July 2013 | Earn one hour of MCLE Credit in Legal Ethics
By Suzanne Burke Spencer
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Noting the mischief and leverage over a client’s funds that
even a false notice of attorney’s lien gives an attorney, the Court of Appeal in Carroll v. Interstate Brands Corp., 99 Cal. App. 4th 1168, 1178 (2002) called
on the legislature to adopt statutory procedures for the expeditious resolution
of attorney’s liens. Ten years later, no such statutory procedures have been
provided. Much of the “mischief” feared by the Carroll court, however, can
be avoided if an attorney abides by the ethical rules and duties already in
place. Those rules and duties are the subject of this article.
An attorney’s lien is contractual in nature
An attorney’s lien (also known as a “charging” lien) is a
lien that secures an attorney’s compensation against the funds or judgment
recovered by the attorney for the client. Fletcher v. Davis, 33 Cal. 4th
61, 66 (2004).
An attorney’s lien is not automatically created upon the
lawyer’s provision of legal services to a client, but requires a contract for
its creation. Carroll, 99 Cal. App. 4th at 1172. Once created, an attorney’s
lien grants the attorney a security interest in the proceeds of the litigation
in which he represented the client. Fletcher, 33 Cal. 4th at 67.
With hourly fee agreements, a valid attorney’s lien is
created only if the attorney complies with California Rules of Professional
Conduct, Rule 3-300. Id. at 69. Rule 3-300 requires the attorney to
“explain the transaction fully, to offer fair and reasonable terms, to provide
a copy of the agreement, to give the client an opportunity to seek independent
legal advice [and to advise the client in writing that he may do so], and to secure the client’s written consent. Id. at 71; Rule 3-300.
Compliance with Rule 3-300, however, is not required in a
contingent fee arrangement, because the lien “is an equitable corollary to, and
thus inherent in, a contingency fee contract.” Cal. Form. Opn. 2006-170
(emphasis in original). In a contingent fee arrangement, a written contingent
fee agreement in compliance with Business and Professions Code § 6147 and which
expressly provides for a lien against the client’s recovery is generally
sufficient to create a valid attorney’s lien. A lien may also be implied where
the retainer agreement requires the attorney to look to the proceeds of the
litigation for payment. See Cetenko v. United California Bank, 30 Cal.
3d 528, 531 (1982). Though not required to perfect the lien, an attorney may
also file a notice of lien in the case against which he asserts the lien. Carroll,
99 Cal. App. 4th at 1172.
The right to enforce does not exist until the contingency occurs
An attorney’s lien is created and takes effect when the fee
agreement giving rise to the lien is executed. Cetenko, 30 Cal. 3d at
534. Such a lien has priority over other liens created after the
attorney-client fee agreement was entered into. Carroll, 99 Cal. App.
4th at 1175. An attorney’s lien, however, must generally be enforced in a
separate legal proceeding. The court in which the case is pending and in which
a notice of lien may be filed lacks jurisdiction to determine the validity or amount of any attorney’s lien. Carroll, 99 Cal. App. 4th at 1176-77.
There is a difference between the right to claim an attorney’s
lien and the right to payment of a fee. The right to claim an attorney’s lien
depends only upon whether the lien was validly created in the contract between
the attorney and client. By contrast, the right to be paid a fee depends on the
occurrence of the contingency defined in the agreement giving rise to the right
to be paid a fee (e.g., judgment or settlement of the case). Thus, the
creation of a lien does not itself give the attorney the right to claim payment,
but rather gives the attorney only the right to be paid from a specific source
of funds should a fee otherwise be earned. Until a fee is earned, no right to
enforce the claim of lien exists. Fracasse v. Brent, 6 Cal. 3d 784, 792 (1972).
If the contingency never occurs, no fee is earned, and the lien is of no value. Id.
Non-contracting attorneys may not enforce
As a creature of contract, to enforce a lien “a direct contractual
relationship between the attorney and the client is essential. When the client
enters into a retainer agreement with one particular attorney, a lien in favor
of another attorney, albeit associated, is neither express nor implied and does
not exist.” Carroll, 99 Cal. App. 4th at 1172. Attempts by discharged employees,
associates, contract attorneys or co-counsel to enforce a lien against a firm
client have repeatedly been rejected by the courts. See Trimble v. Steinfeldt,
178 Cal. App. 3d 646, 651-52 (1986) (former employee); Kenneally v. Bosa
Cal. LLC, No. 09-CV-2039, 2011 WL 2118255 (S.D. Cal. May 26, 2011)
(co-counsel);Huskinson & Brown v. Wolf, 32 Cal. 4th 453, 465 (2004)
(referring attorney with invalid fee splitting agreement). In such situations,
the attorney must look to the contracting attorney or firm, not the client, for
payment. See Beydoun v. Strong, 166 Cal. App. 4th 1398 (2008).
