When Lawyers Engage in a Tug-of-War

man and woman in a tug-of-war, illustrating article by Richard Klass about a law firm ’s charging lien

He was an associate at a law firm that handled cases involving workplace discrimination, including cases based upon age, disability, gender, race, religion and sexual orientation discrimination. The associate decided it was time for him to transition from the law firm to another firm in which he would become a partner. Some of the law firm’s clients whose cases were handled by the associate elected to transfer representation from the former firm to the associate’s new law firm.

Law Firm’s Charging Lien

When an attorney commences a lawsuit or appears in a lawsuit, he is deemed the “attorney of record” in the case. One of the ramifications of being the attorney of record is that the attorney has the right to maintain a “charging lien” on any recovery in the case. This right is derived both from longstanding common law and statutory law, codified in New York’s Judiciary Law Section 475, which provides:

Section 475. Attorney’s lien in action, special or other proceeding. From the commencement of an action, special or other proceeding in any court or before any state, municipal or federal department, except a department of labor, or the service of an answer containing a counterclaim, or 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, the attorney who appears for a party has a lien upon his or her client’s cause of action, claim or counterclaim, which attaches to a verdict, report, determination, decision, award, settlement, judgment or final order in his or her client’s favor, and the proceeds thereof in whatever hands they may come; and the lien cannot be affected by any settlement between the parties before or after judgment, final order or determination. The court upon the petition of the client or attorney may determine and enforce the lien.

Practically, the charging lien gives the attorney the right to collect his legal fees from any moneys recovered in the lawsuit, even once the attorney is no longer representing the client. This is based on the premise that when an attorney is dismissed without cause, he is entitled to a lien to secure payment of his reasonable fees and costs incurred prior to the date of substitution of counsel. See, Sequa Corp. v. GBJ Corp., 156 F.3d 136 [2 Cir. 1998].

Agreement to Determine the Amount of Lien

When a client discharges an attorney without cause, the attorney is entitled to recover compensation from the client measured by the fair and reasonable value of the services rendered whether that be more or less than the amount provided in the contract or retainer agreement (Matter of Montgomery, 272 NY 323 [1936\]). As between them, either can require that the compensation be a fixed dollar amount determined at the time of discharge on the basis of quantum meruit (Reubenbaum v. B. & H. Express, 6 AD2d 47 [1 Dept. 1958]) or, in the alternative, they may agree that the attorney, in lieu of a presently fixed dollar amount, will receive a contingent percentage fee determined either at the time of substitution or at the conclusion of the case. See, Lai Ling Cheng v Modansky Leasing Co., Inc., 73 NY2d 454 [1989].

In one of the cases which the associate took with him to his new law firm, the former firm retained Richard A. Klass, Esq., Your Court Street Lawyer, to enforce its charging lien. The two firms came to an agreement, which was so-ordered by the judge, that the former law firm maintained a charging lien against any recovery in the case and that the amount of that lien would be determined at the conclusion of the litigation (assuming there would be a recovery from the defendants).

Entitlement to Attorney’s Fees in Proportionate Contribution to Case

The workplace discrimination case settled and the net legal fee sat in escrow as per the attorneys’ agreement pending resolution of their division amongst the two law firms. Unfortunately, the two firms were unable to come to terms as to the percentage split and requested that the judge hold a hearing to determine the allocation of fees.

The judge granted the law firms’ request for a hearing on the issue of the charging lien. It was noted that the court’s determination would be centered on determining the proportionate contributions of both prior and substitute counsel, citing to the case of Mason v. City of New York, 2016 WL 2766652 [SDNY 2016]. As stated in Buchta v Union Endicott Cent. School Dist., 296 AD2d 688, 689–90 [3 Dept 2002], “In assessing each firm’s proportionate contribution, we focus on the time and labor spent by each, the actual work performed, the “difficulty of the questions involved, the skill required to handle the matter, the attorney’s skills and experience, [and] the effectiveness of counsel in bringing the matter to resolution.”

A hearing was held in which both the partner in the original law firm and the associate/partner in the new law firm testified as to the services rendered on behalf of the clients in the case. The prior law firm’s partner testified as to all of the intake and pre-litigation tasks performed before substitution of counsel, including compiling evidence; interviews of clients; review of vast collection of evidence including email communications, video recordings and audio recordings. The former associate testified as to all of the services he rendered both at his old and new firms. Unfortunately for the former firm, it was unable to produce contemporaneous time records for services rendered while the former associate was in its employ. Based upon the testimony of the attorneys and the documents produced at the hearing, the judge apportioned the net legal fee between the two law firms.

Practice Tip:

It is critical for attorneys to enter and keep time records for all time spent working on their cases. Contemporaneous time records are important if the attorney must file a lien or prove time spent on a case. Equally important, a law firm should ensure that its attorneys, paralegals and support staff submit their time records in case the firm needs to justify its fees on a case.

Richard A. Klass, Esq.


Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn, New York. He may be reached by phone at (718) COURT●ST or at RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

©2017 Richard A. Klass.
Marketing by The Innovation Works, Inc.
Image at top of page: Shutterstock

Next post
Previous post

Lawyers are men whom we hire to protect us from lawyers

Funny man with fists raised illustrating article by Richard Klass about attorney charging liens and an associate of a law firm moving to a new firm with a client or clients.

