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By Samson Habte
May 12 — A law firm may assert a charging lien to collect payment for the “pre-suit legal work it performed” on a lawsuit that ultimately was filed by different counsel, the Georgia Court of Appeals held May 6.
Judge Anne Elizabeth Barnes acknowledged that a statutory charging lien in Georgia “does not attach until a lawsuit has been filed on the client's behalf.” However, she said, “nothing in the statutory language restricts its application to a limited class of attorneys who worked on the lawsuit when it was filed.”
“Rather, [Ga. Code Ann. §15-19-14(b)] applies nonrestrictively to ‘attorneys at law' and thus is broad enough to encompass those attorneys who conducted legal work for a client in anticipation of a lawsuit that ultimately is filed on behalf of the client by a different attorney,” Barnes wrote.
The ruling affirms a trial judge's finding that Cochran, Cherry, Givens, Smith & Sistrunk P.C. (the Cochran Firm) was entitled to 5 percent of the attorneys' fees awarded in a medical malpractice case that Audrey Tolson, a former associate, worked on during her tenure at the firm but did not file until shortly after she left to start her own practice.
On the other hand, the panel reversed the trial court's separate finding that the firm also was “entitled to 25 percent of the fees for originating the case.”
The panel said its holding on that point was also dictated by the language of Georgia's charging lien statute.
That language, Barnes said, indicates that a charging lien secures payment for “labor and services rendered to the client rather than labor and services rendered to other counsel or a third party.”
“Origination or procurement of a case—in other words, rainmaking—is not a service by an attorney that confers value upon a client or that is rendered to or for the benefit of the client,” Barnes stated. “Consequently, the fact that a discharged attorney originated the case is not a relevant factor in calculating the fees owed to the attorney in quantum meruit in a lien enforcement action.”
The case Tolson took with her after leaving the Cochran Firm settled for $2 million. About $800,000 was disbursed as attorneys' fees. The trial judge divided those proceeds as follows:
• $480,000 (60 percent) to Tolson's co-counsel, who took the lead in litigating the case;
• $240,000 (30 percent) to the Cochran Firm; and
• $80,000 (10 percent) to Tolson.
The trial judge said $200,000 of the Cochran Firm's award was for originating the case. “Although Georgia courts have not had occasion to address this particular issue, … equity demands that the Cochran Firm’s quantum meruit award include the value it conferred on [the client] and successor counsel by originating his case,” she wrote.
The appeals court said the lien statute does not authorize fees for origination services. It noted, however, that the Cochran Firm may have an alternative remedy because it is currently pursuing an unjust enrichment and tortious interference suit that accuses Tolson of “improperly procur[ing] clients … while she was still an associate at the firm.”
“[T]o the extent the Cochran Firm is seeking recompense for Tolson's alleged unjust enrichment in procuring clients whose cases were originated by the Cochran Firm, it may have a potential avenue for pursuing such a claim through the [civil] action,” Barnes said. “What the Cochran Firm cannot do, however, is recover for its origination of the case under a theory of quantum meruit in a lien enforcement action.”
Judges William M. Ray II and Carla Wong McMillian joined the opinion.
Weathington Smith P.C. represented Tolson. Ford & Harrison LLP represented the Cochran Firm.
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Pre-Litigation Work . Several courts have addressed whether lawyers may use an attorneys' lien to recover compensation for pre-litigation work on a case. Like the Tolson decision, most of those cases have turned on the language of the relevant lien statute in a lawyer's state.
See, e.g., Carlson v. Carlson, 275 S.W.3d 356 (Mo. Ct. App. 2009) (Mo. Rev. Stat. §484.130 only “protect[s] counsel who undertake filing a lawsuit or a counterclaim”); Wahba v. Parmar, 767 N.Y.S.2d 247 (N.Y. App. Div. 2003) (“Preliminary services performed … before the commencement of an action do not entitle [an] attorney to a lien” under N.Y. Jud. Law §475); Rothman v. Benedict P. Morelli & Assoc., 843 N.Y.S.2d 211 (N.Y. App. Div. 2007) (charging lien in New York available only to lawyer “who has appeared, at some point, as attorney of record for a party”).
Contra Xiong v. Dubbles, 2013 BL 175912, No. A12-1898 (Minn. Ct. App. July 1, 2013) (rejecting argument that “pre-litigation work is ineligible for compensation under [Minnesota's] attorney-lien statute,” which protects an attorney's payment for work in “any action or proceeding in which the attorney may have been employed”; stating that it is “undeniable that [counsel's] pre-litigation work … ultimately aided [the clients'] eventual recovery and was thus a part of the ‘proceeding.'”)
Origination Costs . A review of authority from other jurisdictions indicates that few courts have considered whether lawyers may invoke a charging lien to recover payment for originating a matter.
In Becker v. Cellino & Barnes, P.C., No. 602107/2011 (N.Y. Sup. Ct. Dec. 20, 2011), a judge voided an employment agreement that authorized a firm to place a lien for more than 40 percent of the fees a departing lawyer earned on cases of clients who chose to follow him.
The clause purported to cover “case acquisition costs,” including the “time, experience, expertise, money and other expenditures for marketing and advertising to solicit and obtain clients.” However, the court said, “the 43.56 percent lien is more appropriately deemed a penalty, because there is no proof it bears any relationship to actual damages or expenses.”
See also Michigan Informal Ethics Op. RI-305 (1998) (“A contract provision which requires that the costs and expenses incurred by the law firm be paid from any recovery obtained by a departing lawyer when the client has elected to discharge the law firm and continue representation with the departing lawyer is merely a charging lien and is not improper.”); cf. Michigan Informal Ethics Op. RI-245 (1995) (agreement “which merely calculates the division of fees between the departing lawyer and the law firm for work performed prior to departure is not violative” of ethics rules; however, a clause “requiring a departed lawyer to pay one-third of all fees collected from former clients of the firm for four years constitutes a penalty and creates unfair competition between the departed lawyer and the former firm”).
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