Bar News - September 19, 2008
Use of Attorneys’ Liens: Recovering Unpaid Legal Fees
By: William C. Saturley and John C. Kissinger
This article examines the use of attorneys’ liens, the steps that need to be taken to enforce them, and some of the practical and ethical issues they raise.
|William C. Saturley
|John C. Kissinger
Scenario: A client is unwilling to pay legal fees after settlement or judgment
You represent a client in an action. After years of litigation and largely due to your efforts and skill in handling the case, the client has settled for a substantial amount. The only problem is the client’s unwillingness to pay your bill and his/her refusal to comply with the terms of your fee agreement.
The attorney’s lien in New Hampshire
New Hampshire RSA §311:13, the statute governing attorneys’ liens, provides as follows:
From the commencement of an action, bill in equity or other proceeding in any court, the filing of a counterclaim or plea in set-off or recoupment, or appearance in any proceeding before any state or federal department, board or commission, the attorney who appears for a client in such proceeding shall have a lien for reasonable fees and expenses upon the client’s cause of action, upon the judgment decree or other order in the client’s favor entered or made in such proceeding, and upon the proceeds derived therefrom.
The statute provides that the lien for fees and expenses arises at the time the action is commenced, even though the work continued throughout the life of the cause of action. This may protect even subsequently retained attorneys. The lien can be determined and enforced either in the court where the action is pending or, if the proceeding is not pending in a court, in the superior court. See id. It should be noted that RSA §311:13 is not available in matters involving unemployment compensation or other situations where the method of determining attorney’s fees is set by statute. See id.
Courts upheld the use of attorney’s liens
In Taylor-Boren v. Isaac, 143 N.H. 261 (1998), an attorney represented a plaintiff in a lawsuit against the City of Concord and entered into a contingency fee agreement. In the middle of trial, the case settled and the attorney agreed to reduce his fee. The plaintiff did not dispute that she had authorized the settlement, but argued that the settlement was conditioned on her completing her testimony. The attorney filed a notice of lien for his fees in the underlying case and the superior court escrowed sufficient funds to secure the attorney’s claims.
On appeal, the New Hampshire Supreme Court observed that the lien "protects the attorney from a client who might dissipate the proceeds before the attorney’s fees are paid....The court may determine whether an attorney has a valid claim to proceeds from a settlement or judgment for fees and expenses, and enforce the attorney’s lien by prohibiting the client from dissipating these proceeds." Id. at 265. The Court concluded that once the lien is perfected and the necessary funds secured, the fee dispute should be resolved like any other tort or contract dispute. Accordingly, the Supreme Court reversed the lower court ruling denying the plaintiff a jury trial on the fee dispute.
This decision suggests that in cases where it appears that the client will dispose of the funds upon settlement, or where there is likely to be a fee dispute, an attorney may want to file a notice of an attorney’s lien. Such a filing would empower the court to secure the funds to ensure that the funds remain available while the fee dispute gets resolved.
Protection if a client files for bankruptcy
In a bankruptcy case interpreting a similar statute in Massachusetts, the court observed that "the attorney’s lien would be superior in priority to any other interest in the recovery which arose between the time the action was filed and when an order entered." In re Albert, 206 B.R. 636 (D. Mass. 1997). The Albert court further noted that the bankruptcy trustee did not have the power to avoid that interest and that there was no affirmative act – such as filing a notice – required to perfect the lien under Massachusetts law. See also P.G.R. Management v. Credle, 694 N.E.2d 1273 (Mass. 1998) (where attorney’s lien arose prior to judgment for landlord, it had priority under principle of first in time, first in right).
Courts in other jurisdictions have required attorneys to perform some affirmative act or comply with some procedure to perfect the statutorily created interest. See Electronic Metals Prods, Inc. v. Bittman, 916 F.2d 1507 (10th Cir. 1990) (under Colorado attorney lien statute, attorney must file notice of lien and failure to do so results in lien being unperfected as against third parties); Hoffman & Schreiber v. Medina, 224 B.R. 556 (D. N.J. 1998) (lien not perfected where no notice is filed).
Absent any New Hampshire authority on the question of "perfection" of an attorney’s lien, the safest course would appear to be to file a notice if bankruptcy seems imminent.
Attorney’s liens raise ethical issues
The New Hampshire Rules of Professional Conduct provide that "[a] lawyer shall not acquire a proprietary lien in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may . . . acquire a lien granted by law to secure the lawyer’s fee or expenses . . ." Rule 1.8(j)(1). The Ethics Committee has suggested that it is permissible to use judicial process to seek liens provided it does not foreseeably prejudice rights of the client. See ECOP 83-4/11. The Ethics Committee has stated that it is not permissible to withhold a client’s file in order to secure payment. See ECOP 82-2/17. Thus, while lawyers should exercise caution in filing liens to avoid prejudicing the interests of clients, it appears that merely seeking to enforce the lien through judicial process, and thereby withholding the funds from the client, does not constitute "prejudice" to the client’s rights within the meaning of the conduct code.
If there is some doubt that a client may dispose of funds without paying attorney’s fees, an attorney may want to consider filing a notice of lien in the court where the action is pending. Once the case is finally resolved and the proceeds are to be disbursed, a lien can help to secure the funds until the fee dispute is resolved. Filing a notice of lien should not be undertaken lightly as it raises significant ethical concerns and may well damage relations with the client. Rather, it may be better to wait until there is a possibility that funds will be dissipated, a possibility of bankruptcy, or a situation where the relationship with a client is terminated.
William C. Saturley and John C. Kissinger practice in the commercial litigation and professional malpractice groups at Nelson, Kinder, Mosseau & Saturley, P.C. in Manchester.