The genesis of this action is a Texas probate dispute concerning the Estate of Dr. Emilio

Manautou Martinez, the former governor of the State of Tamaulipas, Mexico.

Background ^[FN1]

Petitioner, Letizia Martinez De Gonzalez ("Ms. Gonzalez"), is the daughter of the decedent, Dr. Emilio Manautou Martinez ("Dr. Martinez").

For many years prior to Dr. Martinez' death, respondents Thelen Reid & Priest LLP ("Thelen Reid") and Robert J. Reger, Jr. ("Mr. Reger"), an attorney with Thelen Reid (collectively, the "Law Firm") assisted the decedent in the handling of his financial affairs.

In this connection, before his death on December 24, 2004, Dr. Martinez established two trusts: the Emilio Martinez Manautou Trust (the "Family Trust") and the EMM Trust.

The Family Trust, which was created for the benefit of Dr. Martinez' family and friends, [*2]including Alicia Trevino Hobbs ("Ms. Trevino"),^[FN2] contained funds held at UBS/AG. Dr. Martinez and Mr. Reger served as co-trustees of the Family Trust.

The EMM Trust, which named Ms. Trevino as a beneficiary, was funded with $7,000,000. The $7,000,000 was originally held at Merrill Lynch. Dr. Martinez and Mr. Reger also served as co-trustees of the EMM Trust.

According to petitioner, in the summer of 2004, Dr. Martinez developed a distrust of Mr. Reger, and believed that Mr. Reger had a developing relationship with Ms. Trevino. Thus, Dr. Martinez determined to remove Ms. Trevino as a beneficiary of the Family Trust. Dr. Martinez also allegedly instructed Mr. Reger to move funds from the EMM Trust at Merrill Lynch to an account at UBS (identified by Ms. Trevino as the EMM-UBS Account 322826).

On or about July of 2004, the assets of the EMM Trust were transferred from Merrill Lynch to UBS/AG, and in August 26, 2004, Mr. Reger resigned as co-trustee of the EMM and Family Trusts, purportedly at the request of Dr. Martinez. Ms. Gonzalez replaced Mr. Reger as the Trustee of the EMM Trust and the Family Trust. According to the Law Firm, since Ms. Gonzalez became Trustee of both Trusts, the Law Firm provided legal advice to Ms. Gonzalez in her capacity as Trustee of each of the Trusts. Mr. Reger adds that Thelen Reid provided legal services to Ms. Gonzalez in her capacities as beneficiary of the Family Trust and Trustee of both Trusts (Regan Aff. ¶3). Thelen Reid sent Ms. Gonzalez two invoices for the work "performed on her behalf." (Regan Aff. ¶3).

According to the Law Firm, after Dr. Martinez' death, Ms. Gonzalez retained the Law Firm to represent her in various capacities with respect to the accounts at UBS/AG (New York Branch) until August of 2006.

Ms. Trevino filed claims against Ms. Gonzalez in her individual capacity, and in her capacities as Trustee of the Family Trust, Trustee of the EMM Trust, and Executrix of the Estate in a proceeding entitled Estate of Dr. Emilio Martinez Manautou, Deceased, Trevino v Gonzales [sic], (Index No. 2005PC2506) (the "Probate Proceeding").^[FN3]

In the Probate Proceeding, Ms. Trevino alleges, inter alia, that when Ms. Gonzalez took over as co-trustee, the funds, to wit: $4,000,000, that were removed from the UBS-EMM Trust Account were placed into the Family Trust Account, in which Ms. Gonzalez possesses a one-half interest. The $4,000,000 was then transferred from the Family Trust Account to a joint account over which Ms. Gonzalez had signatory authority. The joint account was then paid out to Ms. Gonzalez after her father died. Ms. Trevino alleges that the $4,000,000 was transferred from the UBS-EMM Trust Account for Ms. Trevino's benefit, and without any written instruction from Dr. Martinez to authorize the transfer. Ms. Trevino further alleges that in December 2004, Dr. Martinez instructed UBS to return part, if not all, of the $4,000,000 to the UBS-EMM Trust Account and/or other accounts designated for Ms. Trevino's benefit. However, Dr. Martinez died before such instructions were carried out. [*3]

