Money-Revenue

Throwing out a vice chancellor’s reworking of charging liens, the Delaware Supreme Court on Tuesday restored the traditional definition of the instrument used to protect a lawyer against nonpayment of fees.

Charging liens, the justices said, may be asserted against any outstanding attorney fees, regardless of whether the work led directly to a benefit for a client.

The court found that a new prerequisite urged by the Delaware Court of Chancery—that the lien secures only fees and costs directly related to a recovery—would undermine the traditional purpose of the charging lien itself.

Though not defined by statute, the charging lien has long been regarded by Delaware courts as an equitable right rooted in common law, to have costs advanced and attorney fees secured by judgment when a client fails to pay for legal services.

In a 12-page opinion, an en banc panel of the Delaware high court reinforced that traditional definition and reversed a lower court’s decision that added an additional condition, which narrowed charging liens to unpaid fees directly connected to the recovery obtained on a client’s behalf.

“That supplement is, to our minds, inequitable because it denies an attorney full compensation for the work she contracted to do on behalf of her client and thus undermines the utility of a charging lien in encouraging counsel to provide legal services to clients by ensuring them that their contractual right to a fee will be upheld by the judiciary,” Chief Justice Leo E. Strine Jr. wrote for the court.

The ruling came on an appeal of former Vice Chancellor John W. Noble’s denial last February of a Chicago-based law firm’s bid to assert a charging lien on a $275,000 award a former client received for minor benefits obtained in a derivative action years earlier.

According to court documents, the former client, Martha Sutherland, owed Katten Muchin Rosenman more than $760,000 in unpaid attorney fees for work it had done on an hourly rate basis before withdrawing as counsel in 2011. Katten Muchin intervened in Sutherland’s action to recover attorney fees, seeking a charging lien against the entire amount awarded by the court.

But Noble, now retired, blocked Katten Muchin’s motion for summary judgment because the firm had already been paid for its services that led to the benefit.

On Tuesday, Strine rejected the limitation, finding that Sutherland was not excused from paying what she owed to Katten Muchin.

“If, as here, an attorney has unpaid fees that are greater than the client’s recovery, the attorney is entitled to a charging lien on the entire recovery,” he said. “Moreover, the client remains obligated to pay her attorney any remaining unpaid fees.”

Bonita L. Stone, a Katten Muchin partner who argued the appeal, said that her firm was “pleased” with the ruling, which reaffirmed the purpose of charging liens.

“It’s to do equity and justice and to allow an attorney to continue to do work,” Stone said.

Norman J. Lerum, who argued on behalf of Sutherland, said the case came down to how Delaware understands its common law with respect to charging liens, and the result from the Supreme Court was not the most equitable interpretation.

“The vice chancellor made that decision based on fairness,” said Lerum, of Norman J. Lerum P.C. in Chicago. “Now, we have a court of review making a decision based on fairness, when the vice chancellor was in better position to make that determination.”

He added: “Law firms that practice in Delaware will be happy with the ruling, but their clients probably won’t be so happy.”

Katten Muchin’s team also included Ted S. Helwig and Wilmington attorneys David S. Eagle, Sean M. Brennecke from the firm Klehr Harrison Harvey Branzburg.

Sutherland was also represented by Catherine Lerum of Norman J. Lerum P.C., as well as Evan Williford and A.J. Huber of The Williford Firm in Wilmington.

The case, on appeal, was captioned Katten Muchin Rosenman v. Sutherland.