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Ethics Advisory Opinion 05-07

April 13, 2005

RULE 1.15(c)

Date
March 18, 2005

Facts
Attorney is retained to represent Client in a divorce action that has been pending for some time. Client agreed to pay Counsel an hourly rate for all work done as well as to pay all costs incurred. Such agreement does not specifically include a provision to honor any assignments for costs.

Upon the initial scheduling of a final contested hearing, Client insisted that Counsel subpoena numerous witnesses as to the issues raised, including fault basis for divorce, equitable distribution, alimony or support, debt allocation, and restraining order. Counsel contacted a professional process server to serve the subpoenas.

After the initially scheduled hearing was continued and rescheduled, Client insisted that new and additional subpoenas be served. Counsel contacted the same process server, who served many of the subpoenas, but was unable to serve several due to bad addresses and information provided by Client.

At the end of the contested hearing, Counsel submitted a fee affidavit requesting an award of attorney’s fees and costs, including all of the costs for the service, and non-service, of the subpoenas by process server.

The Court issued an Order awarding all appropriate relief, including the payment of twelve months of support to Client, to be paid through the Office of Counsel (because Client refused to provide an address, or mailing address due to her fear of her spouse), as well as a specified amount of attorneys fees and costs, which is an amount less than the total amount incurred.

Counsel advised Client that the remaining balance of fees, and all costs, specifically including the costs of the process server, must be paid and while Counsel was willing to work with Client as to the attorney’s fees, the process service costs needed to be paid immediately from the funds due to her for alimony or support. Client refused to pay such from the initial eight or so monthly payments forwarded through Counsel's office.

Process Server contacts Counsel and demands payment of the balance. Counsel finally insists that the process server fees be paid from the last two (2) months payments of alimony/support and advises Client that he will have to assert a lien on such two payments to pay the balance due to process server, although he will continue to work with Client as to the payment of the remaining attorneys fees. Client refuses to endorse the final two alimony or support payment checks, which are payable to Client, and Counsel refuses to deliver them to Client, maintaining such checks securely, unendorsed, and citing Rule 1.15(c):

(c) When in the course of representation a lawyer is in possession of property in which both 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 dispute is resolved.

Questions
Can Counsel assert a lien on the last two monthly alimony/support payments for the purpose of: (A) paying the legitimate costs of service of subpoenas to process server; or (B) reimbursing himself the costs of service to process server if he pays same directly?

Or should Counsel forward the checks on to Client and attempt to collect same in another fashion?

Summary
Counsel may assert an equitable charging lien for the purpose of retaining an amount sufficient to pay the outstanding costs, pending resolution of the dispute over whether the client is responsible for such costs; however, assertion of a charging lien under these circumstances is fraught with risks.

Whether counsel should pay the costs himself or require the process server to seek payment from the judgment proceeds depends upon the contractual arrangement with the process server and is therefore outside the scope of this opinion.

Opinion
The language of Rule 1.15(c) excerpted above applies to property in a lawyer's possession in which "both the lawyer and another person claim interests." These facts do not reflect that the agreement between client and counsel expressly provided that amounts owed to counsel would be deducted from any amounts recovered in the underlying case. Accordingly, there is reason to doubt that counsel "claims an interest" in the property as a purely contractual matter. Although he may have a claim against the client, he does not appear to have a contractual interest in these particular funds.

However, it appears that counsel may claim an interest as an equitable matter. While this Committee does not render legal opinions, we observe that both South Carolina courts and this Committee have acknowledged the availability of charging liens in analogous circumstances. In Eleazer v. Hardaway Concrete Co., Inc., 281 S.C. 344, 348-49, 315 S.E.2d 174, 177-78 (Ct. App. 1984) the Court of Appeals, citing numerous prior cases, noted the existence of an "attorney's charging lien" whereby an attorney has an equitable right to have costs and disbursements in connection with a matter paid from any recovery in such matter. Likewise, we recognized in Ethics Advisory Opinion 88-07 that a charging lien permits an attorney to recover from a judgment award the costs and disbursements in connection with the case. In Lester v. Dawson, 327 S.C. 263, 270, 491 S.E.2d 240, 243 (1997), the Supreme Court endorsed the holding in Eleazer, pointing out that while a contractual arrangement is necessary for the assertion of a lien by a lawyer seeking fees, a charging lien may be asserted for the recovery of costs regardless of whether counsel has a contractual basis for doing so.

Against this backdrop, an equitable charging lien can be asserted regardless of whether the agreement between counsel and client specifically contemplated the payment of expenses from the judgment proceeds. The factual background provided with this inquiry establishes that the costs of the process server were incurred with the client's full knowledge, and in some cases at the client's insistence. While the process server was not successful with respect to each target of service, it does not appear that the client had any reason to expect that costs would be limited to successful attempts. We therefore assume, based on the factual background provided, that the costs of service were known and approved by the client and that counsel has no basis for believing that such costs are unreasonable or excessive. As such, it is the opinion of this Committee that Rule 1.15(c) would permit counsel to assert a charging lien to the extent necessary to cover the costs of the process server.

However, the existence of a charging lien "does not assure that its enforcement by a lawyer would be ethical." Robert M. Wilcox and Nathan M. Crystal, Annotated South Carolina Rules of Professional Conduct 92 (S.C. Bar-CLE Div. 2002). Two important caveats apply to counsel's exercise of a charging lien. First, counsel may not simply claim the funds owed, but is permitted by Rule 1.15(c) only to hold the disputed funds "until the dispute is resolved." Whether counsel may ultimately be entitled to recover costs is a separate legal issue which we will not address. Second, counsel may withhold only that portion of the proceeds actually claimed—the remainder must be distributed to the client upon receipt. See Comment to Rule 1.15 ("The undisputed portion of the funds shall be promptly distributed") (emphasis added).

These caveats are of exceptional importance here. It does not appear that counsel can negotiate the checks, as the fact pattern indicates that they are "payable to Client." Moreover, the fact pattern does not indicate whether the amount owed to the process server is greater than, equal to, or less than the amount of the two checks being withheld. Thus, counsel is stuck with property which he cannot liquidate and which may or may not exceed the value of the costs owed by the client. The longer the checks are held, the greater the risk that the funds on which they were drawn may not be available. In short, the potential for prejudice to the client's interests is greater, and the advantage to counsel far less, than if counsel was able to liquidate the funds immediately, hold the disputed amount in his trust account, and return the remaining funds to the client.

While the Committee does not believe that counsel is categorically prohibited by the Rules of Professional Conduct from asserting a charging lien under these circumstances, counsel does so at the risk of compromising his ethical obligations to his client. Our recognition of the availability of a charging lien under these circumstances does not signify our endorsement of the practice of relying on such liens, the problems and limitations of which are demonstrated by these facts.

If counsel does assert a charging lien, given the significant risks generally associated with prolonged fee disputes (see, John Freeman, Ethics Watch: A-B-C's of Legal Fees, 8 S.C. Lawyer 10 (July/August 1996)), and the enhanced potential for prejudice to the client under these facts, counsel must seek as prompt a resolution of the dispute as possible. Turning over the checks to the appropriate court or otherwise making use of an interpleader action are two options that may facilitate such a prompt resolution.

Finally, with respect to whether counsel should pay the process server himself and seek reimbursement or withhold on behalf of the process server an amount sufficient to pay the costs, it is our opinion that this is a matter of contract, and is therefore outside the scope of this inquiry.

Whether the process server has a contractual right to payment from counsel, the client, or both is not clear from these facts.print