CALIFORNIA ATTORNEY'S FEES

Attorney’s Liens In Minor Compromise Cases And Attorney Withdrawal: First District, Division 1 Tackles Some Interesting Issues

Finds Attorney’s Lien Dispute Can Be Resolved in Minor Compromise Case and Analyzes Permissive Withdrawal Circumstances That Will or Will Not Give Rise to Quantum Meruit Recovery.

     Here is an unpublished decision that faced some gnarly issues regarding jurisdictional and quantum meruit recovery issues in an attorney’s lien situation where an attorney obtained a mandatory withdrawal in a contingency case. Interestingly enough, the appellate court disagreed with the trial court’s assessment, finding the withdrawal was permissive and was not of a species that should allow for quantum meruit recovery—reversing a lower court’s order requiring satisfaction of the lien out of settlement proceeds.

     In Noskevich v. Eden Medical Center, Case No. A125152 (1^st Dist., Div. 1 Mar. 3, 2010) (unpublished), the lower court granted a lien to plaintiff minor’s (represented by her mother/guardian ad litem’s) former attorneys in the amount of $23,061.77, payable out of the minor compromise settlement proceeds. The Court of Appeal reversed the orders enforcing payment of the lien.

Mike And Marc’s Top Twenty Decisions For 2009

Part 2 of 2: Second Ten Grouping—Nos. 1-10.

     We already gave you our top 11-20 decisions previously this month.

     As noted in an earlier post, we have accumulated our “top 20” attorney’s fees decisions, recognizing that we limit the list to published decisions and that the order reflects nothing about the importance of the decision. Rather, we try to survey decisions of interest in different areas of the substantive law based on all the decisions we have examined during 2009.

     Without further ado, here we go for nos. 1-10. Happy New Year. 

10. Christensen v. Stevedoring Services of America, 557 F.3d 1049 (9^th Cir. Mar.

2, 2009) and Van Skike v. Director, Office of Workers’ Compensation

Programs, 557 F.3d 1041 (9^th Cir. Mar. 2, 2009)

Author: Chief U.S. Dist. Judge Roll, By Designation

     Longshore and Harbor Workers’ Compensation Act attorneys entitled to higher attorney’s fees under broader “prevailing market” test in venue fora rather than just having fees keyed to LHWCA past awards (which have been generally lower in amount).

(See our March 5, 2009 post on this decision.)

9. Peak-Las Positas Partners v. Bollag, 172 Cal.App.4^th 101 (2d Dist., Div. 6

Mar. 16, 2009)

Author: Presiding Justice Gilbert

     Aggressive/tenacious litigation posturing is a factor to be weighed when awarding fees under Civil Code section 1717.

(See our March 16, 2009 post on this decision.)

8. Silver Creek, LLC v. Blackrock Realty Advisors, Inc., 173 Cal.App.4^th 1533

(4^th Dist., Div. 1 May 20, 2009)

Author: Justice McIntyre

     Scoreboard “tie” approach to deciding Civil Code section 1717 “prevailing party” status rejected, with courts needing to determine if either side won their true litigation objectives for purposes of determining which party prevailed.

(See our May 21, 2009 post on this decision.)

7. Hyde v. Midland Credit Mgt., Inc., 567 F.3d 1137 (9^th Cir. June 9, 2009)

Author: Circuit Judge Fletcher

     Attorney’s fees for “bad faith” actions cannot be assessed against plaintiff’s attorneys in Fair Debt Collection Practices Act cases.

(See our June 10, 2009 post on this decision.)

6. Wood v. Santa Monica Escrow Co., 176 Cal.App.4^th 802 (2d Dist., Div. 6

Aug. 13, 2009)

Author: Presiding Justice Gilbert

     Civil Code section 1717 attorney’s fees are only awardable to the overall winner in the litigation, not just the winner of a discrete attorney’s fees proceeding in the case.

(See our August 14, 2009 post on this decision.)

5. Barrientos v. 1801-182 Morton LLC, 583 F.3d 1197 (9^th Cir. Oct. 9, 2009)

Author: Circuit Judge Wardlaw

     Party winning a preemption issue is entitled to fee award under California Civil Code section 1717.

(See our October 10, 2009 post on this decision.)

4. One Star, Inc. v. Staar Surgical Co., 2009 WL 4193643 (2d Dist., Div. 4

Nov. 30, 2009)

Author: Justice Suzukawa

     Revocation of second Code of Civil Procedure section 998 offer means that the first, nonwithdrawn 998 offer is the measuring stick for an award of costs and fees to prevailing party vis-à-vis the ultimate judgment.