In order to defend against claims brought against her individually and in her capacities as Trustee of both Trusts in the Probate Proceeding, counsel for Ms. Gonzalez requested documents in the possession of the Law Firm that related to her father's Estate and the two Trusts. By letter dated August 7, 2006, the law firm Cox Smith Matthews, as counsel for Ms. Gonzalez, requested that the Law Firm produce all of its files pertaining to Dr. Martinez and the Trusts for the period of January 1, 1993 though the present. The Law Firm took the position that it had a retaining lien on the documents, and therefore, would not produce the documents in the absence of a Court Order and until the Law Firm received a representation that Ms. Gonzalez stood in the shoes of Dr. Martinez.^[FN4] According to its correspondence, the Law Firm stated that it:

provided legal services on behalf of the [Family Trust], the EMM Trust and Dr. Martinez. At this time, our Firm is owed $156,804.28 for legal fees and disbursements. . . .Given that New York law permits us to retain possession of our clients' documents in the absence of payment of our legal fees and costs, we will not provide your firm with access to these documents until such time that the outstanding account receivable is paid in full, or a court . . . orders otherwise.

Consequently, Ms. Gonzalez sought, obtained and served an ex parte Order (John E. H. Stackhouse, J.) which authorized the issuance of subpoenas upon Letters Rogatory issued in the Probate Proceeding.

This action ensued.

The Law Firm's Motion to Quash

The Law Firm now moves to quash the subpoenas for the taking of depositions upon written questions and the subpoenas duces tecum attached thereto (collectively, the "Subpoenas") served upon the Law Firm by Ms. Gonzalez and for a protective order.

The Law Firm contends that Mr. Reger acted as the Trustee of each of the Trusts and provided legal services to Dr. Martinez. Specifically, at the request of Dr. Martinez, Mr. Reger instructed Merrill Lynch to "transfer approximately $7 million in securities from the EMM Trust account at Merrill Lynch to a UBS account." (Law Firm's Motion ¶5). The Law Firm also contends that Ms. Gonzalez retained the Law Firm following her father's death "to represent [her] as beneficiary and in [her] capacity as trustee of The EMM Trust . . . and The Emilio Martinez Manautou Trust . . . and with respect to certain accounts at UBS AG, New York Branch, in connection with issues relating to the administration of the Trusts, the accounts, and their assets, including those issues between you and UBS AG and its affiliates." (See Letter from the Law Firm to Ms. Gonzalez, dated March 24, 2005). The Law Firm rendered invoices to Ms. Gonzalez in her capacity as Trustee of each of the Trusts for legal services performed on behalf of the Trusts. Ms. Gonzalez has not objected to any of the invoices, and it is alleged that an outstanding balance in the amount of approximately $182,000 remains unpaid. The documents Ms. Gonzalez seeks, namely documents related to Dr. Martinez, the Trusts, and/or the transfer or disposition of assets held in the name of Dr. Martinez, are directly related to the Law Firm's representation of Ms. Gonzalez. Since Ms. Gonzalez failed to pay her bills, such documents are subject to the Law Firm's retaining lien. Thus, the Law Firm objects to producing any documents [*4]until the account is paid in full or until the lien is secured by an undertaking or other security.^[FN5]

The Petitioner's Cross-Motion to Compel Compliance

In response, Ms. Gonzalez cross moves to compel the Law Firm to comply with the Order of the Court which directed the taking of discovery pursuant to CPLR 3102(e) upon the Law Firm. Ms. Gonzalez argues that the Texas Court already determined that the documents are relevant, and that such determination is entitled to full, faith, and credit of this Court. Furthermore, the Law Firm has not established entitlement to assert a retainer's lien.^[FN6] It is argued that no retainer agreement with Dr. Martinez or anyone else was submitted, no details about the specific legal work was provided, which remains unpaid, and the Law Firm cannot rely upon unsubstantiated claims of unpaid legal work performed for others or in other capacities, years after Dr. Martinez' death. Further, no lien attaches to documents which are generated, or come into an attorneys's possession in his or her role as non-lawyer, or when documents come to the lawyer in his capacity as trustee. Substantially all of the documents requested were generated or received by the Law Firm, as co-trustee, who therefore owed separate fiduciary duties to Ms. Gonzalez.

Moreover, the equities favor full disclosure, in that the documents are necessary to defend claims against Dr. Martinez' Estate and Trust assets, and Ms. Gonzalez needs such documents to fulfill her fiduciary duties to the rightful beneficiaries. And, the Law Firm never pursued any claim for payment from Dr. Martinez or his Estate in the two years since his death.

