Legal Ethics Corner

Ethics Corner is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Does a Client’s Agreement to Provide an Attorney with an Attorney’s Lien to Secure Attorney’s Compensation for Deferred Fees Improperly Interfere with the Client’s Right to Settle the Case?

Generally, an attorney/client agreement that prohibits settlement without the consent of the attorney is void against public policy.  (Hall v. Orloff (1920) 49 Cal.App. 745.)  Such a provision interferes with the client’s authority to control the client’s substantive rights, contrary to public policy.

The recent case of Little v. Amber Hotel Company (2011) 202 Cal.App.4th 280 addressed the holding in Hall.   In Little, the Court considered the issue of whether a lien provided by a client in favor of the attorney on any court fee award imposes an unreasonable restriction on the client’s right to settle.  Little found it did not. 

In Little, the attorney and clients entered into an agreement including the following:  “Client agrees to pay attorney $275.00 per hour, $175.00 per hour which will be deferred by attorney to be held as [a] lien and collected in full against any attorney fee award made by the Court in favor of Client at the conclusion of this case.”  (Id. at 285.)  Attorney’s clients prevailed in the underlying action and the trial court awarded attorney’s fees.  (Id. at 286.)

Thereafter, attorney’s clients and the defendant directly settled without attorney’s consent while the matter was on appeal which resulted in the filing of a satisfaction of judgment which negated the attorney’s fees award.  (Id.)  Attorney claimed that the settlement interfered with his lien rights and sued his clients for breach of contract and quantum meruit and sued the defendant for intentional interference with contract, constructive trust and conversion.  (Id.)  The attorney prevailed against the defendant for intentionally inducing breach of contract and intentionally interfering with contract.  (Id. at 290.)  Attorney’s clients were found to have breached the contract, but had done so because of the defendant’s actions.  (Id.)  Defendant appealed.

One of defendant’s contentions on appeal was that a contractual attorney’s lien does not oblige the client to refrain from entering into a settlement that prevents the attorney from recovering under the lien.  (Id. at 290.)  Defendant contended that the attorney’s “lien did not limit the [client’s] entitlement to settle the action, and “that the lien ‘evaporated’ as a result of the settlement, which prevented a recovery under the fee award.”  (Id. at 292.)  The defendant asserted that “because the settlement rendered the lien valueless, [attorney’s] interference claims are ‘valueless as well.’”  (Id.)  The court rejected that contention and found that “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.”  (Id.)  The court confirmed that “clients who create such a right are obligated under the agreement to honor the right.”  (Id. at 295.)

Defendant also contended that notwithstanding the fee agreement, the clients had the right to settle the action in any manner, even if the settlement prevented attorney from recovering under the lien.  (Id. at 296.)  Little noted that “lien-creating deferred fee agreements serve important public policies, as they permit persons with meritorious claims to obtain legal representation despite their inability to pay.”  (Id. at 297 (citation omitted).)  The court further discussed that “…to the extent [attorney’s] lien on the fee award imposed a restriction on any settlement [the clients] entered into, it did not impose an unreasonable minimal value on a permissible settlement ….”  (Id.)

Defendant went on to argue citing Hall that the lien agreement was against public policy in that it prevented the client from resolving the action without the attorney’s consent.  Little noted that “the fee agreement did not transfer control of the action from [clients] to [attorney] or require his consent for settlement of the action; rather, it obligated [clients] to honor their contractual duties to [attorney] concerning his lien right … regardless of how they chose to settle the action.”  (Id.)

Little illustrates that although agreements that prohibit settlement without the consent of the attorney are generally void against public policy, an agreement that provides a lien on deferred fees is not against public policy and should not be interfered with. Where such an agreement is valid, the attorney’s lien rights must be considered even though the client has total control over how the case is settled.

Frank Tobin

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**