April 2012 Vol. 9, No. 1

9.1.2

Attorney Fee Agreements; Liens on Deferred Fees

Case:

Little v. Amber Hotel Co. (2011) 202 Cal.App.4th 280

Issue:

Attorney brought an action for tortious interference with an attorney’s lien and for interference with an attorney’s further relationship with his clients against the opposing party in an underlying action.  Did the attorney establish that his clients had breached a contractual duty to the attorney regarding the lien when the clients settled the action with the opposing party and forfeited their right to execute on the court-ordered prior fee award that was the basis of the lien?

Holding:

Yes.  “[A] client who creates an attorney's lien through a fee agreement may undertake a contractual obligation not to frustrate the attorney's recovery under the lien.”  (202 Cal.App.4th at 292.)

An attorney fee agreement which creates a lien on deferred fees does not for that reason alone impose an unreasonable restriction on clients’ right to settle. Here, the fee agreement was valid and enforceable as it ensured the attorney his right to “any fee award made by the court” without regard to the terms on which his clients ultimately chose to settle. The amount of the fee award had never been challenged, the award itself was final, and the lien provisions of the fee agreement were not the product of unfair negotiations.  The fee agreement did not impose an unreasonable minimal value on a permissible settlement.  In addition, the fee agreement did not transfer control of the action from clients to the attorney or require the attorney’s consent for settlement of the lawsuit.  (Id. at 297.)

The Court distinguished Lemmer v. Charney (2011) 195 Cal.App.4th 99, which held that an attorney could not sue his client for fraud because the client dismissed his action notwithstanding client’s promise to proceed to trial or settlement.  In this case, by contrast, control of the action remained in the hands of the clients and the attorney’s consent was not required to settle the action.  What the clients could not do was break their promise not to impair the attorney’s lien right to a court-ordered fee award regardless of how the clients settled the action.  (Ibid.)

Notes:

Generally, a provision in an attorney-client fee agreement that the client may not settle without his attorney’s consent is against public policy and void.   However, the Court of Appeal noted that lien-creating deferred fee agreements serve the important public policy of enabling persons with meritorious claims to obtain legal representation despite their inability to pay.  (Ibid.)

The underlying lawsuit concerned an action by a hotel company against defendants in connection with alleged failure to pay the hotel company broker’s commissions in connection with the sale of a hotel.  The listing and sales agreement each had an attorney fees provision.  The defendants won at trial and the trial court awarded a sizeable attorney fee award on which the attorney based his lien.  The hotel company appealed the verdict, but dismissed the appeal in exchange for the settlement agreement negotiated directly with the defendants that relinquished their right to the court-ordered attorney fee award.

While the jury in the action by the attorney against his former clients and the opposing party in the underlying action found that the clients had breached their agreement to their attorney, damages were awarded only against the opposing party in the underlying action for causing the clients to break their contractual duties.  This is how the Court of Appeal described the opposing party’s effort to induce the attorney’s clients to settle the matter and eliminate the attorney’s right to the court-ordered fees:

At some point, one of the attorney’s clients entered into an oral settlement agreement with the president of the hotel company.  Under its terms, the hotel company would dismiss its appeal and give the client $100,000 “in a quiet way,” meaning it was not to be disclosed to anyone including the client’s attorney.  In exchange, the client agreed not to pursue a malicious prosecution action against the hotel company.  According to the client, the president of the hotel company and its counsel told him that the settlement agreement did not concern the fee award, but they promised that they would “take care of” client’s attorney’s claim to the fee award.  “As a result of these assurances,” client and the other prevailing defendants in the underlying action executed acknowledgments of satisfaction of judgment.  At hotel company president’s direction, client “made a nighttime drive to Malibu, where [hotel company president] gave him $100,000 in cash.”  (Id. at 288.)  The footnote to this passage notes trial testimony from client’s chauffeur that, upon reaching the Malibu address, client “left the car, entered a building, and returned with a black briefcase.  When [client] looked inside the bag, he was ‘real joyful.’”  (Id. at 289, note 4.)

The Court of Appeal upheld the part of the jury verdict representing part of the fees attorney expected to have earned in future years from these longtime clients had the hotel company not wrongfully caused clients to breach their agreement with attorney.  The hotel company’s actions forced the attorney to sue his former clients and thereby led clients to discontinue using attorney.  “Here, [attorney] testified that he expected his long and profitable relationship with the [clients] to continue after the action involving [the hotel company] ended.  [Client] testified that he had routinely employed [attorney] to provide legal services for 10 or 11 years prior to the action involving [the hotel company].  He further testified that after the settlement, he no longer hired [attorney] and had no intention to retain [attorney] in the future.  When [hotel company’s] counsel asked why [client] had stopped engaging [attorney] prior to the trial in the underlying action, [client] answered, ‘He sued me.’  [Client] also stated that he had hired a new law firm to provide legal services and that he did not wish to disturb his relationship with it.  This testimony is sufficient to show that it was [hotel company’s] misconduct regarding [attorney’s] retainer agreement that ended [attorney’s] profitable relationship with [client].”  (Id. at 304.)

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