Supreme Court Rules:
Oral Agreement Cannot Support Attorney’s Lien Against Recovery
By DAVID WATSON, Staff Writer
A client’s oral agreement is insufficient to create a charging lien securing payment of an attorney’s fees and litigation costs against the client’s future recovery, the state Supreme Court ruled yesterday.
Such a lien is an interest adverse to the client covered by Rule 3-300 of the Rules of Professional Conduct of the State Bar of California, the unanimous court said. Rule 3-300 requires the client’s informed written consent to the attorney’s acquisition of an “ownership, possessory, security, or other pecuniary interest adverse to a client.”
Three justices of Div. Seven of this district’s Court of Appeal reached the opposite conclusion in February of 2003, reversing a judgment barring Inglewood attorney Freddie Fletcher’s action to enforce what he claims is a contractual lien for fees earned in representing a former client who fired him in the middle of litigation.
Fletcher formerly represented Master Washer & Stamping Co. in litigation with its former landlord, who the company claimed converted its property. After the first trial in the case ended in a mistrial, the company fired Fletcher and hired attorney Beverly Hills attorney Joseph Fischbach to handle the second trial, which resulted in a judgment for more than $600,000, including interest.
A creditor of Master Washer then sued, seeking a recovery against the proceeds of the judgment. A settlement agreement subsequently divided those proceeds among the creditor, Master Washer, Fischbach, and the landlord, who earlier obtained a stipulated judgment against Master Washer for $85,000 for breach of the lease.
Fletcher then sued all four of those parties, claiming he had no prior notice of their agreement and that they had converted funds to which he was entitled as a result of his charging lien on the proceeds of Master Washer’s suit. That lien, Fletcher said, was orally agreed to when he agreed to represent Master Washer at $200 per hour without a retainer.
Los Angeles Superior Court Judge Richard Fruin dismissed the suit on the ground that the alleged lien was not perfected, since it was not in writing. He also ruled that Master Washer was entitled to a dismissal on the ground that Fletcher failed to give the ex-client notice of its right to arbitrate the fee dispute.
Appeals Court’s Ruling
Justice Earl Johnson Jr., writing for Div. Seven last year, acknowledged that the issue was a close one but concluded that there is no requirement of a written agreement to create a lien for unpaid attorney fees. Johnson noted that a State Bar ethics committee opinion has held that a written agreement is required, a San Francisco Bar Association opinion says otherwise, and the Los Angeles County Bar Association issued conflicting opinions 16 years apart.
The better conclusion, Johnson said, is that a written agreement is not required under the reasoning of Hawk v. State Bar (1988) 45 Cal.3d 589.
In Hawk, the Supreme Court said what is now Rule 3-300 applies when the client is asked to give a promissory note secured by a deed of trust for attorney fees but not an unsecured promissory note. The court reasoned that since a suit would be required to enforce the unsecured note, the client could raise defenses at that time and did not need the protections required by the rule.
But Justice Marvin Baxter, in his opinion for the Supreme Court yesterday, said Johnson and his colleagues, Justice Fred Woods and Presiding Justice Dennis M. Perluss, had misread Hawk. The proper standard to apply is contained in Ames v. State Bar (1973) 8 Cal.3d 910, Baxter explained.
Ames mandates that a lawyer “must avoid circumstances where it is reasonably foreseeable that his acquisition may be detrimental, i.e., adverse, to the interests of his client.”
Baxter conceded that an attorney’s charging lien on the proceeds of the litigation “falls somewhere between [the] extremes” identified in Hawk. But Hawk did not, as Johnson contended, modify the “reasonably foreseeable” test of Ames “such that only those transactions that permit the attorney to summarily extinguish the client’s interest in the property are deemed adverse,” Baxter declared.
The high court’s opinion in Hawk “nowhere criticized Ames,” Baxter observed. Johnson’s opinion for Div. Seven did not cite Ames.
“Applying the correct test,” Baxter elaborated, “we agree...that it was reasonably foreseeable the charging lien could become detrimental to the client. Although a charging lien does not grant an attorney the power to summarily extinguish the client’s interest in any recovery, a charging lien could significantly impair the client’s interest by delaying payment of the recovery or settlement proceeds until any disputes over the lien can be resolved.”
Johnson was also mistaken in identifying a split of authority in other jurisdictions on the issue presented by the case, Baxter said. While it is true that some states require a writing to support a charging lien, Florida does not—as Johnson asserted—permit such a lien based on a oral agreement, Baxter said.
“[T]he court erred in classifying Florida as a jurisdiction with a contrary position,” Baxter wrote. “In Florida, as in most other jurisdictions, a charging lien arises by operation of law when an attorney is retained and a positive judgment or settlement is obtained. Hence, there is no requirement in Florida that the client agree—orally or in writing—to the lien.”
The case is Fletcher v. Davis, 04 S.O.S. 2876.
Copyright 2004, Metropolitan News Company