Opinion 87-1

The Professional Guidance Committee has frequently been asked what are the rights and responsibilities of the lawyer who has been discharged. Is it ethical for the attorney to retain documents, papers and files obtained during the course of employment as security for the payment of unpaid fees and expenses?1

In 1978, the Professional Guidance Committee rendered an opinion on this issue. The conclusion reached by the Committee at that time was that it was ethical for a lawyer to assert a lien on the file until attorney fees and expenses were paid. Nevertheless, the Committee cautioned against doing so, because of possible prejudice to the client, particularly where a dispute exists between attorney and client. See Professional Guidance Committee Opinion, No. 78-23.

This opinion will reexamine the issue.

It is beyond dispute that a client has an absolute right to discharge his lawyer at any time for cause or without cause. Disciplinary Rule 2-110(B)(4); Sundheim v. Beaver City, 140 Pa. Super. 529, 533, 14 A.2d 349 (1940). Indeed, [f]or good reasons, poor reasons, or the worst of reasons, a client may fire the lawyer. C. Wolfman, Modern Legal Ethics, 59.5.2 (1986).

What happens next? Disciplinary Rule 2-110(A) gives us the general rules. It states:

In general,

(1) If permission for withdrawal from employment is required by the rules of a tribunal, a lawyer shall not withdraw from employment in a proceeding before that tribunal without its permission.

(2) In any event, a lawyer shall not withdraw from employment until he has taken reasonable steps to avoid foreseeable prejudice to the rights of his client, including giving due notice to his client, allowing time for employment of other counsel, delivering to the client all papers and property to which the client is entitled, and complying with applicable laws and rules.

(3) A lawyer who withdraws from employment shall refund promptly any part of a fee paid in advance that has not been earned. (Emphasis added.)

Subsection 3 is clear. If local rules prohibit the withdrawal of an appearance without leave of court, leave must be sought. For example, Local Rule 18(C) of the United States District Court for the Eastern District of Pennsylvania provides:

An attorney's appearance may not be withdrawn except by leave of court, unless another attorney of this court shall at the same time enter an appearance for the same party.

The requirement of subsection 3, that the unearned fee be refunded, presents no interpretive problems. It must be promptly refunded.

Subsection (2) requires the lawyer to take reasonable steps to avoid foreseeable prejudice to the rights of his client.2 It also requires the lawyer to deliver to the client all papers and property to which the client is entitled. Herein lies the problem.

The Model Rules of Professional Conduct, adopted in whole or part in 16 states but not yet adopted in Pennsylvania address the issue, but do not solve the problem. Model Rule 1.16(d) provides:

Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by law. (Emphasis added).

The Comment to this Rule explains:

Even if the lawyer has been unfairly discharged by the client, a lawyer must take all reasonable steps to mitigate the consequences to the client. The lawyer may retain papers as security for a fee only to the extent permitted by law. (Emphasis added.)

What then is permitted under Pennsylvania law?

Under Pennsylvania law an attorney who is discharged may have either of two kinds of liens. The attorney may have an equitable charging lien. Such a lien generally requires that:

(1) there is a fund in court or otherwise applicable for distribution;

(2) the services of the attorney operated substantially or primarily to secure the fund out of which he seeks to be paid;

(3) it was agreed that counsel look to the fund rather than the client for this compensation;

(4) the lien claimed is limited to costs, fees or other disbursements incurred in the litigation by which the fund was raised; and,

(5) there are equitable considerations which necessitate the recognition and application of the charging lien.

See Johnson v. Stein
, 254 Pa. Super. Ct. 41, 385 A.2d 514 (1978).

Pennsylvania also recognizes a retaining lien. This is the right of an attorney to retain possession of documents, money or other property of a client coming into an attorney's possession by virtue of the professional relationship. The lien exists until the lawyer has been paid for the services or until the lawyer voluntarily surrenders possession of the property, with or without payment. Smith v. Fidelity & Deposit Co., 125 Pa. Super. 597, 602 (1937), aff'd, 326 Pa. 391, 192 A. 640 (1937); Comment, The Attorney's Lien in Pennsylvania, 54 Dick. L. Rev. 62 (1949)3. The value of this lien lies in its potentially coercive effect upon the client who refuses to pay or cannot pay for services rendered.