(See our December 1, 2009 post on this decision.)

3. Flir Systems, Inc. v. Parrish, 174 Cal.App.4^th 1270 (2d Dist., Div. 6

June 15, 2009)

Author: Justice Yegan

     Fees and costs can be awarded to a prevailing party in a bad faith trade secret misappropriation case even though the losing party won an earlier denial of a summary judgment motion.

(See our June 16, 2009 post on this decision.)

2. Gilman v. Dalby, 176 Cal.App.4^th 606 (3d Dist. Aug. 10, 2009)

Author: Justice Scotland

     Attorney’s liens in personal injury actions have priority over previously-filed medical liens even where plaintiff’s attorney had awareness of the prior medical lien.

(See our August 13, 2009 post on this decision.)

1. Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4^th 557 (Cal.

Supreme Ct. Jan. 26, 2009)

Author: Justice Moreno

     Predispute provision in attorney retainer agreement, which specifies binding arbitration for fee/costs disputes, is enforceable after Mandatory Fee Arbitration Act (MFAA) requirements are exhausted.

(See our January 26, 2009 post on this decision.)

     BLOG UNDERVIEW—We used “fora” rather than “forums.” There is a big controversy on which word to use, so we simply go with our gut—even though some Internet commentators prefer use of the word “forums.” Guess we better don our togas!

Attorney Lien: Pursuing Lien In Underlying Action And Later Interpleader Action Gave Rise To Anti-SLAPP Motion Grant

Conduct Was Also Protected Under Civil Code Section 47 Litigation Privilege.

     The First District, Division 5, in Beheshti v. Bartley, Case No. A122128 (1^st Dist., Div. 5 Dec. 29, 2009) (unpublished), confronted a situation where an attorney was sued for intentional interference, conversion, and intentional/negligent infliction of emotional distress for pursuing his contractual attorney lien rights in an underlying action as well as a later interpleader action filed by a settling defendant. The trial court granted a SLAPP motion on these tort claims in favor of the attorney pursuing his contractual lien.

     The appellate court affirmed. They found the attorney lien was pursued in connection with two actions, and that the attorney's actions were necessary to perfect his lien—conduct that could not constitute an independent wrong for interference analysis or justified exposure under the other tort theories. Beyond that, the appellate court found that the conduct was protected under the Civil Code section 47 absolute litigation privilege, distinguishing the contractual lien as different from the lien involved in LiMandri v. Judkins, 52 Cal.App.4^th 326 (1997).

Correction On Past Post: October 9, 2008 Post On Lu v. Grewal Has An Error

Department of Corrections.    

      We do not claim to be infallible, and thank a reader who recently drew our attention to our October 9, 2008 post on Lu v. Grewal. In our synopsis, we erroneously said “Plaintiff was unhappy, appealed, and lost,” whereas it should have said “Defendants were unhappy, appealed, and lost.” We do apologize for the error and have corrected it so that anyone going to it now will pick up on the correct state of facts.

Photo:  Child wearing dunce cap in class. c1906.  Wikipedia.

 

P.S.  We are not the first to have reversed polarities:

"Ha, ha, my ship! thou mightest well be taken now for the sea-chariot of the sun. Ho, ho! all ye nations before my prow, I bring the sun to ye! Yoke on the further billows; hallo! a tandem, I drive the sea!"

But suddenly reined back by some counter thought, he hurried towards the helm, huskily demanding how the ship was heading.

"East-sou-east, sir," said the frightened steersman.

"Thou liest!" smiting him with his clenched fist. "Heading East at this hour in the morning, and the sun astern?"

Upon this every soul was confounded; for the phenomenon just then observed by Ahab had unaccountably escaped every one else; but its very blinding palpableness must have been the cause.

Thrusting his head half-way into the binnacle, Ahab caught one glimpse of the compasses; his uplifted arm slowly fell; for a moment he almost seemed to stagger. Standing behind him Starbuck looked, and lo! the two compasses pointed East, and the Pequod was as infallibly going West.

But ere the first wild alarm could get out abroad among the crew, the old man with a rigid laugh exclaimed, "I have it! It has happened before. Mr. Starbuck, last night's thunder turned our compasses- that's all. Thou hast before now heard of such a thing, I take it."

"Aye; but never before has it happened to me, sir," said the pale mate, gloomily."

