ATTORNEY LIEN

INTRODUCTION

A fee agreement between an attorney and client may create a lien in favor of the attorney to secure payment. An attorney must comply with Rules of Professional Conduct, Rule 3-3001 for an hourly fee agreement. The attorney is not required to file a notice of the lien in the action in which he represents the client, but such notice is permissible. As a matter of public policy, an attorney's lien may have priority over the liens of judgment debtors, medical liens, and tax liens.

CONTRACTUAL LIEN

A fee agreement creating an attorney's lien on the client's recovery in the action to secure payment of fees and costs advanced is enforceable as a contractual lien. A lien may be created by contract or by operation of law.2 A contractual lien may be given for past or future legal services.3 "In whatever terms one characterizes an attorney's lien under a contingent fee contract, it is no more than a security interest in the proceeds of the litigation."4 It does not operate to transfer a part of the cause of action to the attorney, but simply gives the attorney a lien upon the client's recovery.5 A contingent fee contract with a provision for an attorney's lien does not operate to transfer to counsel any part of the client's cause of action; it creates only a lien upon the recovery.6

RULE 3-300 APPLIES TO HOURLY AGREEMENTS

The attorney must comply Rule 3-300 for an hourly fee agreement, but not for a contingent fee agreement. With an hourly agreement the terms must be "fair and reasonable", the lawyer must make full disclosure in writing including advice to consult independent counsel (and a reasonable opportunity for the client to do so), and obtain the client's written consent.7 Rule 3-300 does not apply to a contingency fee arrangement coupled with a lien on the client's prospective recovery in the same matter.8 "The real question in each case is whether or not the parties have contracted that the lawyer is to look to the judgment he may secure as security for his fee. If so, an equitable lien is created."9

NOTICE OF LIEN NOT REQUIRED

An attorney need not file a notice of lien in the pending action to establish the lien or to maintain its priority over later liens.10 The "preferential treatment" given to attorney liens is based on public policy favoring legal representation.11

PRIORITY - PUBLIC POLICY

Public policy favors giving attorney liens priority over judgment creditor liens because "[i]t is often crucial for debtors to be able to retain legal counsel, and a debtor's ability to retain counsel may also accrue to the benefit of the client's creditors."12 Even if the attorney has been discharged, the lien is entitled to priority over subsequent liens on the same judgment ... even if the subsequent creditor had no notice of the lien.13 A valid contractual lien has priority over a subsequent judgment creditor's lien.14 A judgment debtor's equitable right of offset took priority over an attorney's contractual lien for fees and costs pursuant to a contingency agreement entered into after entry of the judgment.15 An attorney's lien has priority over a federal tax lien even if the government filed notice of the tax lien before the attorney's lien was created.16 An attorney's lien has priority over a medical lien. "Accordingly, as a matter of law, the amount recovered by the plaintiff in a personal injury lawsuit always goes first to satisfy the attorney lien for fees and costs before it is used to satisfy medical liens."17

ATTORNEY DISCHARGED

Where an attorney with a contractual lien on the client's recovery is discharged or withdraws prematurely from the action, the attorney must file an independent action against the former client to establish the existence of the lien, to determine the amount of the lien, and to enforce it.18 The 'independent action' rule is not a jurisdictional bar. Thus, when the trial court adjudicates a contractual lien in the underlying action without objection, that adjudication is valid, although in excess of the court's jurisdiction.19

PROCEDURE

The attorney can file a declaratory relief action against the competing lienholder to determine the lien's validity, amount and priority. Filing suit against the client is not required.20 Upon proof of the existence of an attorney's contractual lien on the judgment, the court may stay enforcement of a competing lien until there is a judicial determination of lien priority in an independent action. Indeed, it may be 'an abuse of discretion for the trial court to direct payment of the judgment proceeds . . . without giving (the attorney) a fair opportunity to first litigate the validity of his lien claim in a separate action.'21

INDEPENDENT COUNSEL

The difference between dependent counsel and independent counsel is that the latter does not represent the insurer.22 Although an insurer may be obligated to pay for independent counsel, arguably independent counsel may need to be careful not to establish a direct financial relationship with the insurer. "A member shall not accept or continue representation of a client without providing written disclosure to the client where: (3) The member has or had a . . . financial . . . relationship with another . . . entity the member knows or reasonably should know would be affected substantially by resolution of the matter."23 Instead, independent counsel may elect to assure collection by enforcing one's lien rights, while preserving the existing financial obligations of the parties. The insurer's obligation to pay for the defense is to the policyholder only, not independent counsel. The policyholder in turn is obligated to pay independent counsel. The insurer has no such obligation. Thus, if independent counsel enters into a contract with the insurer for direct payment of fees and costs of defense, the lawyer may trigger an obligation to comply with Rule 3-300. As an alternative, independent counsel may notify the insurer of the attorney's lien, and request direct payment to honor the lien.