1.73 - 7. Attorney Liens To Protect Fees

• Jurisdiction: New York

7. Attorney Liens to Protect Fees³⁶⁷

The black-letter law on retaining and charging liens is stated in People v. Keefe:³⁶⁸

L’s rendition of services gives rise to only a contract claim, express or implied, by L against C, subject to two exceptions which are L’s and L’s charging lien. The first (the common-law retaining lien) entitles L to retain all papers, securities or money belonging to C that come into L’s possession in the course of L’s professional employment until the amount of L’s fee is fixed by agreement or by litigation and is paid. The second (the statutory charging lien) gives L a lien on C's cause of action from the commencement of the action under Jud. Law § 475 (or if a proper notice is served, prior to such commencement under Jud. Law § 475-a) which attaches to the judgment and the proceeds of the judgment and cannot be affected by settlement between the parties.

If the retainer agreement expressly assigns a portion of C’s cause of action proceeds to L, then L acquires, at the time the agreement is signed, a vested property interest that cannot subsequently be disturbed by C or by anyone claiming through or against C. But absent express language of assignment in the retainer agreement, L has no ownership in or immediate right to possession of the proceeds and must obtain enforcement of L’s lien by appropriate order of the court in which the action is pending. Such an enforcement order may direct that the lien be satisfied out of money or property to which the lien attaches even though it is not in L’s possession or control.

L may lose his charging lien if he voluntarily withdraws or is discharged for misconduct. But if L is discharged without cause, L will be allowed a charging lien upon the proceeds of the lawsuit, the amount to be determined on a quantum-meruit basis at the conclusion of the case.

Affirmative defenses available to C to defeat L’s charging or retaining lien include L’s discharge for cause³⁶⁹ and L’s prior acts or inaction constituting professional misconduct discovered after the substitution of Successor L.³⁷⁰ A court may summarily determine that L’s fees are excessive and may limit those fees and discharge the attorney's liens.³⁷¹

Retaining Liens. To assert a retaining lien, no formal retainer agreement between L and C is required where there is sufficient evidence of an attorney-client relationship between L and C.³⁷² In Bretillot, L was retained by Attorney of Record to act of counsel to the latter in plaintiff’s copyright infringement case. L’s retainer agreement was with Attorney of Records, but C paid L’s $10,000 retainer and C communicated regularly with L about the case. These acts sufficiently adduced an attorney-client relationship between L and C to justify L’s retaining line on plaintiff’s file. L’s retaining lien, however, was a pyrrhic victory inasmuch as Successor L advised he (Successor L) needed nothing that L had.

The Southern District of New York declined to exercise supplemental jurisdiction over Law Firm’s application to fix a retaining lien on Law Firm’s file in part because no one needed the documents upon which L sought to fix the lien. In addition, C was a non-party to the underlying litigation; L had successfully quashed plaintiff’s subpoena for C’s bank records in proceedings in Florida; L had failed to provide C with a written retainer agreement; and Law Firm and C were already pursuing arbitration under 22 N.Y.C.R.R. pt. 137 (Fee Dispute Resolution Program), which the court deemed to be the proper forum.³⁷³

The retaining lien is extinguished when, after a hearing, the court that controls the functioning of the lien orders turnover of the file in exchange for payment of L’s fee or the posting of an adequate security therefor following a hearing.³⁷⁴ Absent exigent circumstances, L is not compelled to surrender the papers and files until an expedited hearing has been held to ascertain the amount of the fees or reimbursement to which L may be entitled.³⁷⁵ Exigent circumstances may include public policy (e.g., C’s due-process right in housing court to have her file in order to defend herself in a summary proceeding) and C’s indigence, and a hearing is required before L’s retaining lien is converted into a charging lien.³⁷⁶

Charging lien under Judiciary Law § 475. Section 475 of the Judiciary Law creates the statutory “charging” lien for L’s attorney fees on C’s action or claim in the event C discharges L without cause before conclusion of the action or claim. The lien cannot be affected by any settlement between the parties before or after judgment or determination.³⁷⁷

The charging lien created by Jud. Law § 475 corresponds to Rule 1.8(i), which permits a lawyer to “acquire a lien granted by law to secure the lawyer’s fees or expenses.” A charging lien, now codified in Jud. Law § 475, is based upon the equitable doctrine that an attorney should be paid out of the proceeds of the judgment that L procured.³⁷⁸

The “charging lien” attaches at

a. the commencement of an action, special proceeding or other proceeding in any court or before any state, municipal or federal department, except a department of labor,

b. the service of an answer containing a counterclaim, or

c. the initiation of any means of alternative dispute resolution, including, but not limited to, mediation or arbitration, or the provision of services in a settlement negotiation at any stage of the dispute to a verdict, report, determination, decision, award, settlement, judgment or final order in C’s favor and to any proceeds thereof into whatever hands they may come. ³⁷⁹

In the case of a settlement there must be an actual settlement.³⁸⁰

While a statutory charging lien exists at the commencement of an action, the lien attaches only when proceeds from an identifiable fund are created by an attorney's own efforts in the action or proceeding.³⁸¹ In addition, the proceeds must be the favorable result of litigation: L, who represented plaintiff in unsuccessful litigation to rescind the sale of a building that plaintiff had owned, held the net proceeds of that sale in escrow pursuant to a court-ordered stipulation “until further Order of the court” or until plaintiff “withdraws with prejudice the cause of action for rescission” of the sale. Although L participated in the agreement that resulted in the net sales proceeds being placed in escrow, he had no statutory charging lien as to...