 

-- From Moby Dick

 

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Attorney’s Charging Lien: It Has Priority Over Prior Judgment Creditor’s Lien

Second District, Division 7 Upholds Attorney Lien Priority in Unpublished Decision.

     For those of you needing a primer on how potent attorney’s charging liens can be, we refers you to the recent unpublished decision in Johnson v. Jones, Case No. B208858 (2d Dist., Div. 7 Sept. 24, 2009) (unpublished).

     There, a judgment creditor intervened in an action to collect some proceeds to satisfy an outstanding judgment owed by a judgment debtor who himself hired attorneys to collect upon a judgment lien he had against an unrelated party. Judgment creditor did obtain a court order for payment of $72,000, but did not beat out judgment debtor’s attorneys to the tune of another $48,000. The trial court found that the attorney’s charging lien, even though later in time, “trumped” the judgment creditor’s lien.

     This case has a nice discussion of the leading cases on attorney’s charging liens, and concludes public policy favored the priority of an attorney lien—after all, the judgment creditor might not have received anything but for the collection efforts of judgment debtor’s attorneys as against the unrelated party. (Waltrip v. Kimberlin, 164 Cal.App.4^th 517. 525-526 (2008).)

Attorneys’ Liens On Personal Injury Recovery: These Liens Have Priority Over Medical Liens Even If the Medical Liens Were First In Time And Attorneys Had Awareness of the Prior Medical Lien

 

Third District Rules that Attorney’s Liens Have Priority Over Medical Liens in First Impression Case.

     In personal injury cases, there is an inherent tension between medical liens—contractual liens granted by injured patients to medical providers or assignees that attach to monetary recoveries in personal injury cases—and attorneys’ liens—contractual liens granted by clients to attorneys to secure payment of fees and costs in a personal injury matter. Now, in a case of first impression, the Third District has resolved the question of which lien has priority in favor of attorneys. The case is Gilman v. Dalby, Case No. C050294 (3d Dist. Aug. 10, 2009) (certified for publication).

     Gilman involved a situation in which a medical lien was granted against the future recovery in a personal injury case and the lien was prior to the contractual lien granted to the attorneys eventually settling the case. The problem was that the lawsuit settled for only $6,500, an amount that did not even cover the basic litigation out-of-pocket costs of $6,882.47 (although plaintiffs’ attorneys did waive any recoupment of the costs deficit and fees recoverable under the contingency fee agreement). An assignee of the medical provider with the lien sued the attorneys under various contractual, common count, fiduciary duty, and conversion theories, essentially arguing that the medical lien had priority over the attorney’s lien gobbling up all the personal injury settlement recovery. A demurrer was sustained without leave on the fiduciary duty/unjust enrichment claims, and summary judgment was granted in attorneys’ favor on the remaining claims. Also, the trial court awarded attorneys fees and costs as the prevailing parties in the amount of $17,229.23.

     In a 3-0 decision authored by Presiding Justice Scotland, the Third District reversed on a technical ground, which meant the matter needed to be remanded for further proceedings. However, it did decide the merits of the priority issue in a decision of importance for all plaintiff personal injury attorneys practicing in California.

Attorney’s Fee Ethics: Orange County Law Article Covers Wide Range Of Topics

February 2009 Article by Carole Buckner Covers Many Ethical Issues.

     In the February 2009 edition of the Orange County Lawyer, Carole J. Buckner writes an article, “Ethics Opinions Provide Guidance in Resolving Attorneys’ Fee Issues,” covering a wide-ranging array of ethical issues relating to attorney’s fees.

     Here is a synopsis of issues discussed in the article:

First District Affirms and Reverses Attorney’s Fees Awards When One Party Provided Illegal Legal Referral Services

First District Also Discusses Impact of Unenforceable Attorney Lien Provision in a Contingency Fee Agreement.

     The First District, Division One—in a convoluted set of facts—recently decided a case involving charges of illegal retainer agreements (because tainted by prohibited legal referral actions) and unenforceable attorney lien provisions. The case is Shopoff & Cavallo LLP v. Hyon, Case Nos. A114918 & A116182 (1^st Dist., Div. 1 Oct. 31, 2008) (certified for publication). You know that this was going to be an interesting one when the appellate court indicates early on that “[w]e have before us another appeal in this contentious and long-running dispute between parties claiming various interests in the assets (hereafter the Recovery) obtained from litigation known as the ‘Decker Island litigation.’” So, put on your seat belts and here we go.

