April 2000

Ethics and the Law
Ethical Consideration as to Liens

These materials give a brief overview of some features of attorney liens in Washington and then consider some ethical issues arising in the interplay between those and other liens.

Washington has long recognized a lawyer's right to a lien to secure compensation for services rendered to a client. The right arises both under common law and by statute, with the current general statutory attorney lien being set out at RCW 60.40.010. Ross v. Scannell, 97 Wn.2d 598 (1982) observes that the statute, being in derogation of common law, is to be strictly construed.

The lien is generally viewed in Washington as a possessory or retaining lien which allows a lawyer to retain a client's papers or money in the possession of the lawyer, and in certain cases, to make claims on money in the hands of adverse parties. The lien is a charging lien to the extent it applies to some judgments, where in effect it prevents clients from reaping the benefits of the lawyer's work, but depriving the lawyer of earned compensation.

As a retaining lien, if the lawyer gives up possession of the possessed property, or assigns it to another without agreeing to retain the lien or secure an assignment of assets, the lien terminates. For example, in Mahomet v. Hartford Insurance Co., 3 Wn.App. 560, 477 P.2d 191 (Div. II, 1970), the lien ended when the lawyer surrendered insurance policies without an agreement to retain his lien. Similarly, the lien ends when it is assigned. See Gottstein v. Harrington, 25 Wn. 508 (1901), 65 P. 753 (1901). Although not stated in the statutory lien, it does not apply to money in the lawyer's possession for support of minor children. See WSBA Formal Opinion 144 (1970).

The retaining lien is not enforceable by foreclosure or sale. Thus a lawyer may not sell, for example, a client's papers or documents to satisfy the lawyer's claim for unpaid legal fees. Gottstein v. Harrington, 25 Wn. 508, 65 P. 753 (1901); In re Eighth Ave. in the City of Seattle, 82 Wn. 398, 144 P. 533 (1914). Where the lawyer secures a judgment for the client, the lien may attach to that judgment and be enforced against the client, but an attorney's lien may not attach to real property. The concern is that lawyers might unfairly cloud, or threaten to cloud, title to their clients' real estate to coerce them to pay claimed fees. Ross v. Scannell, cited above.

Some Preliminary Thoughts. A lawyer's lien rights are subject to the lawyer's ethical obligations under the Rules of Professional Conduct. The RPCs specifically recognize, although indirectly, a lawyer's lien rights. For example, RPC 1.8(j) prohibits a lawyer from acquiring "a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may: (1) Acquire a lien granted by law to secure the lawyer's fee or expenses." Similarly, RPC 1.15(d), on terminating representation of a client, permits a lawyer to "retain papers relating to the client to the extent permitted by other law," thus indirectly recognizing a lawyer's retaining lien on client papers.

An attorney considering claiming or enforcing a lien for allegedly unpaid legal fees or costs should seriously consider whether the effort is worth the aggravation and risk. While clients often do not pay all owed fees and costs, when sued for nonpayment they almost equally often file malpractice and disciplinary complaints claiming professional and ethical violations by their lawyer. In Gustafson v. City of Seattle, 87 Wn.App. 298, 941 P.2d 701 (Div. I, 1997), the Court of Appeals suggests that a lawyer's breach of ethical duties may result in denial or disgorgement of the lawyer's legal fees. Thus, before claiming or enforcing an attorney's lien, a lawyer should assure that the lawyer's representation of the client has been professional and ethical.

While some dishonest clients intentionally cheat their lawyers, many nonpayment cases more likely arise from either a good-faith, but perhaps mistaken, belief by the client that the lawyer did not serve the client well, or from a client's financial inability (perhaps temporary) to make payment. In either case, the lawyer should objectively determine the cause of nonpayment, and then ask whether life is long enough to expend efforts to pursue the nonpaying client rather than better servicing paying clients. The author believes most lawyers would be far better to chalk up nonpaying clients to the category of "involuntary pro bono" service, recognizing that few, if any, lawyers ever recover 100 percent of amounts billed, and take pride that as professionals they served well even those clients who cheated them.