“Lawyers are men whom we hire to protect us from lawyers.”

— Elbert Hubbard, The Fra Magazine, Sept. 1911

The associate of a law firm found another opportunity and decided to leave his current firm for another. The associate contacted existing clients of his current law firm to ask if they wanted him to continue as their attorney and follow him to the new firm. A bunch of clients agreed to transfer their cases to the new law firm.

Unlike many other areas of commerce, a law firm may not impose restrictions on the right of an attorney to practice after termination from the firm, including “grabbing” clients with whom the attorney had a prior professional relationship. See, Rule of Professional Conduct 5.6.

Law firm’s right to assert charging lien

While it may be the prerogative of a client to continue with the attorney who has been handling his case, it is also the right of the law firm who employed the attorney to claim a lien on the case for legal services rendered by that law firm, including those services rendered by the attorney-employee prior to his departure. In this particular situation, the law firm retained Richard A. Klass, Your Court Street Lawyer, to assert its charging liens against the cases which the former associate took with him to his new firm.

Under New York Judiciary Law Section 475, a charging lien is a lien that attaches to any verdict, report, determination, decision, award, settlement, judgment or final order in favor of the attorney of record, if such a favorable result is ultimately achieved by him. Basically, the charging lien recognizes that the attorney has an equitable ownership interest in the case and the attorney is entitled to “collect his fee from the fund that he created for that purpose on behalf of the client.” See LMWT Realty Corp. v. Davis Agency, 85 NY2d 462 [1995].

Substitution of counsel doesn’t defeat the lien.

Despite the former associate taking a bunch of clients with him, the law firm did not lose its right to charging liens on those client’s cases. A charging lien is not lost because there is a substitution of counsel from the old firm to the new one. See, In re Burroughs & Brown, 239 AD 794 [2 Dept. 1933]. When a client discharges an attorney “without cause,” the attorney is entitled to recover compensation from the client measured by the fair and reasonable value of the services rendered. Matter of Montgomery, 272 NY 323 [1936]. That compensation may either be a fixed dollar amount determined at the time of discharge or the attorney may opt for a contingent percentage fee determined by the court (typically at the conclusion or settlement of the case). See, Lai Ling Cheng v. Modansky Leasing Co., Inc., 73 NY2d 454 [1989].

Associate is not deemed “attorney of record.”

The prior law firm filed a petition to enforce its charging lien against the potential recovery in one of the contingency cases, naming both the former client and former associate. In response to the petition, the former associate argued that he should be deemed the “attorney of record” because he was the attorney primarily responsible on the particular case, handling almost all of the work done on the case while previously employed at the law firm. He claimed that the law firm was not entitled to maintain its lien on the case.

In reply to the former associate’s argument, Richard A. Klass, Your Court Street Lawyer, urged the court to follow longstanding New York law that an associate or of-counsel is not entitled to assert his own lien because he is not the “attorney of record.” See, Edelman v. Orseck, 99 AD2d 763 [2 Dept. 1984]. The standard rule that the former associate failed to realize was that, while he was an associate, he was an employee who worked on files and matters assigned to him by his former employer. The law firm served as the ‘attorney of record’ in those matters, supported by its attorneys, associates and support staff. Indeed, all of the work and effort put into the cases by the associate while he was employed at the law firm inures to the benefit of his employer.

Associate of a law firm is not an independent contractor

In granting the law firm’s petition to enforce its charging lien, the judge held that the former associate was not an independent contractor when he works at the law firm, he was an employee. The judge specifically held that the work the associate did was not on his own account but on account of his former employer, and that whether the associate did most, if not all of the work on the case while he was employed there was irrelevant to the issue as to whether the law firm maintained its claim for services rendered.

— Richard A. Klass, Esq.

©2017 Richard A. Klass.
Credits: Photo of Richard Klass by Robert Matson, copyr. Richard A. Klass, 2015. Newsletter marketing by The Innovation Works, Inc. www.TheInnovationWorks.com. Image at top: Photo credit: Copyright: Elnur / 123RF Stock Photo

 

Next post
Previous post

Termination of the Attorney/Client Relationship: Breaking Up is Hard to Do

Daniel R. Antonelli, Esq., Richard A. Klass, Esq. and Kaylin L. Whittingham, Esq. at a Continuing Legal Education Program about Termination of the Attorney/Client Relationship: Prevention, Planning & Procedure.

Richard A. Klass recently spoke at a Continuing Legal Education Program entitled Breaking Up is Hard to Do – Termination of the Attorney/Client Relationship: Prevention, Planning & Procedure.

Shown here at the Brooklyn Bar Association on October 20, 2015 with, from left to right, Moderator Daniel R. Antonelli, Esq., Speakers Richard A. Klass, Esq. and Kaylin L. Whittingham, Esq.

Follow opens in a new windowthis link to an article about the program, by Rob Abruzzese, in the Brooklyn Daily Eagle.


R. A. Klass
Your Court Street Lawyer

Next post
Previous post