Similarly, a former partner who leaves a firm and brings a
client with her may not directly assert a lien for services performed while the
client was represented by the former firm. Rather, only the former firm can
enforce that lien. The departing partner’s right to compensation is governed by
the partnership or other compensation agreements between the departing partner
and the former firm. See City of Morgan Hill v. Brown, 71 Cal. App.
4th 1114 (1999).
Duties to clients regarding enforcement
Even after an attorney is discharged by a client, with or
without cause, the discharged attorney “continue[s] to owe [the client] a
fiduciary duty of utmost good faith and fair dealing with respect to, at least,
the subject matter of [the attorney’s] prior representation of [the client],
including [the attorney’s] express lien for his attorney’s fees.” In re
Feldsott, 3 Cal. State Bar Ct. Rptr. 754, 757 (Rev. Dep’t 1997). If an
attorney attempts to enforce a lien for his attorney’s fees in violation of the
legal or ethical principles governing attorney’s liens, the lawyer is in breach
of his fiduciary duties to his former client.
Rule 4-100(B)(4) requires an attorney to promptly pay, at
the client’s request, any funds in the attorney’s possession which the client
is entitled to receive. An attorney’s duties under that rule are not
extinguished by termination of the attorney-client relationship. Cal. Form. Opn.
Thus, where an attorney is asserting lien rights against
less than all of the funds recovered, the attorney “has
a duty to promptly take reasonable steps to pay or deliver to the client the
portion of the proceeds that are not in dispute,” promptly make a “reasonable
determination” of the amount of fees claimed under the lien, and “promptly
offer reasonable suggestions” for disbursement of any remaining funds belonging
to the client. Cal. Form. Opn. 2009-177; In re
Feldsott, 3 Cal. State Bar Ct. Rptr. 754 (Rev. Dept. 1997); Fletcher v.
Davis, 33 Cal. 4th 61, 69 (2004); Friedman v. State Bar, 50 Cal.
3d 235, 240-41 (1990).
Such duty does not require the attorney to abandon valid
lien rights in order to ensure disbursement, provided the attorney acts
reasonably to assert those rights while offering reasonable alternatives for
disbursement of the undisputed amount. In re Feldsott, 3 Cal. State Bar
Ct. Rptr. 754 (Rev. Dept. 1997).
In the context of hourly fees secured by an attorney’s lien,
the amount of the attorney’s lien would generally be the balance due on the
client’s account. Provided the lien amount is not asserted in excess of that
amount, the attorney has complied with his ethical obligations. Cf. Grossman
v. State Bar, 34 Cal. 3d 73, 79-80 (1983) (attorney properly disciplined
where he retained client funds in excess of the fixed fee provided in the
In the context of contingent fee representation, however, calculation
of the lien amount is somewhat more complicated. A contingent fee attorney
discharged (with or without cause) before the representation is concluded is
entitled to receive no more than the reasonable value of the attorney’s
services, “quantum meruit,” up to the time of discharge. Fracasse, 6
Cal. 3d at 792; Weiss v. Marcus,
51 Cal. App. 3d 590, 598 (1975). Determination of the quantum meruit value of
an attorney’s services depends upon many factors, including the results
achieved, time spent on the matter, the risk taken, and reasons for discharge.
Where an attorney is discharged before the matter is complete, the attorney is generally
not entitled to the full amount of compensation called for in the contract
“since that amount may reflect neither value received nor services performed
and could result in double payment of fees first to the discharged and then to
a new attorney.” Spires v. American Bus Lines, 158 Cal. App. 3d 211, 216
(1984). Asserting a lien in the full contract amount would generally violate
the attorney’s ethical and fiduciary duties to her client. Instead, the
attorney is entitled to receive no more than the reasonable value of his
services, with an upper limit of the contract contingent fee pro rated to
reflect the partial performance of the contract. Cazares v. Saenz, 208
Cal. App. 3d 279, 289 (1989). For example, if the discharged attorney
performed half of the contract before being discharged, the upper limit of the attorney’s compensation would be one half of the full contract price.