In reply, the Law Firm opposes Ms. Gonzalez' cross-motion, arguing that the Law Firm has a common-law right to retain any papers it generated or that came into its possession as a result of its attorney-client relationship with Dr. Martinez and Ms. Gonzalez until payment has been made in full for the services the Law Firm rendered. The Law Firm also submits the retainer agreement between the Law Firm and Ms. Gonzalez and the billing statements for services that detail the specific legal work that was provided to Ms. Gonzalez. It is argued that the documents Ms. Gonzalez seeks are related to Dr. Martinez, the Trusts, and/or the transfer or disposition of assets held in the name of Dr. Martinez and are directly related to the Law Firm's representation of Ms. Gonzalez. Further, to require the Law Firm to turn over the documents would undermine the policy behind the attorney's retaining lien, which is to give attorneys recourse when their clients refuse to pay them.

In response, Ms. Gonzalez argues that the retainer agreement, which is unsigned, and billing statements (which indicate that the services allegedly provided to Ms. Gonzalez were undertaken after Dr. Martinez' death) do not establish the Law Firm's right to assert an attorneys' possessory retaining lien against the documents relating to their representation of Dr. Martinez. The billing statements also include dozens of entries reflecting communications between and [*5]among the Law Firm and Ms. Trevino, and/or her counsel, the party that has sued Ms. Gonzalez about the "the last days of Dr. Martinez's life." Furthermore, it is undisputed that the attorney-client relationship between the Law Firm and Dr. Martinez ended in August 2004, and the Law Firm has not claimed that it has any outstanding legal bills to Dr. Martinez. Further, caselaw prohibits the Law Firm from relying on unpaid legal bills of others as a basis for asserting a retaining lien against documents belonging to Dr. Martinez. And, documents relating to the disposition of estate and trust assets do not involve legal matters, and thus, are not subject to a retaining lien. Finally, the equities favor full disclosure, in that the billing statements indicate that the Law Firm appears to have assisted Ms. Trevino in the Probate Proceeding against Ms. Gonzalez.

Analysis

There are two separate and distinct classes of liens available to attorneys at law: (1) a general common-law or retaining lien on all property, including papers, books, documents, money or securities, belonging to the attorney's client which came into the attorney's possession in the course of the professional employment, and (2) a limited statutory lien on a specific fund or judgment on a cause of action or counterclaim, also known as a charging lien ^[FN7] (In re Sebring, 238 AD 281 [4th Dept 1933]; In re Reiser, 137 AD 177 [1910]).

Here, the Law Firm's application to quash the Subpoenas at issue is premised upon the ground that it has a retaining lien on the subject documents.

"The purpose of an attorney's retaining lien involve inconvenience to the client" (Sorin v Shahmoon Indus., Inc., 20 Misc 2d 149, 191 NYS2d 14 [Sup Ct, New York County 1959]). "The function of the lien is essentially one of compulsion-its aim being to assure payment of the fee due the attorney for services rendered" (Sorin v Shahmoon Indus., Inc., 20 Misc 2d 149, supra ]). Thus, the purpose of the retaining lien is to compel payment (Singer v Four Corner Serv. Station, 105 NYS2d 77 [Sup Ct, Kings County 1951]), or secure payment of the reasonable value of the services which he or she "had rendered as attorney in the action and or for all services rendered for the client" (see Goldman v Rafel Estates, Inc., 269 AD 647 [1st Dept 1945]). The retaining lien continues until the attorney's charges for all services which he or she has performed for the client have been paid, "not only those pertaining to matters relating to the papers or property in his hand at the time, but also for any balance due for other professional services" (In re Sebring, 238 AD 281, supra ) (emphasis added).

However, where the attorney receives papers, including money, "as trustees," he or she becomes mere escrowees or custodians of the papers, and thus, not possessors as contemplated in retaining lien cases (Marsano v State Bank of Albany, 27 AD2d 411 [3d Dept 1967]; see generally Matter of Nelson, 176 AD2d 882 [2d Dept 1991] [compelling counsel acting only as a co-trustee to turn over records in his possession where counsel failed to establish that documents were protected by the attorney-client privilege]; In re Dawson, 110 Misc 472 [Sur Ct, New York County 1920] [property in possession of attorney not subject to retaining lien where property did not belong to the client, but belonged to the next of kin, subject to administration; possession of [*6]property by attorney was not necessary to draw the papers, and was delivered to lawyer in nature of trust property]). Unless the attorney can establish a retaining lien (or some other privilege), litigation papers belong to the client.

