Legal malpractice is a well-settled off-shoot of its older brother, medical malpractice. Both concern ramifications of negligence in professional services. As professional services go, the medical and legal professions are amongst the world’s oldest, cabaret jokes notwithstanding. Current statutes concerned with behavior of attorneys are traceable back to 1275 and the Statute of Westminster. Judiciary Law §487 has survived through almost 800 years with little change. Amalfitano v. Rosenberg, 12 NY3d 8 (2009).

Legal malpractice is the failure “to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession,” where the attorney’s breach of this duty proximately caused the plaintiff actual and ascertainable damages. Rudolf v. Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438 (2007); Bauza v. Livington, 40 AD3d 791 (2d Dept. 2007); Magnacoustics Inc. v. Ostrolenk, Faber, Gerb & Soffen, 303 AD2d 561, 562 (2d Dept. 2003).

Recovery for professional malpractice against an attorney requires that a client prove three elements: “(1) the negligence of the attorney; (2) that the negligence was the proximate cause of the loss sustained; and (3) proof of actual damages.” Mendoza v. Schlossman, 87 AD2d 606, 607 (2d Dept. 1982). The cause of action requires the plaintiff to establish that counsel “failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession” and to meet the exacting standard that “‘but for’ the attorney’s negligence” the outcome of the matter would have been substantially different. AmBase Corp. v. Davis Polk & Wardwell, 8 NY3d 428, 434 (2007); N.A. Kerson Co. v. Shayne, Dachs, Weiss, Kolbrenner, Levy & Levine, 45 NY2d 730, 732 (1978).

One element of legal malpractice that is different from medical malpractice is the interplay with legal fees. There is no subject closer to the hearts of attorneys, and no subject that engenders as much litigation. There is little doubt that legal fee litigation, whether over the apportionment of fees between litigants (as in landlord-tenant or discrimination actions) or between attorneys and their clients, takes up the greatest part of the volume of litigation involving attorneys as parties. Legal malpractice cases form a much smaller portion of all attorney-centric litigation.

An interesting tri-section exists between attorney’s fees, legal malpractice and collateral estoppel, which is unique to attorneys and their client relationships. Put in short, an attorney may not collect a legal fee in the face of legal malpractice, and so if a court awards a legal fee it is deemed to have considered legal malpractice and determined that there is none.

This principle is legal fiction, and highly fictional it is. Most litigants are not aware of this principle, and even courts are shocked when the issue is presented in so stark a fashion. This is the collateral estoppel trap in legal malpractice, especially in arbitrations pursuant to Part 137. Even in a modest attorney fee arbitration, even where the arbitrators cut down the attorney fee demand to a much smaller award, collateral estoppel is still applied to bar later law suits for legal malpractice. The reasoning is that if fees were awarded to the attorney, even one dollar, then there could have been no legal malpractice. Thus plaintiff is now precluded from suit. Pursuant to this doctrine, a legal malpractice action generally will be barred by the defendant’s “successful prosecution of a prior action to recover fees for the same legal services which the [plaintiff] presently allege[s] were negligently performed.” Pirog v. Ingber, 203 AD2d 348 (2d Dept. 1994); Blair v. Bartlett, 75 NY 150 (1978); Altimore v. Friedman, 193 AD2d 240 (2d Dept. 1993).

Tools for Attorneys

Collection of fees by attorneys from their clients is an art form, and timing is everything. Tools available to the attorney are persuasion, retaining liens, charging liens, arbitration and the plenary action. Strategy in collection of attorney’s fees depends on the status of the matter, whether leverage might be applied in terms of holding back the file, in terms of filing for an arbitration, in the size of the fee claim, and in how much effort the law firm is willing to invest toward the collection process.

Attorneys have four tools available only to them which may be used to collect fees, and incidentally, may also serve to immunize the attorney from legal malpractice lawsuits. One is the attorney fee arbitration process, and the remaining two both arise from Judiciary Law §475. They are the retaining lien and the charging lien. They are different, yet complement each other.

Three remedies of an attorney who seeks fees, the retaining lien, the charging lien and the plenary action, are “cumulative” and “not exclusive.” Levy v. Laing, 43 ADd3d 713 (1st Dept. 2007). Each may accompany, or in the case of de novo claims after arbitration, may follow the proceedings.

As stated in De Gonzalez v. Custodian of Records of USB AG, 2007 NY Slip Op 50553U, 15 Misc.3d 1108(A), 836 N.Y.S.2d 497 (Sup Ct. New York Co. 2007, Edmead, J), “There are two separate and distinct classes of liens available to attorneys at law: (1) a general common-law or retaining lien on all property, including papers, books, documents, money or securities, belonging to the attorney’s client which came into the attorney’s possession in the course of the professional employment, and (2) a limited statutory lien on a specific fund or judgment on a cause of action or counterclaim, also known as a charging lien.” In re: Sebring, 238 AD 281 (4th Dept. 1933).

