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.


 
Ethically Taking Steps to Protect Your Lien Rights in Settlement Proceeds when a Joint Check is Issued
 
Here is the layout: you (Attorney A) represented Client in a personal injury matter and your contingency fee agreement contains a valid charging lien to protect your right to be paid. Client terminates you after two years of litigation, hires Attorney B, and two months later the case settles. The defendant issues a check jointly made out to you, Client, and Attorney B. Client believes you are not entitled to any fees and insists that you endorse the check. What now?
 
The California State Bar’s Standing Committee on Professional Responsibility and Conduct (COPRAC) has recently issued an ethics opinion (2009-177) addressing the above scenario. What should you do? Here it is in a nutshell:
 
1)  In order to comply with Rule of Professional Responsibility 4-100’s
requirement that you return all property to the client, you must take prompt steps to find a reasonable method of delivering the undisputed portion of the proceeds to which the client is entitled;
 
2)  You do not violate rule 4-100 by refusing to use a method that would extinguish your charging lien, i.e., you are normally not obligated to endorse the check, but you do have a duty to consult governing legal authorities to make a reasonable determination of the amount to which you are entitled;
 
3)  If Client does not agree to the proposed reasonable methods for delivering the undisputed portion or does not agree with your determination of the amount of the proceeds that undisputedly belong to Client, you must promptly seek resolution of the fee dispute through arbitration or judicial determination, as appropriate.  
 
As COPRAC explains, “Rule 4-100(B)(4) provides that an attorney shall ‘[p]romptly pay or deliver, as requested by the client, any funds, securities, or other properties in the possession of the member which the client is entitled to receive.’” (2009-177, at p.2.) However, a jointly issued check can only be negotiated if all of the parties endorse it (Commercial Code section 3110(d)), and endorsing the check, absent express agreement, extinguishes the lien. (Civil. Code section 2913.) Consequently, “the former attorney may refuse to endorse the check in order to preserve the charging lien until a resolution is reached.” (2009-177, at p.2.) 
 
            Of the possible reasonable steps you can take in this scenario, COPRAC notes:
 
            1)  offer to place the disputed funds in your trust account or in a separate blocked
                 account requiring signatures from you and Client;
 
2)  alternatively, quickly participate in fee arbitration and promptly abided by the
     arbitration award. (Note, you should still release any undisputed funds.); and
 
3)  agree to place the settlement proceeds in successor attorney’s account
     (Attorney B) under an express agreement that s/he holds such funds in
     trust for both you and Client. By doing so, Attorney B owes you a fiduciary
     obligation to not disburse the funds in Client’s favor.
 
            Whatever option is followed, you have the affirmative obligation to make a reasonable determination of the amount of fees to which you are entitled to under the lien and promptly offer reasonable suggestions for the disbursement or release of any and all remaining funds. This is so because, “[a]n attorney’s duty under rule 4-100(B)(4) to pay or deliver any funds which the former client is entitled to receive is not extinguished by the termination of the attorney-client relationship.” (2009-177, at p.4.)
No one single rule applies to all cases for the determination of fees. Consequently, “the attorney has a duty to consult governing legal authorities and make a reasonable determination of the amount to which he or she is entitled under the circumstances.” (Ibid.) If Client does not agree with that determination, you must seek prompt resolution
through arbitration or judicial determination, as appropriate.
 
            No one likes disagreements regarding fees. However, few disputes are better gauged to test of an attorney’s mettle than one over his/her own fees. This latest ethics opinion from COPRAC will hopefully assist every attorney in handling such disputes in a good faith and upright manner. The profession demands as much…and often more.
 
--Luis E. Ventura
 
**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.**