The court in the case of In re Fontaine, 231 B.R. 1 (Bkrtcy.D.N.J. 1999) dealt with a situation where a personal injury lawyer gave a "letter of protection." The court noted that for an assignment to be created, the effect must be that the assignor does not retain the power to revoke the assignment. In this case, the court found the letter of protection did not use terminology indicating an assignment or that intention was irrevocable and held that it did not operate as an assignment.
The court noted that for an equitable lien to be valid as against a bankruptcy trustee, there must be no available legal means to perfect the lien. The court further noted that even assuming there was a legal means to obtain lien on personal injury claim, the party failed to take necessary steps to do so. The court stated that if is were not possible under New Jersey law to obtain a lien on personal injury claim, it would violated New Jersey law to grant an equitable lien on a personal injury claim.
The court reviewed that the right of action for personal injuries cannot be made the subject of an assignment before the entry of a judgment in absence of statute. The court further noted that the assignment of a chose in action on contract claim is permitted but not on tort claim. Article 9 of UCC would apply to assignment of contract claim.
The court further held that the party did not comply with New Jersey statute that provides for a procedure for hospital and physicians to obtain a lien on personal injury causes of action and its proceeds for their services . To perfect such a lien, it must be filed with the county clerk and notice be given to the injured person.
