Ethics Opinion Articles - NC State Bar Journal

The Problem with Attorney Charging Liens

By Carmen K. Hoyme

Despite using her best efforts on behalf of a client, sometimes a lawyer won’t get the contingent fee she anticipated for the representation. When a client discharges the lawyer before the case is settled or reaches final judgment, the lawyer receives no payment for her (sometimes considerable) work on behalf of the client. What’s a lawyer to do? Remedies are available, but asserting an attorney charging lien is not one of them. In North Carolina, the availability of attorney charging liens is strictly limited.

Since 1978, the North Carolina Court of Appeals has defined an attorney charging lien as: “An equitable lien which gives an attorney the right to recover his fees ‘from a fund recovered by his aid.’ The charging lien attaches not to the cause of action, but to the judgment at the time it is rendered.” Mack v. Moore, 107 N.C. App. 87, 418 S.E.2d 685 (1992) (quoting Covington v. Rhodes, 38 N.C. App. 61, 247 S.E.2d 305 (1978)). Thus, no charging lien is available “until there is a final judgment or decree to which the lien can attach,” and any attempt to assert the lien prior to a final judgment is void. Howell v. Howell, 89 N.C. App. 115, 365 S.E.2d 181 (1988); see Dillon v. Consolidated Delivery, Inc., 43 N.C. App. 395, 258 S.E.2d 829 (1979); Covington, 38 N.C. App. 61, 247 S.E.2d 305.

The Mack court also explained that a charging lien is unavailable to a lawyer who withdraws or is discharged by the client “prior to settlement or judgment being entered in the case:”

At the time when [a former attorney’s] purported charging lien...would... attach[], the time of judgment in favor of [the attorney’s former client]..., the judgment [would not be] a fund recovered by the [attorney’s] aid, as he [has withdrawn. The former attorney is] entitled to no interest in the fund.

Id. (quoting Howell, 89 N.C. App. at 118, 365 S.E.2d at 183) (alterations in original). Thus, an attorney charging lien may only be asserted by a lawyer who represented the client through the entry of the judgment or settlement and it is against the judgment or settlement1 that the lien is asserted.

A charging lien may not be asserted by a lawyer whose representation ended prior to the judgment or settlement, regardless of how much work the lawyer did on the case or the terms of the fee agreement between the terminated lawyer and the client. The exclusive remedy for the former lawyer is to bring an action in quantum meruit to recover the reasonable value of the legal services he or she performed for the client. “[A]n attorney discharged with or without cause can recover only the reasonable value of his services as of that date.” Covington, 38 N.C. App. 61, 247 S.E.2d 305. The discharged lawyer may bring the quantum meruit action against either the former client, id., or the former client’s subsequent lawyer. Pryor v. Merten, 127 N.C. App. 483, 490 S.E.2d 590 (1997).

The Rules of Professional Conduct do not expressly address charging liens. The availability of a charging lien is determined by North Carolina common law. Nonetheless, a lawyer violates the Rules of Professional Conduct by asserting a charging lien or representing that a charging lien exists when such a lien is not permitted under North Carolina law. See Rule 1.5(a) (lawyer may not charge or collect an illegal fee). This issue most often arises when a lawyer who was discharged from a personal injury case prior to settlement notifies the tortfeasor’s insurance carrier that it must satisfy the lawyer’s lien when it settles the former client’s claim. The lawyer’s representation that a lien exists is false and misleading in violation of Rule 4.1. Asserting a lien typically delays or complicates settlement of the former client’s claim in violation of the lawyer’s duty under Rule 1.16(d) to assist the former client upon termination of the client-lawyer relationship. In asserting a lien that is not allowed by law,2 the lawyer uses information obtained during the client-lawyer relationship, including the existence of the former client’s claim and the identity of the tortfeasor’s insurance carrier, to the disadvantage of the former client in violation of Rule 1.9(c).

Even when a lawyer does not actually assert an unauthorized charging lien, the lawyer may run afoul of the Rules by inaccurately characterizing his or her right to a lien in the fee agreement. It is permissible to discuss charging liens in a fee agreement, but the reference thereto must explain the limited circumstances under which the lawyer is legally authorized to assert such a lien. It is false and misleading in violation of Rule 1.5(a) and Rule 4.1 for a fee agreement to state that, if discharged prior to the conclusion of the case, the lawyer will have a lien against any subsequent recovery by the client. In addition, this type of inaccurate blanket assertion has a chilling effect on a client’s right to terminate the relationship before the case is resolved, and thereby compromises a client’s right to be represented by whom the client pleases.

Lawyers must be honest and candid about not only their clients’ rights, but also their own. A lawyer—even one left uncompensated for legal work—may not misrepresent the law, including the law of North Carolina that strictly limits the lawyer’s right to assert a charging lien. n

Carmen Hoyme is deputy counsel at the North Carolina State Bar.

Endnotes

1. In the absence of clarification from the courts, an “entry” of settlement requires the execution of a release by the client and the filing of a voluntary dismissal with prejudice. In practice, the final accounting for the client’s funds, see Rule 1.15-3(d), prepared by the lawyer concluding the matter, generally is signed by the client at the time the release is executed. The final accounting should note a fee disbursement to the lawyer who concluded the matter and the client’s consent thereto.

2. Rule 1.6(b)(6) allows a lawyer to disclose confidential client information as reasonably necessary “to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client.” However, assertion of a lien claim, when none is allowed by law, does not fall within this exception to the duty of confidentiality.

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