OPINION OF THE COURT
ALDISERT, Circuit Judge.
This appeal by the government from an order of the district court, 321 F.Supp. 7, awarding $5,000 to attorney claimants from an escrow fund requires us to decide whether the claimants had perfected an attorney's lien under Pennsylvania law and were, therefore, entitled to priority over a federal tax lien.
The government brought an action in the district court seeking to enforce a 1964 levy on an escrow account in the Fidelity-Philadelphia Trust Company, held in the names of Samuel Kagle and Frank Truscott, Attorneys, for the benefit of O'Brian Buick, Inc., or Carl H. O'Brian and/or Miriam O'Brian, his wife. In 1961, a delegate of the Secretary of the Treasury made an assessment of $116,158.67 for 1947, 1948, and 1949 corporate income taxes against O'Brian Buick, Inc., and in 1963, an assessment of $83,423.89 for 1951, 1952, and 1953 personal income taxes, penalties and interest against the O'Brians.
The funds on deposit represented proceeds from a 1956 sale of the assets of O'Brian Buick, Inc., whose stock was owned by Carl O'Brian and Jules DeHaan. Because the sellers were in disagreement over the proposed distribution of the proceeds, the purchaser imposed as a condition to the sale the creation of an escrow account in the names of Attorneys Truscott and Kline representing O'Brian, and Attorney Myron Jacoby representing DeHaan. After the account was opened, Kagle succeeded Jacoby as DeHaan's attorney.
In their brief filed in this court, appellees assert:
The district court found for the lawyer claimants:
When a lien under state law has acquired sufficient substance and has become so perfected as to defeat a later arising or later filed federal tax lien is a matter of federal law. United States v. Pioneer American Ins. Co., 374 U.S. 84, 88, 83 S.Ct. 1651 (1963); United States v. Acri, 348 U.S. 211, 213, 75 S.Ct. 239, 99 L.Ed. 264 (1955). Under federal law a state lien is "perfected in the sense that there is nothing more to be done to have a choate lien—when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. New Britain, 347 U.S. 81, 84, 74 S.Ct. 367, 369, 98 L.Ed. 520 (1954).
A federal tax lien is a perfected, choate lien on the date the lien arises. United States v. Security Trust & Savings Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53 (1950); United States v. New Britain, supra. The lien arises at the time of assessment and continues until the liability is satisfied or becomes unenforceable. 26 U.S.C. § 6322. Here it was uncontroverted that assessment was made on December 1, 1961, on the corporation, on November 9, 1962, on Mr. O'Brian, and on June 14, 1963, on both O'Brians. The priority of a lien created by state law depends upon the time it attached to the property and became choate. Thus, to obtain priority over the federal lien, it became the burden of the attorney claimants to prove (1) they had a lien under Pennsylvania
Pennsylvania recognizes two types of attorneys' liens: a charging lien and a retaining lien. To establish a charging lien "it must appear (1) that there is a fund in court or otherwise applicable for distribution on equitable principles, (2) that the services of the attorney operated substantially or primarily to secure the fund out of which he seeks to be paid, (3) that it was agreed that counsel look to the fund rather than the client for his compensation, (4) that the lien claimed is limited to costs, fees or other disbursements incurred in the litigation by which the fund was raised and (5) that there are equitable considerations which necessitate the recognition and application of the charging lien." Recht v. Urban Redevelopment Authority of Clairton, 402 Pa. 599, 608, 168 A.2d 134, 138-139 (1961).
The record is far from clear as to the precise role played by the attorneys in attending their principals during the negotiations leading up to the sale. Mr. Kline testified:
Even if this established the claim of Truscott and Kline, this testimony does not justify the claim of Mr. Kagle who said:
Because there is nothing in the record to indicate that Mr. Kagle succeeded to Mr. Jacoby's interest, his claim must be predicated upon services performed after the fund was created.
The attorney account was created when the purchaser of the corporate assets insisted as a condition of the sale
Assuming that claimants presented sufficient evidence to establish they had created the fund, there is no testimony in the record that there was any agreement between the parties and their clients that they could look to the fund for their fee. As stated in Recht, supra, 168 A.2d at 139:
Indeed, there is testimony from claimant Truscott
One of the prerequisites to establishing a charging lien is an agreement that the attorney will look to the fund rather than to the client for payment. Recht, supra, 168 A.2d at 138-139. Here, the only testimony bearing on any indication, averment or conclusion that the claimants looked to the fund for payment is, at best, unpersuasive, and, at worst, militates against them. We find, therefore, that these claimants did not meet the requirements for a valid charging lien under Pennsylvania law.
A retaining lien
A comparison is also invited to the common law lien for work done on personalty. It is indispensable that the person claiming such a lien in Pennsylvania have an independent and exclusive possession of the personalty. Fitzgerald v. Elliott, 162 Pa. 118, 29 A. 346 (1894); 5 P.L.E. Possession of Bailed Property § 20, at 90.