Since the Law Firm's rendition of services at the request of Ms. Gonzalez was made on behalf of the Estate of Dr. Martinez, such services entitle the Law Firm to a common-law retaining lien on any of the Estate's books, papers, money and securities which are in the attorney's possession. Whether Mr. Regan "acted as Trustee" and "as counsel" at all times, or whether the subject documents came into the Law Firm's possession in its sole capacity as Trustee, is not dispositive under the circumstances. Even if the Court were to adopt Ms. Gonzalez' position that the Law Firm came into possession of the requested documents in its sole role as Trustee of both Trusts, it is undisputed that that requested documents were utilized subsequent to the death of Dr. Martinez, in connection with legal representation of the interests of the Estate of Dr. Martinez.

The records sought by Ms. Gonzalez were initially generated by the Law Firm for the benefit of its former client, Dr. Martinez. It is undisputed that the bills generated from the Law Firm's representation of Dr. Martinez were paid. Thus, no retaining lien exists as to the documents for legal services rendered during the Law Firm's representation of Dr. Martinez during his lifetime, and the subject documents remained property of Dr. Martinez, even though in the possession of the Law Firm. Upon his death, the subject records became property of the Estate of Dr. Martinez. To the extent the subject documents were subsequently utilized by the Law Firm for the benefit of the Estate of Dr. Martinez, a retaining lien attaches to such documents until the legal bills generated in connection with the subsequent legal services are paid. This conclusion is warranted notwithstanding that the Law Firm was purportedly retained by Ms. Gonzalez, since Ms. Gonzalez retained the Law Firm, in part, in her representative capacity and for the benefit of the Estate of Dr. Martinez. It is undisputed that portions of the outstanding legal bills were generated by Ms. Gonzalez in her representative capacity, and thus, such outstanding legal bills were generated on behalf of the Estate of Dr. Martinez.

As stated by Miyasaki, Advanced Estate Planning Techniques: Avoiding Ethical Dilemmas, American Law Institute-American Bar Association Continuing Legal Education, February 23-25, 2006 SL073 ALI-ABA 431, 444):

If a lawyer is retained to represent a fiduciary generally with respect to the fiduciary estate, the lawyer represents the fiduciary in a representative and not an individual capacity—the ultimate objective of which is to administer the fiduciary estate for the benefit of the beneficiaries. Giving recognition to the representative capacity in which the lawyer represents the fiduciary is appropriate because in such cases the lawyer is retained to perform services that benefit the fiduciary estate and, derivatively, the beneficiaries—not to perform services that benefit the fiduciary individually. The nature of the relationship is also suggested by the fact that the fiduciary and the lawyer for the fiduciary are both compensated from the fiduciary estate.

Once the Law Firm utilized the documents for the benefit of the Estate of Dr. Martinez, the documents over which the Law Firm may not have had a retaining lien, became subject to a retaining lien since the legal work performed, at the request of Ms. Gonzalez, was essentially legal work inuring to the benefit of the Estate of Dr. Martinez. The subject subpoenas were [*7]issued on behalf of the Estate of Dr. Martinez. Thus, the Law Firm has a retaining lien over such documents until the unpaid legal bills related to services performed on behalf of the Estate of Dr. Martinez, are satisfied, or a bond is posted to secure payment of outstanding legal bills.

The invoices submitted by the Law Firm substantiate its claim of unpaid legal bills, and it cannot be said that legal work giving rise to such bills was performed for others, as Ms. Gonzalez contends. The legal work giving rise to such bills was generated on behalf of either (1) Ms. Gonzalez in her individual capacity as beneficiary or (2) Ms. Gonzalez in her representative capacity for the benefit of the Estate of Dr. Martinez. In either event, the subject documents, though generated during the representation and lifetime of Dr. Martinez, were utilized in connection with the legal work performed by the Law Firm, for which payment is outstanding. Further, even if the the documents were generated or came into the Law Firm's possession solely in its role as Trustee, as Ms. Gonzalez argues, the Law Firm also possessed such documents subsequent to Dr. Martinez' death, as counsel for the benefit of the Estate of Dr. Martinez, during its subsequent relationship with Ms. Gonzalez.