The following discusses some ethical issues relating to liens. Although organized under the four stated categories of statutory attorney's liens, namely (1) liens on client papers, (2) liens on money in the lawyer's possession, (3) liens on money in the possession of adverse parties, and (4) liens on judgments, it relates to other liens as well. It does not address, as outside its scope, questions relating to liens that may arise under bankruptcy law.

Liens on Papers/Files. The principal ethical limitations on a lawyer's lien claim on client papers and files are in RPC 1.15, describing a lawyer's obligations on terminating a client representation. RPC 1.15(d) requires the lawyer to

take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.

The rule's permission to retain papers recognizes the lawyer's common-law and statutory lien right. In practice, however, the lawyer's ethical ability to retain papers is very limited, and is rarely of economic use to the lawyer, since the lawyer's duty to protect the client's interests supersedes the lawyer's right to protect his or her own interests. Since the primary role and rationale of a lawyer as a professional is to serve others, this is a proper result, although it leaves the lawyer subject to abuse by possibly dishonest clients.

WSBA Formal Opinion 181, holding that a lawyer may retain papers only where the client's interest is not prejudiced by doing so, recognizes the priority of client service over lawyer self protection. The client, when requesting his or her files, is generally presumed to need them and is presumed likely to be prejudiced by not having them. Practically, a lawyer may retain files under that opinion only where the client can afford to pay outstanding fees and there is no dispute as to the amount owed. This is rare, since unhappy clients usually claim lawyer fees are too high. Generally, where there is legal need for the files, the lawyer must release the files to the client or the client's new lawyer. The lawyer need not deliver files to a client who has not fully paid the amount owed where a legal representation has been completed and there is no further ongoing legal need for the files. Thus, an unpaid lawyer need not hand over souvenirs of a completed legal conflict to a nonpaying client.

Lawyers representing a client whose file is being retained by a client's former lawyer claiming a retaining lien on the file should familiarize themselves with the attorney lien statute and with WSBA Formal Opinion 181. If they cannot convince the former lawyer to release the file to them, and the client in good faith disputes outstanding legal fees and cannot pay them, and if the former lawyer's withholding of the file materially interferes with their ability to represent the client, they should contact the Washington State Bar Association's Office of Disciplinary Counsel for assistance in recovering the file. That office has often successfully resolved many file disputes and secured release of files by explaining applicable ethical rules. If that fails, the successor lawyer may move a court of record (no pending litigation is required) under RCW 60.40.020 to compel delivery of the files. The court will usually immediately order release of the files. See State ex rel Robinson Co. v. Gilliam, 94 Wn. 243, 161 P.2d 1194 (1917); Krein v. Nordstrom, 80 Wn.App. 306, 908 P.2d 889 (1995). Such summary proceedings do not apply to property (other than the client's papers or money) which the client may have provided the prior lawyer as security for payment of legal fees. Golden v. Hyde, 117 Wn. 677, 202 P.272 (1921).

Money in the Hands of Lawyers. RPC 1.14 requires lawyers to preserve the identity of client funds and property. While this principally requires lawyers to maintain trust accounts for the deposit of client funds, more generally it requires lawyers to safeguard client funds and property, to safely invest them where appropriate, and to account to clients for them.

The rule recognizes that not all funds held by a lawyer in the name of, or for a client, will necessarily belong to the client. RPC 1.14(b)(4) requires a lawyer to promptly "pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive." (emphasis added).

