Court Decides Novel Issue Concerning Priority of a Contractual Lien for Legal Services

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In Pou Chen Corp. v. MTS Products, 2010 DJDAR 4577 (March 26, 2010), the California Court of Appeal, 2nd District, decided a novel issue concerning the priority of a contractual lien for legal services.

Background

GBMI entered into a contract with MTS whereby GBMI would buy products that MTS intended to sell to Wal-Mart. Subsequently, the parties negotiated and entered into as a joint venture and formed a new entity named BHE. A third entity, Pou Chen Corp., contributed $10 million for purchase of a 70 percent interest in the new entity, BHE. MTS began withholding payments from BHE due to a business dispute. BHE and GBMI sued MTS to recover the withheld funds. At trial, the jury awarded BHE and GBMI $46,485,578 and awarded MTS $11,476,877 against Pou Chen on its cross-complaint.

Subsequently, two law firms entered into a joint retainer agreement with MTS to collect MTS’s judgment against Pou Chen.

The law firms negotiated a contractual lien on any recovery obtained against Pou Chen. Later, BHE and GBMI obtained a writ of execution and levied on MTS’s bank accounts, resulting in payment to BHE and GBMI of $24,813,458. Thus, approximately $23,643,689 was unpaid on the BHE judgment. BHE and GBMI then assigned the unpaid judgment to Pou Chen for $100,000 and Pou Chen moved to offset the judgments.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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