BY DAVID ANGELOFF
In the current legal market, a number of practical and ethical considerations come into play when a client changes law firms. Whether you are asserting a lien for work performed on behalf of a client who has moved on, or you are the second, or even (gasp!) the third attorney representing a client on a particular matter, it's important to know the ropes when it comes to an attorney's lien to secure payment of fees.
Having a working understanding of the mechanics of such liens, and in particular having a working knowledge of how to assert a proper quantum meruit lien, can be the difference between being paid for your hard work and being left empty-handed.
Attorneys who don't understand their rights will likely end up negotiating from a position of disadvantage and the risk of leaving money on the table. Whichever side of the table you bargain from-whether it's as successor counsel or former counsel-don't get caught unaware.
Being knowledgeable about the circumstances under which attorneys can and cannot successfully assert a valid lien can help you:
* evaluate potential cases when new clients walk in the door;
* inform your decisions about whether or not (and how) to end a relationship with a problematic client; and
* provide negotiating leverage if your predecessor counsel claims a higher fee than merited.
ATTORNEY'S LIEN RIGHTS 101
Unlike a service lien or a mechanic's lien, an attorney's lien for fees and costs does not arise automatically just because legal work is performed. Such liens are created by contract. Fletcher v. Davis, 33 Cal.4th 61, 66 (2004). In the non-contingency (hourly) context, the lien can only be created by representation agreements that comply with Rule 3-300 of the California Rules of Professional Conduct (CRPC), which essentially requires that the attorney fully inform the client of the terms and also avoid interests adverse to the client. In a contingency fee representation, a written agreement which meets the requirements of Business and Professions Code § 6147 (which sets forth the basic requirements of contingency fee agreements) and which contains a lien provision is generally sufficient to create an enforceable lien. See Fletcher, 33 Cal. 4th at 66.
At the threshold, any attorney who wants to be proactive in protecting his or her lien rights should pay careful attention to the relevant language of their representation agreement. California courts have stated that the question of whether a contingent fee contract creates a lien is one of fact involving examination of the intent of the parties. Gelfand, Greer, Popko & Miller v. Shivener, 30 Cal. App. 3d 364 (1993).
Although, an enforceable lien can sometimes arise out of an attorney fee contract even when it is not specifically referenced (see Gelfand, 30 Cal.App.3d at 370), why leave the issue to chance? The best practice is to make your lien provision both specific and explicit. Here is an example of language which has been used and enforced with success in contingency representation:
"All Attorney's fees earned and costs or expenses advanced by Attorneys shall be a lien on any settlement or judgment or Gross Recovery made or secured on behalf of Client. In the event Attorney and Client discontinue the relationship outlined in this agreement for any reason, the quantum meruit for Attorney's services shall be the applicable contingency fee applied to the offer made most recently before the relationship is ended, or the applicable contingency fee applied to the value of the case that was developed through the course of litigation up to the point when the relationship ended, or Attorneys' reasonable hourly rates multiplied by the time spent on the case, whichever is greatest."
Don't stop there. Put in any relevant details particular to your practice, including specifically setting forth the hourly rates for attorneys and staff who will be working on the matter. It is easier to defend a quantum meruit claim based on an hourly rate that the client contracted and assented to. Further, identifying specific circumstances under which you will be entitled to recover based on the applicable contingency fee may allow you to recover on that basis when otherwise you may be limited to a quantum meruit claim only.
The takeaway is simple: Having a well thought out lien provision gives you options that can translate into real money.
Because these liens are created by contract, an attorney must have privity of contract with a party against whom the lien is asserted. Without privity, there can be no recovery from the client. This type of circumstance arises most often when lawyers contract with each other-not with the client-to work on a particular case. In one case, the original attorney brought in a second attorney to perform work on a matter. The two attorneys executed a contract to split fees (without the signature of the client). The second attorney had no contract with the client of any kind. When the fee-sharing agreement was found to be unenforceable, the second attorney sued the client. The court held that the second attorney could only seek his fees from the original attorney. There was no claim for the second attorney to assert against the client. See Strong v. Beydoun, 166 Cal. App. 4th 1398 (2008).
In circumstances where you are a referring attorney, it is essential to get the client's informed written consent regarding the division of fees under CRPC 2-200. California courts have consistently limited attorney recoveries to quantum meruit without client consent to a proposed fee split. See Chambers v. Kay, 29 Cal. 4th 142 (2002). The Chambers decision also closed a potential back door to recovering the contingency fee amount through creative accounting ofquantum meruit value. The attorney-claimant in Chambers contended that his quantum meruitrecovery could be based on the division of the contingent fee. The California Supreme Court rejected that view, and agreed with the assessment of the court of appeal that the quantum meriut award "cannot be based upon a division of the contingency fee." See Chambers, 29 Cal. 4th at 162. Without client agreement in compliance with Rule 2-200, the amount of any quantum meruit recovery cannot be extrapolated from the contingency fee amount.
WHAT IF YOU WITHDRAW FROM THE CASE?