Where the client is not entitled to receive moneys held by the lawyer, the lawyer is neither obligated nor permitted to pay those moneys to the client. This includes moneys held by the lawyer due to third parties. For example, WSBA Formal Opinion 185 (1990) authorizes a lawyer to pay settlement or trust funds to third parties where the lawyer has "guaranteed" them payment from judgment or settlement proceeds, provided that the lawyer has previously obtained client consent to do so. It is very often in the client's interest to provide such a consent, since without such consent and assured payment, the third party (such as a chiropractor) might be unwilling to provide the client with continued necessary services. The lawyer should not personally guarantee payment, but instead should at most very clearly limit the guarantee to payment out of the client's portion of the proceeds of judgment or settlement of the case. The lawyer should discuss with the client such guarantees at the outset of the representation, and include in the lawyer's contingent fee agreement a provision for the client's informed consent, or refusal to give consent. The lawyer should, if intended, clearly limit the guarantee to a specified maximum dollar amount of services, or specified time period during which the services must be rendered, so that the third-party service provider's fees do not consume a disproportionate, if not entire, amount of the expected recovery. In accordance with RPC 1.5(c)(1), the lawyer's contingent fee agreement (and any guarantee), should clearly state, if intended, that any such "guaranteed" costs are to come only out of the client's portion of any judgment or settlement proceeds and not from the lawyer's portion, since otherwise the "guarantee" may well consume the lawyer's share of such proceeds. Without such limitations, other service providers may remain unpaid, and what was once an economic case for the lawyer to undertake may become, due to the guarantee, a dog of a case with the lawyer unlikely to recover even costs advanced.

Sometimes after the client has consented to, and the lawyer conveyed, a guarantee of payment to a third party, the client tries to revoke the consent. Where the client does so in a good-faith dispute over amounts owed the third parties, the lawyer should retain the moneys in the lawyer's trust fund, paying neither the client nor the provider, until the dispute is resolved. If there is no such good-faith dispute, however, WSBA Formal Opinion 185 directs the lawyer to pay the third party over the client's objection, recognizing that failure to do so leaves the lawyer open to possible disciplinary charges under RPC 4.3 and RPC 4.4 for lack of candor.

The determination of whether there is a good-faith dispute between the lawyer's client and the third party leaves the lawyer in a very awkward situation. If the lawyer pays the third party over the client's objection, the client will likely file a disciplinary grievance or malpractice action against the lawyer, even where the lawyer long previously explained the lawyer's ethical need to do so. If the lawyer fails to make the payments, the "guaranteed" third party may file grievances claiming misrepresentations and abuse of process by the lawyer. Anticipating such situations, the lawyer may want to include in contingent fee agreements a provision clearly authorizing the lawyer to advise third-party service providers when they request guarantees of payment, and include within the lawyer's written guarantees, that if the client seeks to revoke consent to payment after the consent is given, the lawyer will hold contested funds in the lawyer's trust account until the dispute is resolved between the client and the provider. This forewarns the client and third party of possible disputes and that the lawyer may be caught in the middle, so that the client understands what will happen, and the third party does not doubt the lawyer's guarantee and impugn the lawyer's reputation.

If the lawyer guarantees payment to a third party without obtaining the client's consent, the lawyer may not, if the client objects, pay the provider out of judgment and settlement proceeds. In such a case, the third-party provider will likely contend that the lawyer is personally responsible for payment of guaranteed costs since the lawyer misrepresented to the provider that payment of the costs was guaranteed out of judgment or settlement proceeds, and the provider relied on such purported guarantee in providing services to the client. The lawyer may also be subject to disciplinary action for misrepresentations to the provider, for taking actions beyond the authorized scope of the lawyer's representation, and for inappropriately advancing or guaranteeing client living expenses. RPC 1.8(e) specifically prohibits a lawyer from advancing or guaranteeing financial assistance to the client other than "expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses." The permitted expenses do not include, for example, ongoing medical services or other services of third-party providers that are not clearly litigation expenses. Thus, authorized "expenses of medical examination" should not be read so broadly as to include any medical examination expenses other than those needed for the litigation. WSBA Formal Opinion 140 (1969) provides that where a lawyer has requested litigation-related services but has failed to make clear to the provider that the client, not the lawyer, is responsible for payment, that the lawyer himself or herself should pay such expenses, seek reimbursement from the client, and failing that, assume the risk of nonpayment. The same rationale seems to apply to non-litigation-related expenses which the lawyer has, in violation of the RPCs, guaranteed without client consent.

