The Risk Manager, Winter 2010
ByLawReader Senior Editor Stan Billingsley
Editor’s Note: This article is one of a series that LawReader.com has agreed to provide for Lawyers Mutual’s newsletter as a bar service. LawReader.com provides Internet legal research service specializing in Kentucky law. For more about LawReader go to www.LawReader.com.
We often learn of fee disputes when a lawyer righteously believes that a client’s file may be withheld until fees are paid. As reasonable as that may seem, it is expressly forbidden in the 2009 Kentucky Rules of Professional Conduct. Comment (10) to Rule 1.16 provides:
The lawyer may not condition return of the client’s file, papers, and property upon payment of a fee. KRS 376.460 gives a lawyer the right to have payment of fees secured by a judgment the client recovers as a result of the lawyer’s efforts. However, a lawyer may withhold uncompensated work product from the client’s returned files (e.g., draft of pleadings, agreements and the like), unless the client’s interests will be substantially prejudiced without the uncompensated work product. Documents or other relevant evidence, the original or its equivalent that may be required for trial preparation or as evidence for trial or in other legal proceedings, must be surrendered in their original form. See Rule 1.15 for guidance on resolving disputed claims for client funds.
KRS 376.460 permits an attorney's charging lien on a judgment or settlement for the amount of the fee agreed upon, or in the absence of an agreement, for a reasonable fee. If the records show the name of the attorney, the client is held to have notice of the lien. The client may not write a check or deliver something of value from the judgment or settlement until the attorney’s charging lien is released. A charging lien is not available in transaction matters and is of no effect in litigation matters if the judgment or settlement does not result in “money or other thing of value.”
A survey of Kentucky cases provides the following developments in attorney’s lien law:
- Worker’s Compensation
In Land v. Newsome (614 S.W.2d 948 (Ky., 1981)) an attorney’s lien was held not to be valid because KRS 342.320 overrules the attorney’s lien statute.
“There is no statutory authority for the payment of an attorney fee in addition to the award. It is implicit in the wording of KRS 342.320(2) and the attorney fee award that the fee be paid from claimant's funds held by the Special Fund. Since the Special Fund held none of claimant's money, it is not liable for the attorney fee.” “A lien cannot arise until the attorney is entitled to a fee. In a workman's compensation case an attorney is not legally entitled to a fee until that fee has been approved by the Board.”
- Offsetting Client Claim
In Exchange Bank of Kentucky v. Wells (860 S.W.2d 785 (Ky. App., 1993)) Wells obtained an attorney’s lien for his fees. Exchange Bank secured a judgment against Wells and sought to set off the attorney’s lien with the Bank’s larger judgment against Wells. The court held that Wells’ attorney’s lien took priority over the Bank’s offsetting claim and that he was entitled to recover his fees even though the judgment covered by the attorney’s lien was less than the judgment the Bank was awarded against Wells.
In the unpublished opinion Pinson v. Thacker (No. 2007-CA-000262-MR (Ky. App. 11/26/2008) (Ky. App., 2008) the Court held that “… Kentucky's rule [is] that an attorney's lien relates back to the time of the commencement of services, and that an attorney's lien takes precedence . ... Further, ... the trial court's right to set off one judgment against another is equitable in nature, and thus, the trial court has the power to determine the amount and manner of set-off.”
- Interest on Attorney’s Liens
In the unpublished opinion Pinson v. Thacker (No. 2007-CA-000262-MR (Ky. App. 11/26/2008) (Ky. App., 2008) the Court held that “As an award of attorney's fees therefore became payable as damages, it was proper for the trial court to award interest on such fees.” (citations omitted)
- ERISA and Attorney’s Liens
In Commonwealth Health Corp. v. Croslin (920 S.W.2d 46 (Ky., 1996)) the Court held that an award for attorney’s fees is not within the jurisdiction of the state court because the underlying ERISA claim was within federal jurisdiction:
“… we conclude that ERISA, 29 U.S.C. § 1132(e), vests exclusive jurisdiction of this matter in the federal courts.
It is understood that if a court does not have subject matter jurisdiction, the court has no "power to do anything at all. Therefore, the trial court order awarding attorney's fees and costs is void.” (citations omitted)
- Probate Court and Attorney’s Liens
In the unpublished opinion Claypoole v. Gailor (No. 2006-CA-001646-MR (Ky. App. 5/9/2008) (Ky. App., 2008)) a discharged lawyer in a successful contingency fee case submitted an attorney’s lien fee claim to the estate of the deceased. The executor denied the claim and notified the lawyer that if he failed to file an action within sixty days following the date of the notice, he would be forever barred from asserting such claim. The lawyer missed the deadline and then attempted to enforce his lien in this action. The Court held:
In order to enforce his [attorney’s] lien, an attorney may interplead in the original action or institute an independent action for recovery of his fee. … Here, Claypoole did not initially institute an independent action, but rather sought to enforce his lien through the pending probate action. The probate court then became the proper jurisdiction and venue in which to fully litigate the claim for entitlement to the asserted lien, as was properly found by the trial court. … Any further actions with regard to the asserted lien would necessarily be controlled by the statutes governing probate matters. (citations omitted)
- Filing an Attorney’s Lien Can Invite a Malpractice Claim
In Kirk v. Watts (62 S.W.3d 37 (Ky. App., 2001)) A bankruptcy court denied a discharged lawyer’s attorney’s lien fee claim and raised malpractice issues on his part. The lawyer had failed to list a sexual harassment claim in the client’s bankruptcy filing. This seriously reduced the client’s opportunity for a greater recovery on her claim than the bankruptcy trustee awarded her. The client promptly filed this malpractice claim.
Filing for an attorney’s lien is the same difference as suing a client for fees. We have often cautioned that the surest way to face a malpractice claim is to sue a client for fees. This is equally true for attorney’s liens. You must carefully evaluate your vulnerability to a claim of malpractice before filing.