     Boiled down to the essentials, coplaintiffs (one of them being appellant Hyon) engaged several attorneys through two trials—assisted by respondent Selten (a non-attorney), who was president of a legal referral company—by which co-plaintiffs obtained a $7.6 million verdict in a trial headed by respondent attorney Shopoff. A global settlement agreement was then negotiated due to obstacles in enforcing the multi-million dollar judgment. Various attorneys involved in the matter and respondent Selten sought pieces of the Recovery, which totaled between 48.5%-60.5% of the Recovery. Coplaintiffs and Selten then tried to enter into partnerships or joint ventures to manage the affairs of the Decker Island business, which had been transferred to coplaintiffs under the global settlement agreement. Relationships soured, prompting Shopoff to file a San Francisco interpleader action to resolve the conflicting claims between coplaintiffs, the various attorneys, and Selten. Hyon filed a Los Angeles action against the other coplaintiff and Selten, and Selten then cross-complained for contractual/tort breaches, fraud, and recovery of the reasonable value of the legal referral and business work that he rendered. Various other pleadings were filed in both actions, with Hyon moving for summary judgment on Selten’s Los Angeles cross-complaint on the grounds that his claims were based on an illegal/unenforceable contract based on Selten’s engagement in the unauthorized practice of law and provision of unlawful attorney referral services (Bus. & Prof, sec. 6155). The trial court granted summary judgment on the basis that Selten provided unlawful attorney referral services to coplaintiffs, meaning the entire contractual arrangement was unenforceable. A receiver was appointed in the interpleader action. Hyon lost most parts of his Los Angeles action, and Selten appealed the adverse summary judgment ruling.

     The trial court in the interpleader action found that the attorneys’ retainer agreements were enforceable and that Selten did not operate an illegal referral service or engage in the unauthorized practice of law. Except to reduce the percentage share awarded to one law firm, the court awarded respondents the full amounts they claimed from the Recovery, along with costs advanced and attorney’s fees as the prevailing parties under Civil Code section 1717.

     In June 2007, the Second District issued its opinion in Selten v. Hyon, 152 Cal.App.4^th 463, 465, 473 (2007), agreeing with the trial court’s conclusion that Selten’s agreement was illegal in part but then remanded so that Selten could be permitted to pursue his common count for the reasonable value of any lawful services rendered (most likely, the business work rather than the illegal attorney referral work). Hyon appealed.

     On appeal, most of the interpleader judgment was affirmed as to the percentage amounts and attorney’s fees awarded to the various attorneys. The First District, Division One, in a 3-0 decision authored by Justice Swager—reversed the judgment in favor of Selten and remanded so that his proper compensation should be calculated, as well as overturning the fee award in favor of Selten.

     Hyon tried to nullify the Recovery awards to Selten and the various attorneys based on Business and Professions Code section 6155, which prohibits unlawful attorney referral services—arguing that the prohibition tainted Selten and also rendered unenforceable the contingent fee agreements with the various attorneys. Justice Swager found that the Second District’s Hyon decision had collateral estoppel effect on Selten, Hyon, as well as the First District. This meant that the interpleader trial judge erred in awarding Selten his Recovery share, with Selten only being entitled to recover in quantum meruit for his lawful, nonlegal work. However, nothing in the earlier Hyon decision impacted the other respondents, who were not parties to the appeal. Beyond that, the Court of Appeal independently examined the various retainer agreements and found that there was no substantial evidence to establish that any of the respondents accepted an illegal referral. “An attorney does not accept an illegal referral pursuant to section 6155 merely because he or she was retained by someone who was operating an illegal referral service. As we interpret section 6155, acceptance of an illegal referral by an attorney must be with knowledge of at least the nature of the referral business that violates the statute—that is, a business that operates ‘for the direct or indirect purpose, in whole or in part, of referring potential clients to attorneys.’ (sec. 6155(a).) Otherwise, attorneys who have accepted employment in good faith and without any awareness of an association with an illegal operation would fall within the proscription of the statute just by agreeing to represent clients. We are persuaded that the Legislature did not intend to punish those who have no knowledge of or complicity in the illegality.” (Slip Opn., at p. 32.) Furthermore, none of the attorneys paid any referral fees to Selten, and section 6155 “does not make the ‘commonplace uncompensated attorney referrals’ illegal.” (Id. at 33, quoting Hyon, supra, 152 Cal.App.4^th at 471.)

