Eric Rothauser and John Bonee III ()
Connecticut lawyers can no longer directly claim a portion of their clients’ proceeds from a divorce judgment in order to collect legal fees and costs, according to the Connecticut Supreme Court.
The decision in Olszewski v. Jordan reverses the Appellate Court, and evidently makes Connecticut the first state in the nation to rule that lawyers can’t use so-called attorney charging liens as a tool to collect family case fees. Justice Peter Zarella, writing for a unanimous court, found that the use of such liens for legal fees in divorce cases are not supported by case law from three centuries or by attorney ethics rules.
West Hartford lawyer John Bonee III, whose firm represented family lawyer Carlo Forzani in two appeals, said the decision is a setback for “lawyers who are simply trying to make a living” and need tools to collect fees from clients who won’t pay up.
The bottom line, said Bonee, is that Fozani, “an excellent and highly respected family lawyer, will be denied his just and reasonable fee which was awarded by the Superior Court judge at trial. As a result of the Supreme Court [decision], the practicing family bar in Connecticut, unlike almost all other states, confronts a decision which creates a counterproductive approach to public policy unsupportive of the hard-working family lawyers all over the state.”
The attorney charging lien has a long history. Rooted in common law, it was founded on the equitable right of an attorney to recover fees and costs out of the judgment obtained. In Bonee’s words, it’s designed to protect lawyers from clients who would simply “discard them” after a matter is finished. In Connecticut, attorneys often use these types of liens—or at least the rationale behind them—in contingency fee cases, such as personal injury lawsuits. If an attorney helps create money for a client, then the lawyer can claim a piece of the proceeds if the client won’t otherwise pay.
The question before the Supreme Court was whether such liens should be available in family law cases, in which contingency fees are banned. Some 32 states have statutes specifically allowing attorney charging lien use in family law cases. Connecticut has no such statute. As Zarella, noted, most of the state law to date on attorneys “charging liens” has been established by judicial decisions, primarily from the 1800s. In an issue of first impression, the court said it did not want to establish such a right for family law cases, and that such a decision should be left to lawmakers.
The winning advocate, Stephen McEleney of Hartford’s McEleney & McGrail, offered another point of view. He hailed the decision as correct and necessary, in part because it halted a line of trial court decisions that allowed lawyers who used charging liens to move ahead of other creditors in making claims on a client’s litigation proceeds. Offering up one example, McEleney said that if the Supreme Court had not reversed the Appellate Court ruling, “credit card companies would shut down credit limits as soon as they learned there was a divorce proceeding.”
The case arose after the 2009 divorce settlement of James and Diana Jordan of Suffield. In the dissolution decree, Judge Trial Referee John Caruso awarded the husband’s lawyer, Forzani, half of his legal fees from a Northwest Mutual account that had been part of the couple’s marital assets. The ex-spouses were to divide what was left.
The account was frozen, pending appeal. Diana Jordan’s father, Ralph Olszewski, then sued his former son-in-law to collect a loan. Olszewski secured a prejudgment lien, and attached the Northwest Mutual account.
Forzani pursued two theories. First, he sought payment from the fund pursuant to Caruso’s order allowing one half of his $60,000 fee. Secondly, he sought payment for the whole fee amount, under the attorney charging lien remedy, arguing it provided lawyers first priority rights.
Superior Court Judge Jane Scholl wrote that the charging lien concept “recognizes that the attorney played a role in creating the asset” and that this common law remedy arises only when the attorney “creates a new asset.” In this case, however, she concluded that nothing new was created because the Northwest Mutual account existed from the start of the action. Thus, Forzani didn’t qualify for the remedy and had no greater rights than any other creditor. The earlier Olszewski lien took precedence, she said.
On appeal, Appellate Court Judges Stuart Bear and Robert Beach reversed. They reasoned that although Ethical Rule 1.5(d)1 of the Rules of Professional Conduct forbids lawyers from taking a contingency fee in a divorce case, that rule did not apply. A separate rule, Rule 1.8, allows charging liens where allowed by law, and makes no distinction about family law cases.
The Appellate Court sent the matter back to the trial court to determine whether Forzani and his client made a contractual agreement to have the Northwest Mutual account become a source of attorney compensation.
Eric Rothauser of BoneeWeintraub and McEleney argued the case at the high court.
Rothauser contended that attorneys do not actually create new assets for clients. Rather, they litigate causes of action, which are property rights already belonging to the client. If the litigation is successful, the client’s cause of action is reduced to a monetary award, as in this case.
But McEleney argued that charging liens are not permissible in Connecticut marital actions at all, and that courts holding otherwise have misread the small handful of 19th-century cases on this subject. Unlike contingency fee agreements in collection cases or personal injury litigation, “the ’cause of action’ in a marital dissolution is the breakup of a marriage and the separation of the couple, their children, income, assets and liabilities,” McEleney argued in his brief.
The lawyer doesn’t—and shouldn’t—obtain a vested property right in this. Instead, he wrote, the financial interest of the attorneys “should be limited to a civilized resolution of these complex considerations, including the best interests of the children and an equitable division of income, assets and liabilities.”
None of the Connecticut charging lien precedents involve a divorce case, and all applied to proceeds the client received as a result of litigation, not assets in the client’s possession before the attorney got involved.
The charging lien is generally understood to be a property right in “the judgment or settlement the attorney has obtained for the client,” Zarella wrote, quoting American Jurisprudence. “Permitting an attorney to obtain a charging lien against marital assets,” the court wrote, “would create a property right in assets that were in the client’s possession before the attorney was hired and that the attorney expended no effort in obtaining.”
The high court concluded that, if Connecticut is to allow charging liens in family matters, it is a job for the legislature. In his brief, McEleney noted that New York statutes require notice in a lawyer’s retainer agreement that a lien may by sought, and notification of this to the opposing spouse. It also requires court approval after a formal application for attorney fees. One New York court described such liens as a means to prevent “the knavery of clients” who try to avoid court orders to pay.
Bonee agreed that Connecticut’s legislature should create a fair statutory means to create such liens in divorce matters as one way to assure compensation and to counter the dramatic new trend of divorce litigants having to proceed without assistance of counsel.