We find there was no actual possession of the funds by the attorneys, and, accordingly, hold they did not meet the requirements for a retaining lien.
Even were we satisfied that the minimum requirements of an inchoate retaining or charging lien had been established under Pennsylvania law, there still remains the question of whether it was perfected into the status of a choate lien in order to merit priority under federal law. Although the claimants may have proved two of the three requirements imposed by federal law to legitimate a state lien—identity of the lienor and the property subject to the lien—we are not convinced there was sufficient proof that the precise amount of the lien was established prior to the perfection of the federal tax liens of 1961, 1962, and 1963. Unless the lien was so perfected, it can enjoy no priority.
The district court found that it had become perfected on the basis of Mr. Truscott's testimony that services reflected by this claim had ripened and matured "at the same time as payment was made to Carl O'Brian and DeHaan," apparently in 1956. Clearly, however, this theory runs counter to that advanced by Attorney Kline:
Truscott's approach, adopted by the district court, also runs counter to the basic argument pressed by brief in this court; i. e., that the $5,000 fee represented services for "negotiations with respective clients as to conflicting
In addition to the contradictions inherent in the testimony of the claimants, the procedure employed by the district court in its adjudication is in itself inconsistent with its conclusion that the amount of the fee—the amount of the lien necessary to perfect the claim into a choate state lien—was fixed prior to 1961, 1962, and 1963. At two critical junctures the court disclosed that it was fixing "the fair and reasonable value of these attorneys' services." Indeed, it declared: "The court concludes that the fair and reasonable value of these attorneys' services is $5,000."
Implicit in the setting by the court in 1971 of "a fair and reasonable value of the services" of the attorney claimants is the unspoken premise that the amount of the fee was not fixed prior thereto. Appellees cannot have it both ways. Either the fee was fixed in amount prior to this time, or it was not. If it was fixed, then there was no necessity for the court to enter into a determination of its reasonableness. The reasonableness of a fee as reflected by the lien is irrelevant to the determination of whether a lien has been established, Recht, supra, 168 A.2d at 139. If it became necessary to fix a fee on the strength of claimants' own testimony that this was a reasonable charge for services rendered, then this in itself is evidence that no specific amount for the fee was fixed prior to the district court's adjudication. Moreover, it is inconsistent to say the lien became choate in 1956 or 1957 and in the next breath, referring to equitable principles, declare that the claim was justified in part because the attorneys "expended considerable time in maintaining this fund for a period in excess of eight years."
Remaining for our consideration is an alternate ground utilized by the court in making the award. The court stated that "equitable principles analogous to the doctrine of unjust enrichment compel the court to award them a reasonable attorney's fee for their services in establishing and maintaining the fund." The court found that "the legal services rendered by these attorney-defendants substantially and materially contributed to the creation of this fund. Likewise, they expended considerable time in maintaining this fund for a period in excess of eight years."
The court's reliance on United States v. Hubbell, 323 F.2d 197 (5th Cir. 1963); United States v. Kamieniecki, 261 F.Supp. 683 (D.N.H.1963) and Sprague v. Ticonic Nat. Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939) was misplaced.
In Hubbell, a federal tax lien had been lodged against a painting subcontractor, who thereafter assigned to his general contractor an unliquidated contract claim he had against a housing authority for extra work performed. The subcontractor testified that although the government knew of his claim, it "pointed out they could not represent me or assist me in any way." The contractor then prosecuted the claim to a successful judgment. The court held that the contractor and its attorneys were entitled an "amount of reimbursement equitably due * * * for creating the fund for the benefit of the government." 323 F. 2d at 201.
In Kamieniecki, the attorney prepared a petition for declaratory judgment in a state court and successfully carried it through the New Hampshire Superior Court and then to the New Hampshire
In Sprague, faced with the limited issue of whether a federal court sitting in equity had the power to award attorney's fees as part of costs in a test case, ancillary to other litigation, the Court held that "such allowances are appropriate only in exceptional cases and for dominating reasons of justice." 307 U. S. at 167, 59 S.Ct. at 780.
Through these cases runs a common thread: a fund reduced to judgment as a result of litigation services rendered by the claimant lawyers for the benefit of others. In the case at bar, there was no litigation associated with the creation of the fund. We have searched the record and find no evidence that Truscott or Kline obtained the buyer who ultimately purchased the assets of the corporation. Indeed, their testimony is starkly limited to vague generalizations of accompanying and counseling O'Brian during the negotiations.
Finally, always a significant factor in deciding the equities, there is nothing in the record to indicate that the attorney claimants will be, or were, precluded from pressing their claims directly against their clients or the estates thereof. Recht, supra, 168 A.2d at 140.
The judgment of the district court will be reversed.