     Hyon’s next attack was to argue that the respondent attorneys violated rule 3-300 of the Rules of Professional Conduct by acquiring attorney’s liens on their Recovery proceeds in their retainer agreements without complying with the disclosure and consent requirements specified in rule 3-300. (See our “Cases: Liens for Attorney Fees” category for prior posts discussing these requirements and Fletcher v. Davis under our “Leading Cases,” Case No. 7.) The First District did note that Fletcher v. Davis, 33 Cal.4^th 61, 70 n. 3 (2004) did not decide whether rule 3-300 applies to attorney’s charging liens in contingency fee cases. (See our post of May 26, 2008 for a discussion on the issue.) After noting that a Los Angeles County Bar Association opinion held the requirements did not apply in the contingency fee context (L.A. County Bar Assn. Formal Opn. No. 496), the appellate panel decided it did not have to reach the issue. Instead, even assuming that Fletcher applied, only the asserted liens would be unenforceable—but that did not mean that the underlying contingency fee agreement was nullified or that an attorney was precluded from recouping the specified contractual fee. (Slip Opn., at pp. 34-35.) Beyond that, however, the First District found support for its reasoning in the law of contract severability; the charging lien violations were severable from the contingent fee agreements which were neither illegal nor infringed public policy considerations. “The sole illegality, if any, arises, instead, from the provision of a charging lien without the required disclosures. Any violations of rule 3-300 may prevent respondents from enforcing the liens, but those violations do not taint or preclude recovery under the valid contingent fee agreements.” (Slip Opn., at p. 36.) Respondent attorneys’ awarded shares from the Recovery remained intact.

     Because Selten’s contingent fee agreement with appellant was unenforceable in entirety, the fee award in his favor was reversed. However, the respondent attorneys were properly awarded fees because their contingent fee agreements were valid and enforceable.

     This case is good news for attorneys entangled in unlawful referral service chains and with respect to the severability of infirm charging lien provisions from retainer fee agreements.

Here Is A Wild One: Prevailing Party Files Cost Memorandum (Not Motion) Seeking Fees, Gets Her Attorney’s Fees Request Cut In Half (But Still Awarded), and Has One of Her Attorneys Try To Enforce His Lien On Appeal (Despite No Trial Court Consideration

Second District Affirms Lower Court Determinations in the “Wild One.”

 

            Who says that unpublished decisions lack drama and all of emotions that go with litigation, even in posttrial attorney’s fees proceedings.  Not us, and the next case backs us up on this conclusion. 

 

            Lu v. Grewal, Case No B201355 (2d Dist., Div. 7 Oct. 8, 2008) (unpublished) involves a remanded case where plaintiff prevailed upon retrial, with a court awarding her $138,124.73 in damages and found she was the prevailing party for purposes of an attorney’s fees award.  That is where the fun really begins (and not just because this website focuses on these issues).

 

            Plaintiff submitted a costs memorandum seeking fees of $469,214.21 and costs of $20,317.40, but made no fee motion.  (BLOG OBSERVATION—There are no typos here.)  Losing defendants filed an opposition and objections to the costs memorandum, both as to the costs and fee requests.  At a subsequent hearing, the trial court requested further briefing, chastising both sides for procedural irregularities and lack of detailed information.  Plaintiff did file supplemental documentation, seeking a total of $528,910.72 in fees and costs.  (BLOG OBSERVATION—Still no typos.)  More objections, more papers, and finally a hearing.

 

            The trial court carefully analyzed the billings, allowing some in total, cutting some in half, disallowing some, and doing other reductions on other requests. 

 

            Eventually, the trial court awarded plaintiff a total of $259,120.81 in attorney’s fees and costs.  Defendants were unhappy, appealed, and lost.

 

            Notwithstanding plaintiff’s failure to file an attorney’s fees motion, the Court of Appeal found no prejudicial error.  The trial court had considerable discretion to request additional briefing and set a procedure to ensure proper decision making.  Because both sides were given added opportunities to correct deficiencies, no prejudice flowed from the trial court’s actions.

 

            The appellate panel found no abuse of discretion in the lower court’s fee award.  “The court eliminated amounts for duplicative work, eliminated amounts for inflated work hours, and struck ineligible cost items from the attorneys’ requests” (such as block billed entries), reducing by almost half the fees plaintiffs requested “upon such factors such as duplication, excessive hours expended, and lack of documentary support.”  (Slip Opn., at p. 8.)  The Court of Appeal did not find the reduced award excessive given that it encompassed work for two trials and an appeal.  (Akins v. Enterprise Rent-A-Car Co., 79 Cal.App.4^th 1127, 1134 (2000).) 