The Court's determination herein does not disturb or defeat the conclusion reached by the Texas Court that the documents sought are relevant. Relevancy is not an issue before the Court. Further, the Texas Court's order directing the taking of discovery is also left undisturbed. The determination herein simply finds that the discovery sought by Ms. Gonzalez is subject to a retaining lien held by the Law Firm, and may be exchanged upon payment of outstanding legal bills or upon a sufficient undertaking.

However, a hearing is necessary to determine which portions of the invoices submitted by the Law Firm relate solely to the Estate of Dr. Martinez as opposed to Ms. Gonzalez in her individual capacity. Generally, where an attorney asserts a retaining lien for legal services rendered and refuses to release the clients' papers in his possession in the face of a request for turnover of such papers, the attorney is entitled to a summary determination, fixing the value of his services. Thus, it is noted at this point, that the absence of Ms. Gonzalez' signature on the retainer agreement does not undermine the Law Firm's common-law right to a retaining lien. Thus, that sum of the value of the attorney's services must be paid or otherwise secured before any turnover may be enforced (Levitas v Levitas, 96 Misc 2d 929, 410 NYS2d 41 [Sup Ct, New York County 1978]).

Conclusion

Based on the foregoing, it is hereby

ORDERED that the motion by Thelen Reid & Priest LP and Robert J. Reger, Jr. to quash the subpoenas for the taking of depositions upon written questions and the subpoenas duces tecum attached thereto served by Letizia Martinez De Gonzalez and for a protective order is granted; and it is further

ORDERED that the cross-motion by petitioner Letizia Martinez De Gonzalez to compel Thelen Reid & Priest LP and Robert J. Reger, Jr. to comply with the Order of the Court (Stackhouse, J.) which directed the taking of discovery pursuant to CPLR 3102(e) is granted, on the condition that payment, or a posting of an undertaking, is made to Thelen Reid & Priest LP and Robert J. Reger, Jr. for the reasonable value of legal services rendered on behalf of the Estate [*8]of Dr. Martinez to be determined by a Referee; and it is further

ORDERED that the issue of the reasonable value of legal services rendered by Thelen Reid & Priest LP and Robert J. Reger, Jr. on behalf of the Estate of Dr. Martinez is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Referee, or Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issues; and it is further

ORDERED the movant shall move pursuant to CPLR 4403 within 30 days of receipt of the determination of the Special Referee or the designated referee; and it is further

ORDERED that counsel for petitioner shall serve a copy of this order with notice of entry on all parties and the Special Referee Clerk, Room 119M, within 30 days of entry to arrange a date for the reference to a Special Referee.

This constitutes the decision and order of the Court.

Dated: February 9, 2007___________________________________

Hon. Carol R. Edmead, J.S.C.

Based on the accompanying Memorandum Decision, it is hereby

ORDERED that the motion by Thelen Reid & Priest LP and Robert J. Reger, Jr. to quash the subpoenas for the taking of depositions upon written questions and the subpoenas duces tecum attached thereto served by Letizia Martinez De Gonzalez and for a protective order is [*9]granted; and it is further

ORDERED that the cross-motion by petitioner Letizia Martinez De Gonzalez to compel Thelen Reid & Priest LP and Robert J. Reger, Jr. to comply with the Order of the Court (Stackhouse, J.) which directed the taking of discovery pursuant to CPLR 3102(e) is granted, on the condition that payment, or a posting of an undertaking, is made to Thelen Reid & Priest LP and Robert J. Reger, Jr. for the reasonable value of legal services rendered on behalf of the Estate of Dr. Martinez to be determined by a Referee; and it is further

ORDERED that the issue of the reasonable value of legal services rendered by Thelen Reid & Priest LP and Robert J. Reger, Jr. on behalf of the Estate of Dr. Martinez is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Referee, or Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issues; and it is further

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ORDERED the movant shall move pursuant to CPLR 4403 within 30 days of receipt of the determination of the Special Referee or the designated referee; and it is further

ORDERED that counsel for petitioner shall serve a copy of this order with notice of entry on all parties and the Special Referee Clerk, Room 119M, within 30 days of entry to arrange a date for the reference to a Special Referee.

This constitutes the decision and order of the Court. [*10]

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Dated ____________ENTER: _______________________, J.S.C.

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