By Steve Berenson
Klinedinst PC
One of the more frustrating aspects of the legal practice is the difficulty of collecting attorneys’ fees. After putting in all of the time, effort, and expense involved in bringing a matter to a conclusion, little can dampen the sense of accomplishment more than a client’s inability — or unwillingness — to pay the agreed-upon fees.
A number of remedies exist for attorneys who wish to enforce their fee agreements. First, attorneys can, and indeed must, notify clients of their right to pursue fee arbitration under California’s Mandatory Fee Arbitration Program. See Bus. & Prof. Code §§ 6200, et seq. Attorneys may also bring a civil suit against clients to collect fees after pursuing mandatory fee arbitration. Attorneys may also contract with collection counsel or a collection firm in order to help them to collect unpaid fees.
There are significant downsides to all of these approaches, which turn former clients into adversaries regarding the collection of fees. All of these approaches involve further time and expense on the part of attorneys in pursuit of fees that may never be collected. Second, these steps are likely to engender hostility from former clients, which may harm lawyers’ reputations and hinder their ability to attract future clients. And, former clients may retaliate against lawyers who seek to collect fees by filing legal malpractice or other claims against their prior counsel.
Wouldn’t it be great if there were means by which attorneys could secure the payment of their fees before the onset of a fee dispute with their clients? Well, there is both good news and bad news on this front for California lawyers. While California law recognizes some forms of liens that attorneys may rely upon to secure the payment of their fees, other forms are not so recognized.
Charging Liens to Collect Hourly Fees
In general, a lien is “[a] legal right or interest that a creditor has in another’s property.” Black’s Law Dictionary (10th ed. 2014). In turn, a charging lien is “[a]n attorney’s lien on a claim that the attorney has helped the client perfect, as through a judgment or settlement.” Id.
While charging liens have long been permitted in California, in the seminal case of Fletcher v. Davis (2004) 33 Cal.4th 61, the California Supreme Court ruled that charging liens create an “adverse interest” to the client. Id. at 69. As such, charging liens require compliance with Rule 1.8.1 of the Rules of Professional Conduct, “Business Transactions with a Client and Pecuniary Interests Adverse to a Client.”
In short, this Rule requires: (a) that the terms of the lien are fair and reasonable to the client and are fully disclosed in writing to the client; (b) the client is either represented by independent counsel in conjunction with the lien, or is advised in writing of the wisdom of obtaining independent counsel and is given the opportunity to do so; and (c) the client provides informed written consent.[1] Thus, lawyers should insist on rigid compliance with Rule 1.8.1 in order to create an enforceable charging lien.
No Separate Charging Lien is Necessary in a Contingent Fee Case
In contrast to hourly fee cases, a charging lien in a contingent fee agreement need not comply with the requirements of Rule 1.8.1. See Plumer v. Day/Eisenberg (2010) 184 Cal.App.4th 38, 49-50. Of course, there still must be a valid, written contingent fee agreement that complies with the requirements of Bus. & Prof. Code § 6147 in order for the contingent fee agreement to be valid. Rigid compliance with the terms of that statute should be followed in order to insure the existence of a valid charging lien in contingent fee cases.
Retaining Liens are not Permitted in California
Another common form of lien that attorneys rely upon in order to secure payment of fees is a retaining lien. A retaining lien is “[a]n attorney’s right to keep a client’s papers until the client has paid for the attorney’s services.” Black’s Law Dictionary (9th ed. 2009). However, retaining liens of this kind are not permissible in California. Academy Of California Optometrists, Inc. v. Superior Court (1975) 51 Cal.App.3d 999. Rather, clients have an absolute right to receive their file at the conclusion of the representation. See Rule of Professional Conduct 1.16(e)(1).
Conclusion
A charging lien is an excellent and permissible means for an attorney to secure a client’s payment of legal fees. However, in drafting a charging lien in an hourly fee case, attorneys should take care to comply with the requirements of Rule 1.8.1.
[1] In Davis, the Court found the charging lien to be invalid because the lawyer did not comply with the terms of the predecessor to Rule 1.8.1, Rule 3-300. Davis, 33 Cal.4th at 71.