A lawyer is not required to pay to the client moneys owed to the lawyer. The RPC's trust rules require that once the lawyer has determined that the lawyer is entitled to those funds, the lawyer should remove them from the lawyer's trust account and place them in the lawyer's operating account. If the lawyer and client dispute the lawyer's entitlement to those funds, the funds should remain in the trust account until the dispute is resolved. A lawyer may offset amounts held in the lawyer's trust account against amounts owed the lawyer, and may even stop payment on a trust account check, as a method of enforcing the lawyer's lien rights to the funds. Crane Co. v. Paul, 15 Wn.App. 212, 548 P.2d 337 (Div.I, 1976). Where a lawyer has a fee dispute with the client, the lawyer should not misuse the client's confidences and secrets in violation of RPC 1.6 in an attempt to coerce payment. In Discipline of Boelter, 139 Wn.2d 81 (1999), the Court suspended a lawyer from practice for six months for threatening to disclose client confidences as a means of coercing a client to pay claimed legal fees. The case also makes it clear that RPC 1.6(b)(2), allowing a lawyer to disclose client confidences and secrets in order to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, does not authorize the lawyer to make wholesale disclosure of client confidences and secrets.

Guidance from the ABA Model Rules. Although Washington's RPCs are generally based on the American Bar Association's Model Rules of Professional Conduct, Washington did not adopt Model Rule 1.15, relating to a lawyer's duty to keep client property safe. Instead, it adopted its own version of a rule dealing with the lawyer's duty to preserve the identity of funds and property which the lawyer receives, discussed above and set out in RPC 1.14. Nevertheless, ABA Model Rule 1.15 and its official comments help a lawyer understand some of the ethical issues related to competing claims and liens on funds held by a lawyer. ABA Model Rule 1.15(b) and 1.15(c), as they currently exist and as the ABA Ethics 2000 Commission proposed in November 1999 to amend them, are as follows:

(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

(c) When in the course of representation a lawyer is in possession of property in which both two or more persons (one of whom may be the lawyer and another person) claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the any dispute about the interests is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.

Several of the ABA's official comments to Model Rule 15 (b) and (c), also not adopted by Washington, explain these provisions and provide useful analysis. Comments 2 and 3, as they now exist and as the ABA Ethics 2000 Commission proposed in November 1999 to amend them, are as follows:

[2] Lawyers often receive funds from third parties from which the lawyer's fee will be paid. If there is risk that the client may divert the funds without paying the fee, the The lawyer is not required to remit the portion from which funds to the fee is to be paid client that the lawyer reasonably believes represent fees owed. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should must be kept in a trust account and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed.

[3] Third Paragraph (c) also recognizes that third parties, such as a client's creditors, may have just lawful claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly may in such cases must refuse to surrender the property to the client until the claims are resolved. However, a A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but the lawyer may file an action to have a court resolve the claims.

The Commission explained its rationale for the proposed changes generally as an attempt "to get the Rule more in line with prevailing case law relating to lawyer responsibility as to funds whose ownership is disputed." As to comment 3, it noted:

This Comment deals with a practical problem in which a client's creditor tries to get at funds in the hands of the lawyer. There is no doubt that, as a matter of substantive law, in some cases the lawyer would be required to make the creditor whole if the lawyer remitted property to the client to which the creditor was found entitled. In those but only those cases, paragraph (c) mandates a lawyer's refusal to remit the funds to the client until the dispute is resolved, while this Comment reinforces and tries to explain this sometimes controversial point. The controversy arises when clients think lawyers are being disloyal when they give credence to the creditor's claim. That reaction is understandable, but this draft makes clear that lawyers may not legally give in to client pressure to ignore the creditor's possible rights.

The ABA has not yet acted on the Ethics 2000 recommendations, and is unlikely to do so before late 2000. Nevertheless, Washington lawyers may find helpful ABA Model Rule 1.15 and its commentary and proposed changes in analyzing ethical issues of competing liens and interests in property held by the lawyer which arise under Washington's RPC 1.14 as interpreted through various WSBA opinions.

