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Court issues a warning about warning clients

By Diane Karpman

Diane Karpman
Karpman

Everybody is raising their eyebrows over Fletcher v. Davis (2004) 33 Cal. 4th 61. Smart lawyers are rushing to redraft their fee agreements to be certain that their liens are valid.

Fletcher involved an oral charging lien, or a lien placed on the prospective proceeds of a judgment/settlement, which can be based on either an hourly or contingency fee. It was an “oral” charging lien only because the obstinate client represented that he would sign the fee agreement, but never did. We may have reached the point where we underestimate our clients. Clients have common sense and know that there are no free lunches. They know that when they receive something of value, they will have to pay for it.

Suddenly, because of Fletcher, lawyers must meet the stringent requirements of Rule of Professional Conduct 3-300 (Adverse Interest) to obtain a lien for work performed. Compliance requires the client’s written consent to the “conflict,” which is caused by the lawyer’s own interest in being paid. Making lawyers jump through hoops to secure payment of liens for services rendered seems odd, especially when they should get kudos for agreeing to delay receiving payment for their services. Charging liens increase client access, benefit consumers and accommodate the needs of economically challenged clients.

The justification for requiring compliance with Rule 3-300 is that liens can give lawyers the ability to delay the clients’ realization of the fruits of the recovery. Charging liens can impair clients’ receipt of the proceeds until disputes over payment of the liens are resolved. Anecdotally, it is clients, not lawyers, who consistently impede lawyers from being paid. They will dispute the whole deal or the lawyers’ receipt of any portion of the recovery. This forces lawyers to maintain the entire “disputed” portion in trust, creating a “waiting game.”

The court maintains that this is not “unduly onerous.” Nevertheless, it represents another crack in the fragile attorney-client relationship. Warning a client at the inception of the relationship to consult with counsel because of a lien, and getting consent to it in writing, does not inspire client trust. However, there is an even greater problem occurring. If lawyers continually give clients the cautionary Rule 3-300 warning and get consents at the inception in the fee agreement, any time the relationship changes, or if a client hiccups, then that significant language will lose its importance. Pro forma warnings are antithetical to putting the client on notice. Clients will become immunized to the warnings and they will backfire on the goal of public protection.

Think about the Miranda warning we see on television. The vast number of reported cases in which suspects spill their guts demonstrates that the Miranda warning is not working, or the suspects wouldn’t confess.

Fletcher seems to only apply to prospective hourly fees. But if the reason for requiring the warnings is that a lawyer may impede a client’s realization of the recovery, then that same justification would apply to contingency fee agreements. So, fix all of your fee agreements. Obviously, the writing is on the wall.

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