The relationship between attorney and client is a complicated and delicate one. Even with the best of intentions, like any relationship, it can go bad. Sometimes attorneys and clients have fundamental differences in their personalities. Sometimes they just do not see eye to eye. And like other relationships, sometimes the breakup is somebody's fault. Attorneys and clients are both equally capable of being unreasonable or stubborn or foolish (and sometimes all three at once!) to the point that one party ends the relationship.
But how the relationship ends is critical to an attorney's right to assert a lien. Fundamentally, if an attorney is let go by the client-with or without cause-or withdraws for justifiable reasons, the remedy is to seek a quantum meruit recovery (but generally only a quantum meruit recovery, subject to a few exceptions). See Weiss v. Marcus, 51 Cal. App. 3d 590 (1975), citing Fracasse v. Brent, 6 Cal. 3d 784 (1972). On the other hand, if the attorney voluntarily withdraws from the case, he or she is not entitled to assert a lien for fees.
This regime makes sense. As the court aptly stated in Hensel v. Cohen, 155 Cal. App. 3d 563, 564 (1984), an attorney employed on a contingency-fee basis may not "determine that it is not worth his time to pursue the matter, instruct his client to look elsewhere for legal assistance, but hedge his bet by claiming a part of the recovery if a settlement is made or a judgment obtained ...."
Other controlling law on this issue is set forth in In Re Estate of Falco 188 Cal. App. 3d 1004 (1987).Falco states, in relevant part "[R]ecovery for services in quantum meruit is allowed only when the attorney has justifiable cause for withdrawing. An attorney who voluntarily abandons a case without good cause will be denied compensation."
So watch out! It is not good cause to withdraw just because you don't like your client or because they are obstinate or difficult to work with. As the Falco court held, "While a personality clash between the parties may provide good reason for allowing the attorney to withdraw, it is not necessarily a justifiable reason for purposes of awarding fees." Falco, 188 Cal. App. 3d at 1014.
With respect to what constitutes "good cause" for withdrawal, generally it means an ethical reason. CRPC 3-700 allows for both permissive and mandatory withdrawal under certain circumstances. Beyond that, the Falco decision established a five-prong test for seeking a lien following justified withdrawal "in adherence to ethical mandates." The court held that the attorney seeking fees has the burden of proof to show:
1. "counsel's withdrawal was mandatory, not merely permissive, under statute or State Bar rules;
2. the overwhelming and primary motivation for counsel's withdrawal was the obligation to adhere to these ethical imperatives under statute or State Bar rules;
3. counsel commenced the action in good faith;
4. subsequent to counsel's withdrawal, the client obtained recovery; and
5. counsel has demonstrated that his work contributed in some measurable degree towards the client's ultimate recovery." Falco, 188 Cal. App. 3d at 1016.
MAKING A RECORD ON THE WITHDRAWAL ISSUE
As a practical matter, the record you create through correspondence in advance of the end of the attorney-client relationship will influence how the end of the relationship is characterized. For example, the difference between your final letter saying, "We are withdrawing," and it saying, "We are forced to withdraw for the following reason...," could be the difference between having a valid lien and not.
It is also important as a practical matter to notify the successor counsel of the existence of your lien, preferably in writing. It is not prudent to rely on your former client to inform the successor counsel of the existence of your lien-better to do that yourself. However, be aware that giving formal notice of a lien is not strictly required for it to be enforceable. As the California Supreme Court noted in Cetenko v. United California Bank, 30 Cal. 3d 528 at 532 (1982), "We know of no authority, case law, statute, which compels an attorney to give notice to a client's creditors of a contractual lien on the judgment." Although attorney's lien rights are protected by law even if no affirmative notice is served on the successor counsel or the other side, an attorney has the option of filing a notice of lien in the case in which the lien is asserted. Because of these rules, an attorney's lien is unlike a typical judgment creditor's lien. See Carroll v. Interstate Brands Corp., 99 Cal. App. 4th 1168, 1172 (2002).
Finally, the underlying case against which an attorney seeks to satisfy a lien is not the proper vehicle to establish the existence or amount of such a lien. Only through a separate action can the attorney's lien rights be determined. See Valenta v. Regents of the Univ. of Calif., 231 Cal. App. 3d 1465 (1991); Bandy v. Mt. Diablo Unified Sch. Dist., 231 Cal. App. 3d 1465 (1976).
ASSERTING AND PROVING A QUANTUM MERUIT LIEN
While the majority of attorney's liens can only be recovered on a quantum meruit basis, it is important to note that there are exceptions and circumstances under which attorneys can recover their full, contracted contingency amount.
One example is when the representation agreement governing the relationship contains provisions which set forth specific conditions under which the attorney's lien can be calculated per the contingency. See Carroll, supra, 99 Cal. App. 4th 1168 at 1171; See also Cal. Code Civ. Proc. § 2881.
Another example is when a client terminates the attorney at the last minute in an attempt to avoid paying the fee. "To the extent that such discharge occurs 'on the courthouse steps,' where the client executes a settlement obtained after much work by the attorney, the factors involved in a determination of reasonableness would certainly justify a finding that the entire fee was the reasonable value of the attorney's services." Fracasse v. Brent, 6 Cal. 3d 784 at 789. If you believe the factual and/or contractual circumstances justify it, it may be wise to assert the full contingency value of your lien.