 

            Finally, in a curious twist of fate, plaintiff’s attorney filed an attorney’s lien against his client’s recovery from defendants subsequent to entry of judgment in the matter.  Both sides opened fire about the propriety of his attorney’s lien, but the appellate court refused to evaluate their contentions because they were never put before the trial court.  Absent intervention in the action by the attorney, the lien claim had to be decided in a completely independent action.  (Brown v. Superior Court, 116 Cal.App.4^th 320, 327, 330 (2004).) 

 

            Plaintiff had to be content with the trial court’s award of about half of her requested $529,000 in fees.  (BLOG OBSERVATION—The fees award was almost double the base compensatory damage recovery, confirming yet again that attorney’s fees are the tail that wags the litigation dog, as our Mission Statement is a testament to.) 

 

           

Attorney Lien: Former Clients Estopped To Challenge Judgment Resulting From Motion Proceeding Where They Stipulated To The Motion Procedure

Fourth District, Division Three So Holds in Unpublished Decision.

            The general rule is that an attorney claiming an attorney lien over settlement proceeds or a judgment must file an independent action to establish the existence and amount of the lien, with any order granting attorney’s fees in the main action being in excess of the trial court’s jurisdiction.  (Bandy v. Mt. Diablo Unified Sch. Dist., 56 Cal.App.3d 230, 234 (1976).)  However, a litigant may be estopped to challenge an irregular decision upon jurisdictional grounds if the circumstances are right.  Facts demonstrating estoppel did arise in the next case that we examine.

            In Joelson v. Koberstein (Law Offices of Federico C. Sayre), Case No. G038727 (4^th Dist., Div. 3 Oct. 1, 2008) (unpublished), a dispute arose over an attorney lien covering settlement proceeds for services rendered in a residential mold infestation contingency case.  Claimant attorney and clients stipulated that the trial court in the underlying contingency case could conduct a hearing to resolve the attorney lien dispute.  A contested hearing was held, after which the trial court determined the lien was correct because clients had failed to prove that attorney acted below the standard of care and had failed to prove attorney malfeasance.  Clients appealed.

            Acting Presiding Justice Rylaarsdam, on behalf of a 3-0 panel of the Fourth District, Division 3, affirmed. 

            The appellate panel acknowledged the normal rule that attorney liens must be decided in independent actions.  However, as are most general rules, exceptions do come into play.  One of them, in this context, is estoppel--a litigant stipulating to a procedure in excess of jurisdiction may be estopped to question it when “to hold otherwise would permit the parties to trifle with the courts.”  (E.g., People v. National Auto. & Cas. Ins. Co., 82 Cal.App.4^th 120, 125-126 (2000); Law Offices of Stanley J. Bell v. Shine, Browne & Diamond, 36 Cal.App.4^th 1011, 1023 (1995).)  Justice Rylaarsdam reasoned that “[t]his appeal presents an even clearer example of estoppel” than the cited cases.  The parties stipulated to the motion procedure, plaintiffs filed motions in limine, plaintiffs heavily contested the lien at the hearing, and plaintiffs never once contested the authority of the trial court to decide the matter.  Result:  estoppel/waiver of the jurisdictional argument.

            The appellate panel also found the lower court did not err by awarding claimant attorney the entire amount of claimed unpaid fees.  Because attorney’s discharge occurred “on the courthouse steps,” the entire claimed fee was properly deemed a reasonable fee under an unjust enrichment analysis.  (See Fracasse v. Brent, 6 Cal.3d 784, 791 (1972).) 

Contractual Attorney Lien--It Beat Out Secured Creditor Because a Commercial Tort Claim is not an Intangible at the Time of the Security Grant to the Bank

Third District Finds That Attorney Lien Prevailed Over Bank’s Recorded Secured Interest and Notices of Judgment Lien.

            In our May 26, 2008 post, we reviewed Fletcher v. Davis and the requirements for creating an enforceable contractual lien for attorney’s fees.  We noted that the attorney lien is a “secret” lien that frequently has priority over even blanket collateral security interests granted in favor of lending institutions.  A bank learned that sad fact, when the Third District reversed a determination in its favor, holding the attorney lien had wholesale priority in Waltrip v. Kimberlin, Case No. C054324 (3d Dist. June 30, 2008) (certified for publication).

            The Third District summarized key principles applicable to attorney liens:

• The contractual lien is created and takes effect upon fee agreement execution;
• The lien is a secret lien, with no notice being required before it is effective against an executing judgment creditor;
• The attorney lien on a judgment for services prevails over later encumbrances;
• The attorney lien does not have priority over prior liens on the same property;
• A judgment creditor’s lien has priority if the contractual lien is created after an action has been filed and after judgment creditor gives the specified notice; and
• The attorney lien cannot displace a creditor’s recorded security interest in real property that is the subject of litigation.

