July 23, 2019

Colorado Court of Appeals: Statutory Lien May Be Given Priority Over Previously Perfected Security Interest if Statute Indicates Such Legislative Intent

The Colorado Court of Appeals issued its opinion in North Valley Bank v. McGloin, Davenport, Severson and Snow, P.C. on December 9, 2010.

Attorney’s Charging Lien Priority.

Plaintiff North Valley Bank (bank) appealed the trial court’s judgment in favor of defendants (collectively, attorneys). The judgment was affirmed.

The bank loaned $100,000 to BLR Construction Company, LLC (contractor). The contractor signed notes granting the bank a security interest in the contractor’s accounts receivable and in all proceeds of these accounts. The bank perfected the security interest by filing by filing its Uniform Commercial Code (UCC) financing statement, UCC-1, with the Colorado Secretary of State.

Thereafter, the contractor was hired by Custom Landscapes of Colorado, Inc. (landscaper) to work on a project financed by the State of Colorado (State). The contractor billed the landscaper $53,145. The landscaper did not pay, and the contractor retained the attorneys to assist in collection of the debt.

The attorneys sued the landscaper, alleging breach of contract, open account, and unjust enrichment. The attorneys also filed notice of an attorney’s lien under CRS § 12-5-119 against any award the contractor might receive as a result of the lawsuit. The bank contacted the attorneys and informed them it had a perfected security interest in any money the contractor might be awarded in the lawsuit. The landscaper joined the State as a defendant. The trial court entered judgment in favor of the contractor and against the State in the amount of $51,402.

The State sent a check for $51,402 to the attorneys, who kept $41,381 as reimbursement for legal services and $3,000 as a retainer against any future services they might render. They forwarded $7,021 to the contractor.

The bank then filed this case against the attorneys, raising claims for replevin, conversion, and declaratory relief. Following a Bench trial, the trial court held that the attorney’s lien was superior to the bank’s perfected security interest and entered judgment in the attorneys’ favor. The bank appealed.

In Colorado, the right to an attorney’s lien is created by statute. CRS § 12-5-119 creates an attorney’s “charging lien.” The language therein specifically grants the attorney “a first lien on such demand in suit or on such judgment for the amount of his fees.” The charging lien attaches “immediately” when a judgment is obtained, and the attorney does not need to take any further steps to enforce the lien against his client. To enforce the lien against third parties, proper notice must be given. The language is plain and clear that the charging lien comes first in priority.

The bank argued that the UCC gives its previously perfected security interest priority over the attorney’s lien. The Court disagreed for two reasons. First, a statutory lien may be given priority over a previously perfected security interest if the statute, as here, indicates a “specific legislative intent to give such a priority.” Second, the statute that the bank relied on, CRS § 4-9-333, does not apply to the facts of this case. An attorney’s charging lien is a statutory lien for services; thus, it is not covered by the UCC.

Finally, because the bank did not argue that it was entitled to a part of the judgment (only the whole judgment), the Court concluded that the distribution of the judgment to the attorneys and the contractor was appropriate. Accordingly, the judgment was affirmed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries by the Colorado Court of Appeals on December 9, 2010, can be found here.

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