The existence of a lien on its own does not create a right of recovery. The right to enforce an attorney's lien does not exist until the contingency underlying the lien is triggered. In essence, the lien gives the attorney a right to be paid from a specific source of funds-should they be recovered by the client. If the contingency-the triggering event-never occurs, the right to enforce the lien has not ripened. Fracasse, 6 Cal. 3d at 792.
However, once that contingency is triggered, an attorney holding a valid lien can attempt to enforce it and obtain a reasonable quantum meruit fee. Always remember that only one contingent fee can be paid by the client. A client never has to "double pay" just because more than one attorney worked on the case under a contingency fee arrangement. If the applicable percentage of the recovered sum (and therefore the fee) is insufficient to fully compensate thequantum meruit and other fee claims of all prior and current counsel, then the attorneys must apportion the fee between themselves in a way that fairly "prorates" the fee among all counsel entitled to share in it. See Spires v. American Bus Lines 158 Cal. App. 3d 211, 216 (1984).
This last observation leads to an obvious question: what is a "reasonable" quantum meruit fee? As set forth in Mardirossian v. Ersoff, 153 Cal. App. 4th 257 (2007), "The most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. This calculation provides an objective basis on which to make an initial estimate of the value of a lawyer's services. The party seeking an award of fees should submit evidence supporting the hours worked and rates claimed." Mardirossian,153 Cal. App. 4th at 677 (citing Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)).
However, providing evidence as to the number of hours worked and rates claimed is not the end of the analysis. The claimant must also show the total fees claimed are reasonable. Factors relevant to that determination include "[t]he nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure of the attorney's efforts, [and] the attorney's skill and learning, including his [or her] age and experience in the particular type of work demanded." Los Angeles v. Los Angeles-Inyo Farms Co., 134 Cal. App. 4th 268, 276 (1933)(disapproved on other grounds). The value of a quantum meruit claim runs from the date of retention until the date of discharge. Salopek v. Schoemann, 20 Cal. 2d 150, 156 (1942).
What if you are a contingency attorney who did not keep any time sheets for a particular matter? What kind of "evidence" do you need to submit? Fear not, as the court in Mardirossian held that "[c]ontrary to [defendant's] contention, there is no legal requirement that an attorney supply billing statements to support a claim for attorney fees. As this court has held, 'An attorney's testimony as to the number of hours worked is sufficient evidence to support an award of attorney fees, even in the absence of detailed time records.'" Mardirossian, 153 Cal. App. 4th 257, 269 (citing Steiny & Co. v. California Electric Supply Co. 79 Cal. App. 4th 285, 293 (2000)).
Even so, it's always a good idea for attorneys to track their time in matters they are handling, whether those cases are contingency or hourly matters.
PROTECTION AGAINST OTHER LIENS
When you are a successor counsel-let's call you "Attorney No. 2"-and you resolve a case, you can sometimes be faced with the uncomfortable situation of having prior counsel assert a substantial lien against your attorney's fees. It is not uncommon for Attorney No. 1 (the prior lawyer handling the case in this example) to assert a lien that is based on a prior contingency arrangement with the client and/or that is clearly in excess of a reasonable quantum meruit fee.
Attorney No. 2 has a duty to disclose both the fact of settlement (or resolution) and the amount to Attorney No. 1, who holds a valid lien. See Cal. St. Bar. Standing Comm. on Prof'l Responsibility and Conduct, State Bar of Calif., Formal Op. 2008-175. This duty applies even when the client has instructed the attorney not to notify prior counsel. The successor attorney is both obligated and permitted to make such a disclosure.
As with the claims of any known lien holder, you should take prior attorney's liens very seriously and conduct yourself in accordance with the duties you owe them under the law and the CRPC. That said, and as set forth above, just because they claim it, doesn't mean they get it. It is within your rights to defend and limit a prior attorney's lien recovery to no more than what they are entitled to under the law.
First, it is wise to remind the prior counsel that their fiduciary duties to their former client are ongoing. Even after an attorney is terminated by a client, 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 that attorney tries to gain advantage and press a lien for his attorney's fees in violation of any legal or ethical principle, the lawyer might be in breach of his fiduciary duties to his former client and should be warned against such conduct.
Further, prior counsel can be reminded and/or informed (preferably in writing) that they have duties to submit their quantum meruit fee claim and set forth its reasonable basis, including some demonstration of the time expended on the work and the rationale behind their claimed hourly rate under Hensley and Los Angeles-Inyo Farms Co., supra.
In short, it pays to be well versed in the rights and responsibilities of both prior and successor counsel. Whichever side of that equation you find yourself on, you will be best equipped to protect your interests with civility and professionalism when you are both informed and prepared before the situation arises.
David Angeloff is an associate at McNicholas & McNicholas in Los Angeles. He handles all areas of civil litigation, including personal injury and employment law.