            The upshot in Waltrip, a 3-0 decision penned by Justice Morrison on behalf of the Third District panel, is that commercial tort claims were not considered “general intangibles” at the time the Bank’s security agreement attached, meaning that the attorney lien had priority.  No different result occurred because Bank had an after-acquired property clause in the security agreement, because a security interest does not attach to a commercial tort claim under this type of clause.

Bank did no better on its judgment lien notice arguments.  Commercial tort claims are not covered by the judgment lien that Bank filed on personal property.  As to the judgment lien on the pending litigation, it was filed too late—several months after creation of the contractual lien under the retainer agreement—and did not “relate back” because the prior lien did not attach to commercial tort claims.

Unfortunately, although revolving around the technical distinctions that frequently make or break the validity of security agreements, the financial institution in Waltrip felt the sting of the “secret” attorney lien, resulting in an entire settlement fund going to the commercial tort attorneys rather than some portion going into the bank’s treasury.

CONTRACTUAL ATTORNEY LIENS IN HOURLY FEE MATTERS: PUT THEM IN WRITING AND COMPLY WITH RULE 3-300 – OR RISK LOSING THEM

Contractual Attorney Lien Provisions in Fee Agreements Need to Comply Strictly With Dictates of Fletcher v. Davis.

            Many fee agreements that we see have contractual attorney lien provisions (sometimes called “charging liens”).  Charging liens are liens given by clients to attorneys so that the attorneys can recover fees from settlement or judgment proceeds obtained by clients in underlying cases.

 

            A charging lien is an important weapon for an attorney in collecting a fee.  It is also a “secret lien” created at the time the fee agreement is executed, if compliant with ethical requirements which we discuss below.  See Carroll v. Interstate Brands Corp., 99 Cal.App.4^th 1168, 1172 (2002) (confirming secret lien status).  This means that the charging lien has priority over a subsequent lien filed by a judgment creditor.  Brown v. Superior Court, 116 Cal.App.4^th 320 (2004), rev. den.  The charging lien does not need to be “perfected” by filing a notice of lien, although attorneys frequently do so to provide notice to future claimants to settlement or judgment proceeds in a case.  See Carroll, supra, 99 Cal.App.4^th at 1172.  A settling opponent, having received a notice of attorney lien, is prudent to file an interpleader action to avoid the conflict between client’s desire to obtain the settlement proceeds and a former attorney’s charging lien rights.  See Levin v. Gulf Insurance Group, 69 Cal.App.4^th 1282, 1287-1288 (1999) (interference claim viable where settlement proceeds paid out in disregard of attorney's charging lien).  However, in order to enforce an attorney lien, counsel must file a separate action and cannot resort to adjudication of the lien claim in the underlying case serving as “security” for the lien.  See Brown v. Superior Court, supra, 116 Cal.App.4^th 320; Carroll v. Interstate Brands Corp., supra, 99 Cal.App.4^th at 1173.

   

            However, many attorney lien provisions in hourly fee matters are fairly terse and perfunctory in wording and nature.  This will no longer suffice in light of the California Supreme Court’s holding in Fletcher v. Davis, 33 Cal.4^th 61 (2004), posted in our “Leading Cases” right hand column.

            Fletcher determined that a charging lien in an hourly fee matter creates an adverse interest between attorney and client within the meaning of Rule 3-300 of the California Rules of Professional Conduct (contained in our “Rules of Professional Conduct” column).  In order to render the lien enforceable, attorneys must comply with Rule 3-300 by (1) fully disclosing the acquisition and terms of the lien and transmitting that information to the client in writing in a manner reasonably understood by the client, (2) advising the client in writing that the client may seek the advice of an independent lawyer of the client’s own choosing, and (3) giving the client a reasonable opportunity to seek that advice before the client gives written consent to the lien.  Fletcher v. Davis, supra, 33 Cal.4^th at 67.

            Many fee agreements that we see do not come close to being compliant with Rule 3-300.  It is unlikely that charging liens will be enforceable if attorneys insist on clients’ signing of a retainer agreement at the first meeting; Fletcher appears to require that the client be given a reasonable opportunity to seek independent advice, which cannot occur if the retainer is signed at the first meeting.

