The Attorneys’ Retaining Lien: Dealing With Client Property Amid Unpaid Fees

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When a lawyer-client relationship implodes, the lawyer is usually left with unpaid fees.  And since Rule 1.16 of the Illinois Rules of Professional Conduct requires a fired (or firing) lawyer to return all client papers and property, the lawyer owed fees often has no leverage to secure payments due him.

Enter the common law retaining lien.  This lien allows the lawyer to hold or “retain” his client’s papers until the client pays up. It’s a possessory or “passive lien”; meaning that the lawyer perfects the lien by keeping the client’s papers in his possession. He’s not required to file a lawsuit to foreclose the lien or to request a judge to adjudicate the lien.

Cronin & Company v. Richie Capital Management, LLC, 2014 IL App(1st) 131892-U filters the retaining lien question through the lens of a third-party electronic discovery company (the “Vendor”) holding client documents where both the attorney (who hired the Vendor) and the client are claiming superior rights to the documents.  The critical question is whether a law firm that gives client documents to the Vendor for litigation support and computer scanning relinquishes possession of the documents so that its retaining lien is lost. The answer: no.

The plaintiff law firm was hired by the defendant to assist in the collection of a $180M judgment it got against a Ponzi scheme organizer. As part of the plaintiff’s work on the case, they retained the Vendor to help with document storage and to create a website that the plaintiff and its client could equally access during the litigation. The relationship went bad and plaintiff law firm was fired by its client. Plaintiff and the client then both demanded that the Vendor return the documents. The plaintiff wanted the documents back so it could impress a lien on them while the client sought access to the site and documents so it could continue with the lawsuit.

The trial court granted injunctive relief for the plaintiff law firm and ordered the Vendor to return all documents to the plaintiff and the defendant Client appealed.

Ruling: Reversing the injunction, the First District sketched the elements of a lawyer’s retaining lien. (Note – the injunction was reversed for reasons unrelated to the retaining lien issue.)

Reasons:

A retaining lien gives the attorney the right to retain possession of the client’s documents and files that come into the attorney’s possession during the course of employment until the balance due the attorney is paid;

Possession of the client property that the lien is impressed against is essential to the existence and creation of the retaining lien;

The retaining lien requires an attorney’s continued possession of the client property for the lien to stick;

Once the attorney releases possession of the property, he loses the lien.

(¶¶ 21-22).

Here, the plaintiff law firm hired the Vendor to develop a Web hosting program to assist with the litigation. In doing so, the plaintiff supplied client documents to the Vendor so it could scan them into the the program. The defendant claimed that the plaintiff lost its retaining lien by giving defendant’s property to the Vendor.

The court disagreed. It held that while the Vendor was nominally (and ultimately) working for the defendant, it took its orders from the plaintiff.  Because of this, the Vendor’s possession of the client documents was imputed to the plaintiff.

The court equated the fact situation to one where an attorney deposits a check payable to the client with the clerk of court in order to resolve a fee dispute. In that scenario, the law is clear that tendering possession of the check does not equal releasing possession of the check for purposes of a retaining lien.

Afterwords: The case is post-worthy in view of the proliferation of third-party litigation support providers like electronic discovery companies. The salient holding of the case is that a retaining lien can apply to client property in the possession of a third party where the attorney hired or supervises that third party.

 

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PaulP

Litigation attorney at Kanaris Stubenvoll & Heiss, P.C. representing businesses and individuals in post-judgment enforcement, collections and real estate litigation.