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The New York County Lawyers’ Association
NYCLA ETHICS OPINION NO. 718 (Issued 7/9/96)
WHETHER OR NOT AN ATTORNEY HAS A RETAINING LIEN OR CHARGING LIEN IN A SETTLEMENT CHECK IS A LEGAL, NOT AN ETHICAL, QUESTION; IF AN ATTORNEY DOES ASSERT A LEGALLY PERMISSIBLE LIEN IN A SETTLEMENT CHECK HE OR SHE MUST MAINTAIN THE FUNDS IN DISPUTE IN A SEPARATE ACCOUNT AND MUST PAY THE CLIENT ANY AMOUNT BY WHICH THE CHECK EXCEEDS THE DISPUTED FEES.
DR 5-103(A) (1); DR 9-102(B) (4); EC 2-23; EC 5-7
Where a lawyer receives a check for $ 10,000 made out to the lawyer pursuant to a settlement agreement, does the lawyer have a retaining lien in the proceeds of the litigation and any corresponding obligations to follow a client’s instructions to override the terms of the settlement by having the check made out in the client’s name alone?
Section 475 of the New York State Judiciary Law creates an attorney’s charging lien. In relevant part the statute reads as follows:
[T]he attorney who appears for a party has a lien upon his client’s cause of action, claim or counterclaim, which attaches to a verdict, report, determination, decision, judgment or final order in his client’s favor, and the proceeds thereof in whatever hands they may come; and the lien cannot be affected by any settlement between the parties before or after judgment, final order or determination. The court upon the petition of the client or attorney may determine and enforce the lien.
N.Y. Judiciary Law § 475 (McKinney 1983). In addition to the charging lien provided for by this statute, under New York common law an attorney may have a retaining lien on a client’s property that has come into his or her possession in the course of the attorney’s professional employment. See, e.g. In re Cooper, 291 NY. 255 (1943).
It is clear that the Code of Professional Responsibility allows an attorney to assert legally permissible liens in order to protect his or her fees and expenses. DR 5- 103 (A)(1); EC 5-7. While an attorney should of course “be zealous in efforts to avoid controversies over fees with clients and should attempt to resolve amicably any differences on the subject,” EC 2-23, under the right conditions an attorney has every right to exercise either a charging lien or a retaining lien. See generally N.Y. County 678 (1990) (describing conditions that should be met if attorney is to assert retaining lien).
It is also clear that the question of whether or not a particular attorney has the right to assert either a charging lien or a retaining lien on a particular settlement check – – the first question posed by the inquiry at hand — is a legal, not an ethical, question that is beyond the jurisdiction of this Committee. See e.g., N.Y. County 672 (1989): Monroe County 86-1 (1986); N.Y. City 82-22 (1982).
If the Committee assumes that the lawyer does have a legally permissible Hen on the check, however, then the second part of the inquiry — the question of the attorney’s obligations in light of the client’s desire to change the terms of the settlement by making the check payable to the client instead of to the lawyer — does raise ethical issues, since the request places the attorney in a situation in which his or her own interest in getting paid may appear to temper his or her zeal to obey instructions of potential benefit to the client. Nonetheless, as noted above, both the Ethical Canons and the Disciplinary Rules contain express approval of the assertion of legally permissible liens. In light of that approval, nothing in the Code should prohibit an attorney with a legitimate right to assert a lien on the check for $10,000 from having his or her adversary honor the terms of their settlement agreement rather than making the client the payee.
The lawyer asserting the lien does, of course, have continuing obligations to the client. He or she must maintain the amount in dispute in the client’s trust fund in a manner consistent with DR 9-102(B)(4). Accord N.Y. State 567 (1984); Monroe County 86-1 (1986). Moreover, if the amount in dispute is less than $10,000, the attorney must promptly pay the client the difference between the disputed amount and the $10,000. Accord Monroe County 86-1 (1986); Nassau County 85-7 (1985). Finally, having asserted his or her right to the lien, the attorney should continue to attempt to achieve the most amicable, least litigious resolution that is practicable. EC 2-23; N.Y. State 567 (1984).
Although the rules of ethics do not prohibit an attorney with a legally permissible lien in a settlement check from refusing to accommodate his or her client’s desire to have the check made payable to the client instead of to the attorney, the attorney must (1) keep the disputed portion of the settlement proceeds in the client’s trust fund, (2) refrain from using any of the money while the dispute is pending, and (3) pay the client any amount by which the settlement exceeds the fees in dispute.