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Katten Muchin Rosenman LLP is entitled to an interest in a $275,000 fee award in a dispute over a family-owned corporation even though the law firm withdrew before the award was entered ( Katten Muchin Rosenman LLP v. Sutherland , Del., No. 151, 2016, 1/3/17 ).
Katten is entitled to a “charging lien” on the judgment regardless of whether its unpaid services were directly connected to the litigation’s results, the Delaware Supreme Court ruled Jan. 3 in a rare reversal of the state chancery court.
The decision clarifies when Delaware lawyers may hold a client’s property or funds until payment has been made for their services.
The state high court based its decision on the fact that Katten charged an hourly rate. “In the case of hourly billing, unlike with a contingency fee, the total amount that the client is required to pay her lawyer is not based on the client‘s recovery,” Chief Justice Leo E. Strine Jr. said.
In the lawsuit, Martha Sutherland, who was ousted as a director of Sutherland Lumber-Southwest Inc. in 2004, hired Katten to represent her in a books and records action in Delaware. She later filed derivative claims against her two brothers and cousin alleging that their employment agreements with the company were improper.
Katten withdrew as counsel in 2011 before the litigation was resolved. According to the court’s decision, Ms. Sutherland at the time had accrued over $760,000 in unpaid fees owed to the firm.
In 2014, the Delaware Chancery Court awarded Ms. Sutherland $275,000 in counsel fees for “minor benefits” she obtained on the company’s behalf. Katten intervened, claiming it was entitled to a lien on the entire award.
Two years later, the chancery court found that the firm wasn’t entitled to a lien because it already had been paid for services that produced a benefit.
Reversing, the state high court said that contractual provisions for legal services create incentives for both lawyer and client, and paying an hourly rate can assure that complex cases are pursued aggressively.
“To permit a client who is a party to such an agreement to escape a charging lien as if she made a strict contingency fee agreement limiting fees to a percentage of recovery is to judicially rewrite the contract at the expense of the attorney and to undermine the traditional purpose of a charging lien,” Strine wrote.
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The decision is available at http://www.bloomberglaw.com/public/document/Katten_Muchin_Rosenman_LLP_v_Sutherland_No_151_2016_2017_BL_322_D.
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