischoff v. Osceola County. Given that significant disputes exist regarding allegations of attorney misconduct by SFK, an evidentiary hearing is deemed prudent.

SFK contends that if an evidentiary hearing is warranted, the reference should be withdrawn under both mandatory and permissive guidelines. However, the court disagrees, stating that neither guideline supports withdrawing the retaining lien claim. The district court has the discretion to withdraw a case for cause, but mandatory withdrawal is only necessary when both bankruptcy and non-bankruptcy federal law are involved, which is not the case here regarding the state law retaining lien issue.

Permissive withdrawal requires demonstrating cause, which is not met in this instance. Factors like promoting uniformity in bankruptcy administration and preventing forum shopping are considered when determining cause, but none apply to a straightforward state law issue already familiar to the bankruptcy judge.

The conclusion of the document indicates that SFK's motion to quash a subpoena is reversed, and the matter is remanded to the bankruptcy court for further proceedings. All pending motions are denied as moot, and the clerk is instructed to notify the bankruptcy court and close the case. Additionally, SFK's shift in argument against an evidentiary hearing is noted, but both parties' rights to present evidence are emphasized as essential. SFK's claims of judicial bias against its counsel are rejected, as the record does not support such claims sufficient to withdraw the reference.