## Facts

- A legal-malpractice action settled for $582,500 payable to Eric H. Woods, and the proceeds were placed in his counsel’s trust account.
- Multiple parties asserted claims to the same settlement fund, including:
  - Woods’s current malpractice counsel, Hassard Bonnington, under a retainer providing a lien on any recovery.
  - Woods’s former counsel, Haas & Najarian, under a contractual attorney-fee lien.
  - Fireman’s Fund, under an attachment lien obtained under California Code of Civil Procedure § 491.410.
  - Flynn & Stewart, under a contractual security agreement granting it an interest in Woods’s litigation proceeds to secure unrelated legal fees; it also filed a UCC financing statement.
- Woods moved in superior court for an order establishing lien priorities and directing distribution of the settlement proceeds.
- The trial court ordered distribution: first to Hassard Bonnington, then to another claimant, then to Flynn & Stewart; the remaining claimants (including Haas & Najarian and Fireman’s Fund) received nothing because the fund was exhausted.
- Fireman’s Fund and Haas & Najarian appealed the priority given to Flynn & Stewart.

## Issues

1. Whether a contractual lien on litigation settlement proceeds, created earlier but without any notice filed in the litigation, has priority over later liens for which notices or filings were made (including an attachment lien and a later attorney-fee lien).
2. Whether doubts about “perfection” under UCC Article 9 (given its limits regarding tort claims) defeat or subordinate a prior contractual lien on settlement proceeds.

## Decision

- The Court of Appeal affirmed the order establishing priorities and distributing the fund.
- Flynn & Stewart’s prior contractual lien had priority over Fireman’s Fund’s later attachment lien and Haas & Najarian’s later contractual lien, despite the absence of a notice filed in the underlying litigation.
- Any dispute about Article 9 perfection did not control priority because the lien’s enforceability and precedence rested on contract lien principles and earlier creation.

## Legal Principles

- Contractual liens may be created under California law (including Civil Code § 2881) and are not invalid or subordinated merely because no notice is filed in the underlying action absent a statute requiring such notice.
- In the absence of a statutory priority rule to the contrary, lien priority generally follows “first in time, first in right.”
- Later procedural steps by junior lienholders (such as filing notices in the action or obtaining an attachment lien) do not defeat a preexisting contractual lien unless a statute so provides.
- Where a lien claims settlement proceeds from tort-based litigation, uncertainty about UCC Article 9 applicability or “perfection” does not necessarily displace priority determined by earlier contractual creation.

## Conclusion

The court upheld distribution of settlement proceeds based on temporal priority: a prior contractual lien on litigation proceeds prevailed over later attachment and attorney-fee liens even though the prior lienholder did not file notice in the underlying action, and Article 9 perfection questions did not alter that result.


Bluxome St. Assocs. v. Fireman's Fund Ins. Co., 206 Cal. App. 3d 1149 (Ct. App. 1988)