The discharged contingent fee attorney also
shares the total contingent fee earned with successor counsel, as there may only
be a single contingent fee paid by the client. If that contingent fee is insufficient
to cover the full quantum meruit claims of discharged and existing counsel, the
attorneys must allocate the fee between themselves based on a formula which pro
rates the contingent fee among all discharged and existing attorneys “in proportion
”Spires, 158 Cal. App. 3d at 216; see also In re Van Sickle, No. 99-O-12923, 2006 WL 2465633 (Rev. Dep’t 2006).
Where the attorney and client cannot agree as to the fees
owed, and the client requests release of funds in which the attorney claims an
interest, “the attorney violates rule 4-100(B)(4) if he or she does not
promptly take appropriate, substantive steps to resolve the dispute in order to
disburse the funds.” In re Kroff, 3 Cal. State Bar Ct. Rptr. 838, 853-54
(Rev. Dep’t 1998). The attorney has an affirmative obligation to seek
reasonable methods for delivering to the client the undisputed portion. This
may include offering to place the disputed funds into a blocked account
requiring signatures from the attorney and client, authorizing the disputed
funds to be placed in successor counsel’s trust account, or promptly commencing
legal action or arbitration to resolve the dispute. In re Feldsott, 3
Cal. State Bar Ct. Rptr. 754, 757 (Rev. Dep’t 1997); In re Kroft, 3 Cal.
State Bar Ct. Rptr. at 853-54; Cal. Form. Opn. 2009-177; see also Los
Angeles Bar Ass'n Form. Opn. No. 438 (1985).
Where a fee dispute arises between lawyer and client, the
attorney-client privilege is waived, but only to the extent necessary for the
attorney to defend or prosecute his claims. Evid. Code § 958; McDermott,
Will & Emery v. Superior Court, 83 Cal. App. 4th 378, 383-84 (2000).
Duties between counsel regarding enforcement
Successor counsel in the possession of settlement or other
proceeds against which a predecessor attorney has asserted a lien has a
fiduciary obligation to the attorney lienholder with respect to the funds. See Johnstone v. State Bar, 64 Cal. 2d 153, 155-56 (1966); In re
Respondent P, 2 Cal. State Bar Ct. Rptr. 622, 632 (Rev. Dep’t 1993); Cal.
Form. Opn. 2008-175. That duty includes the duty to inform predecessor counsel of
the fact and amount of settlement. In re Riley, 3 Cal. State Bar Ct.
Rptr. 91, 111-15 (Rev. Dep’t 1994); Cal. Form. Opn. 2008-175. Moreover, a third
party (e.g., the defendant or the defendant’s insurer) with notice of
the plaintiff’s former counsel’s attorney’s lien, may be civilly liable to the
lienholder for paying out the funds directly to successor counsel and the
plaintiff. See Levin v. Gulf Ins. Group, 69 Cal. App. 4th 1282, 1287-88 (1999).
Where a dispute arises only between successor and
predecessor counsel as to the pro-rata allocation of the fee earned, where the client has not disputed the fee earned, the attorney may reveal to
prior counsel the fact and amount of settlement, but that attorney must
continue to otherwise maintain her duty of confidentiality to her client when
attempting to reach an accord with prior counsel. Cal. Form. Opn. 2008-175. In
litigation between counsel, “the presiding officer will be in a position to limit disclosure of confidential information to the greatest extent possible” Id.at 6.
In asserting an attorney’s lien, following well-established ethical
and fiduciary duties should eliminate or at least reduce any harm to the
client. By reasonably and promptly quantifying liens, consenting to
disbursement of undisputed funds and reasonably negotiating with successor
counsel the allocation between attorneys of any contingent fee earned, attorneys
should be able to resolve most lien disputes without court involvement. Such a result
should be compelled not only by ethical considerations, but by practical considerations
as well. Drawn out and costly legal battles over entitlement to fees and
validity of liens tax not only the lawyers and clients involved, but the
judicial system as a whole.
Suzanne Burke Spencer is an attorney with The Sall Law
Firm in Laguna Beach, where she focuses her practice on business litigation and
legal malpractice law. She is also a member of the State Bar of California’s
Standing Committee on Professional Responsibility and Conduct (COPRAC). This
article appears in the California Bar Journal as part of COPRAC’s outreach and
educational efforts. For more information on COPRAC go to calbar.ca.gov/ethics. The
views expressed herein are her own.