Money in Hands of Adverse Party. Clause 3 of RCW 60.40.010 provides that a lawyer has a lien "upon money in the hands of the adverse party in an action or proceeding, in which the attorney was employed, from the time of giving notice of the lien to that party." Plummer v. Great Northern Ry. Co., 60 Wn.214, 110 P 989 (1910), indicates that the underlying action must be a Washington action. Under McRea v. Warehime, 49 Wn.194 (1908), the notice of lien must be in writing. Under Suleiman v. Cantino, 33 Wn.App.602, 656 P.2d 122 (Div.I, 1983), the lawyer's client must prevail in the litigation for the lien to be effective. It is unclear whether the lien on moneys held by adverse parties is a possessory or charging lien, since the Supreme Court in Ross v. Scannell says it is a retaining lien (although the dissent concludes to the contrary), while the Court of Appeals in Jones v. International Land Corporation, 51 Wn.App. 737, 755 P.2d 184 (Div.I,1988), distinguishes that case and suggests it is a charging lien that can be foreclosed on, although not in the case before it.

Judgment Lien. RCW 60.40.010(4) grants a lawyer a lien on a judgment to the extent of the value of services performed, provided certain requirements are met. Unlike the lien on papers or money retained by the lawyer, the judgment lien is a charging lien which can be judicially foreclosed (see Ross v. Scannell), although the statute does not specify an enforcement procedure. See Keyes v. Ahrenstedt, 164 Wn.106, 1 P.2d 843 (1931); State ex rel. Angeles B. & M. Co. v. Superior Court, 89 Wn.342, 154 P. 603 (1916).

For a judgment lien to be effective, a judgment must have been entered (except in rare cases of collusion between parties), Cline Piano Co. v. Sherwood, 57 Wn.239, 106 P.742 (1910), and the judgment must have been in favor of the lawyer's client. Wilson v. Henkle, 45 Wn.App. 162, 724 p.2d 1069 (Div. I, 1986). Like other liens, the lien on a judgment can be waived, although it is not altogether clear under what circumstances. Compare, for example, Holbrook v. McKee, 147 Wn.386, 266 P.187 (1928) (lien waived) with Niagara Fire Insurance Co. v. Hart, 13 Wn.651, 43 P.937 (1896) (not waived, express waiver required). No attorney's judgment lien may exist as to judgments for child support. Fuqua v. Fuqua , 88 Wn.2d 100, 558 P.2d 801 (1977).

In seeking or enforcing a judgment lien, the lawyer must comply with RPC 3.1, prohibiting a lawyer from bringing or defending a proceeding, or asserting or controverting an issue therein, unless there is a basis for doing so that is not frivolous. The lawyer must also assure that in doing so the lawyer complies with RPC 4.4, which prohibits a lawyer, in representing a client — himself or herself, in this case — from using means that have no substantial purpose other than to embarrass, delay or burden a third person. Unless the lawyer has a good-faith belief he or she is entitled to the judgment lien, the lawyer should not seek to coerce the client into payment of claimed legal fees by threatening to tie up the client's judgment with a claimed lien.

While the statutory attorney's lien gives lawyers some protection from being deprived of justly-earned compensation for their professional services, lawyers should be very careful in claiming or seeking to enforce such liens.

As a practical matter, a retaining lien against a client's papers is usually of little value where the client in good faith disputes claimed amounts due, or where a subsequent lawyer representing the client reasonably believes that retention of the client's papers by the client's prior lawyer will materially interfere with the subsequent lawyer's representation of the client. As to other attorney liens, the lawyer should resolve any disputes as to the amount owed, and assure that the dispute will not result in malpractice or disciplinary complaints, before seeking to enforce the lien.

The lawyer should also secure informed client consent before "guaranteeing" to any third-party payment out of judgment or settlement proceeds. Failure to do so may make the lawyer liable for such guaranteed payments and result in malpractice or disciplinary charges. Finally, the lawyer should weigh heavily whether the effort to collect from the client is worth the effort and risks, or whether the lawyer might be better served treating the nonpayment as "involuntary pro bono" and using the time saved to better serve existing clients who will pay the lawyer for services.

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