The Code of Professional Responsibility, however, requires that the lawyer - even one who has been discharged - take reasonable steps to avoid foreseeable prejudice to the rights of his client. If the failure to turn over documents and papers will likely lead to adverse consequences to the client, the attorney retains these papers 4 at his peril. On the other hand, if the attorney turns over the papers to the client or the client's new lawyer, the retaining lien will be lost. Thus, a lawyer can be, and often is, confronted by the conflict between a legal right to exercise a retaining lien, and the ethical obligations to avoid prejudice to a client.

The Tennessee Supreme Court Board of Professional Responsibility recently addressed this issue. Although it recognized the right of an attorney to assert a lien on files for the payment of fees, it urged the lawyer before doing so to seek all reasonable means of collection, including suggesting that the client place funds for disputed claims in escrow with a third party. If these efforts were unsuccessful, the opinion concluded that the attorneys' lien should be asserted only as a matter of last resort, when necessary to prevent fraud or gross imposition by the client. Formal Opinion 86-F-106 (September 26, 1986). [Reported in ABA/BNA Lawyers' Manual on Professional Conduct, Current Reports at 418].

What should be done in Pennsylvania?

The Professional Guidance Committee concludes that a retaining lien should be asserted only as a matter of last resort, in circumstances such as those suggested by the Tennessee Supreme Court Board of Professional Responsibility opinion. A lawyer who promptly turns over client files will avoid any claim of prejudice, yet still has options available.5

The lawyer can sue the client for the fee. Moreover, the attorney may promptly seek an order from the appropriate court (e.g., the tribunal before whom the matter is pending) that no distribution of the fund to be created by the new attorney's efforts be made without notice being given to the discharged lawyer so that the lawyer may exercise his rights to claim a charging lien against the fund, or granting other appropriate relief.6

The Committee recognizes that a lawyer must use sound judgment in exercising the delicate balance between the primary interests of the client and the legal right to assert a lien for unpaid fees. In the final analysis, the foregoing guidance will be dependent upon the facts and circumstances of a particular case.

Notes

  1. The result would not be different whether the issue is one of unpaid fees or unpaid expenses (or both).

  2. There are many situations where prejudice to a client could not be readily identified, until the facts and circumstances of the case are understood. For example, requiring a successor lawyer to redo research may or may not constitute prejudice to the client, depending upon the time constraints (e.g. eve of trial) involved. Common examples of prejudice occur in connection with statute of limitation issues, trial dates, outstanding motion for sanctions, and outstanding requests for admissions.

  3. It is well recognized that a retaining lien is lost if the lawyer returns the property to the client. See Jones v. Miller, 203 F.2d 131 (3d Cir. 1953), cert. denied, 346 U.S. 821 (1953).

  4. It is difficult, if not impossible, to state precisely which files must be turned over - correspondence, pleadings, attorneys' notes and investigation, research memos, etc. As to this issue as well sound judgment must be exercised, based on the particular facts and circumstances of each case.

  5. Prior to turning over the files, the attorney may seek, by agreement or court order, to have the client post a bond as security for the disputed fees, in exchange for the files. The 1978 opinion of this Committee recognized this as one avenue of relief.

  6. EC 5-7 provides that ... it is not improper for a lawyer to protect his right to collect a fee for his services by the assertion of legally permissible liens, even though by doing so he may acquire an interest in the outcome of litigation. In a recent decision the Third Circuit Court of Appeals held that it was not improper, under the facts of that case, for a discharged lawyer to retain a file until the trial court took some steps to recognize and provide a substitute for the retaining lien. The court also recognized that in federal court, it is appropriate for the district court to exercise ancillary jurisdiction to resolve attorney-client fee disputes in cases pending before it. See Novinger v. E.I. DuPont de NeMours & Co., 809 F.2d 212, 217-19 (3d Cir. 1987).

 

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.