            

            Thankfully, the California State Bar has an excellent charging lien provision for hourly matters that can be easily inserted and appears to be enforceable under Fletcher. (See State Bar sample fee agreements).

            Fletcher did not decide whether Rule 3-300 applies to charging liens in contingency matters.  Subsequent State Bar ethical opinions have held that the inclusion of a charging lien in an initial contingency fee contract does not create an “adverse interest” within Rule 3-300’s meaning.  See The State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion No. 2006-170, also accessible on our “Ethics Opinions” link).  Nevertheless, the State Bar—in its commentary to sample fee agreements—has suggested that it would still be prudent to apply Fletcher requirements to contingency matters, also providing an optional charging lien provision to be used for contingency fee agreements. 

            

Contractual Attorney Lien Provisions in Fee Agreements Need to Comply Strictly With Dictates of Fletcher v. Davis.

            Many fee agreements that we see have contractual attorney lien provisions (sometimes called “charging liens”).  Charging liens are liens given by clients to attorneys so that the attorneys can recover fees from settlement or judgment proceeds obtained by clients in underlying cases.

 

            A charging lien is an important weapon for an attorney in collecting a fee.  It is also a “secret lien” created at the time the fee agreement is executed, if compliant with ethical requirements which we discuss below.  See Carroll v. Interstate Brands Corp., 99 Cal.App.4^th 1168, 1172 (2002) (confirming secret lien status).  This means that the charging lien has priority over a subsequent lien filed by a judgment creditor.  Brown v. Superior Court, 116 Cal.App.4^th 320 (2004), rev. den.  The charging lien does not need to be “perfected” by filing a notice of lien, although attorneys frequently do so to provide notice to future claimants to settlement or judgment proceeds in a case.  See Carroll, supra, 99 Cal.App.4^th at 1172.  A settling opponent, having received a notice of attorney lien, is prudent to file an interpleader action to avoid the conflict between client’s desire to obtain the settlement proceeds and a former attorney’s charging lien rights.  See Levin v. Gulf Insurance Group, 69 Cal.App.4^th 1282, 1287-1288 (1999) (interference claim viable where settlement proceeds paid out in disregard of attorney's charging lien).  However, in order to enforce an attorney lien, counsel must file a separate action and cannot resort to adjudication of the lien claim in the underlying case serving as “security” for the lien.  See Brown v. Superior Court, supra, 116 Cal.App.4^th 320; Carroll v. Interstate Brands Corp., supra, 99 Cal.App.4^th at 1173.

   

            However, many attorney lien provisions in hourly fee matters are fairly terse and perfunctory in wording and nature.  This will no longer suffice in light of the California Supreme Court’s holding in Fletcher v. Davis, 33 Cal.4^th 61 (2004), posted in our “Leading Cases” right hand column.

            Fletcher determined that a charging lien in an hourly fee matter creates an adverse interest between attorney and client within the meaning of Rule 3-300 of the California Rules of Professional Conduct (contained in our “Rules of Professional Conduct” column).  In order to render the lien enforceable, attorneys must comply with Rule 3-300 by (1) fully disclosing the acquisition and terms of the lien and transmitting that information to the client in writing in a manner reasonably understood by the client, (2) advising the client in writing that the client may seek the advice of an independent lawyer of the client’s own choosing, and (3) giving the client a reasonable opportunity to seek that advice before the client gives written consent to the lien.  Fletcher v. Davis, supra, 33 Cal.4^th at 67.

            Many fee agreements that we see do not come close to being compliant with Rule 3-300.  It is unlikely that charging liens will be enforceable if attorneys insist on clients’ signing of a retainer agreement at the first meeting; Fletcher appears to require that the client be given a reasonable opportunity to seek independent advice, which cannot occur if the retainer is signed at the first meeting.

            

            Thankfully, the California State Bar has an excellent charging lien provision for hourly matters that can be easily inserted and appears to be enforceable under Fletcher. (See State Bar sample fee agreements).

            Fletcher did not decide whether Rule 3-300 applies to charging liens in contingency matters.  Subsequent State Bar ethical opinions have held that the inclusion of a charging lien in an initial contingency fee contract does not create an “adverse interest” within Rule 3-300’s meaning.  See The State Bar of California Standing Committee on Professional Responsibility and Conduct Formal Opinion No. 2006-170, also accessible on our “Ethics Opinions” link).  Nevertheless, the State Bar—in its commentary to sample fee agreements—has suggested that it would still be prudent to apply Fletcher requirements to contingency matters, also providing an optional charging lien provision to be used for contingency fee agreements.