In Sorin v. Shahmoon, Indus. Inc., 20 Misc.2d 149 (1959), the Supreme Court in New York County held, “The purpose of an attorney’s retaining lien involves inconvenience to the client.” It continued, “The function of the lien is essentially one of compulsion—its aim being to assure payment of the fee due the attorney for services rendered.” But, a retaining lien will not bar a subsequent legal malpractice case.

Thus, the purpose of the retaining lien is to compel payment. Singer v. Four Corner Serv. Station, 105 NYS2d 77 (Sup Ct, Kings County 1951), or secure payment of the reasonable value of the services which he or she “had rendered as attorney in the action and or for all services rendered for the client” Goldman v. Rafel Estates Inc., 269 AD 647 (1st Dept. 1945). The retaining lien continues until the attorney’s charges for all services which he or she has performed for the client have been paid, “not only those pertaining to matters relating to the papers or property in his hand at the time, but also for any balance due for other professional services.” In re Sebring, supra.

Charging Lien

The charging lien is a whole different beast. “Under Judiciary Law §475, an attorney who appears for a party in an action has a charging lien on his client’s cause of action, which attaches to any judgment, verdict or court order (see City of Troy v. Capital District Sorts Inc., 305 AD2d 715, 716, 759, NYS2d 795 (3d Dept. 2003)). The lien attaches only when proceeds in an identifiable fund are created by the attorney’s efforts in that action or proceeding (see id.; see also Judiciary Law §475). The charging lien inures to the benefit of the “attorney who appears for a party” (see Judiciary Law §475; see Cheng v. Modansky Leasing Co., 73 NY2d 454, 458, 539, N.E.2d 570, 541, NYS2d 742 (1989)). Breede v. Fox, 2010 NY Slip Op 30980U (Sup. Ct., Rensselaer County, 2010).

The Appellate Division, First Department, said in Miller v. Kassatly, that an attorney who appears for a party has a lien upon her client’s cause of action, which attaches to any determination in her client’s favor “and the proceeds thereof in whatever hands they may come.” The lien cannot be adversely affected by any settlement between the parties. Moreover, the attorney may enforce it simply by making a petition to the court in the proceeding where she appeared, rather than having to bring a separate plenary action. Miller v. Kassatly, 216 AD2d 260 (1st Dept. 1995).

Under New York law, an attorney who is discharged is statutorily entitled to a charging lien on any monetary recoveries obtained by the former client in the proceedings in which the attorney had rendered legal services. N.Y. Judiciary Law §475. The U.S. Court of Appeals for the Second Circuit has explained the rationale behind the charging lien: New York’s statutory charging lien, see N.Y. Judiciary Law §475 (McKinney 1983), is a device to protect counsel against “the knavery of his client,” whereby through his effort, the attorney acquires an interest in the client’s cause of action. In re City of New York, 5 NY2d 300 (1959).

The lien is predicated on the idea that the attorney has by his skill and effort obtained the judgment, and hence “should have a lien thereon for his compensation, in analogy to the lien which a mechanic has upon any article which he manufactures.” Melnick v. Cary Press, No. 06-cv-6686 (E.D.N.Y. 2009); Williams v. Ingersoll, 89 N.Y. 508, 517 (1882); Butler, Fitzgerald & Potter v. Sequa Corp., 250 F.3d 171, 177 (2d Cir. 2001).

An order recognizing a charging lien bars plaintiff’s claim of legal malpractice as a matter of law. Smith v. Roper, Barandes & Fertel, LLP, 302 AD2d 305 (1st Dept. 2003); Molinaro v, Bedke, 281 AD2d 242 (1st Dept. 2001); Siegel v. Werner & Zaroff, PC, 270 AD2d 119 (1st Dept. 2000). Note that a simple order, not a trial, and not an arbitration, may serve to bar a later legal malpractice case. A charging lien might be sought merely upon an oral request, a letter request, or a motion. Experience indicates that there will usually be little briefing on the subject of the rights and liabilities that accompany a charging lien, and there is generally a considerable emotional component to the attorney’s plea. It should be noted that courts often see the situation as one in which a “knavish” client seeks to hurt his faithful attorney. The client’s mirror image story is often lost in the telling.

A judicial determination fixing the value of a professional’s services necessarily decides that there was no malpractice. This rule applies where an attorney seeks a charging lien for services rendered by him in the underlying action, as well as to a plenary action for nonpayment of attorney’s fees. The fact that §475 involves an in rem proceeding in that the lien applies only to the proceeds of the particular underlying judicial proceeding does not make such rule inapplicable since the clients against whom the lien is sought were plaintiffs in the underlying judicial proceeding. Nat Kagan Meat & Poultry Inc. v. Kalter, 70 AD2d 632 (2d Dept. 1979).

Conclusion

Attorney’s fees and legal malpractice often are intertwined. Sometimes a legal malpractice claim arises solely as a defensive procedure, and might be seen as a reflex. Other times the legal malpractice action precedes a fee dispute, although they are disconnected. Care must be taken by the legal malpractice practitioner in the contemplation and defense of attorney’s fee claims when a legal malpractice case is contemplated. There are strategies for postponing the imposition of a charging lien, but they are not within the scope of this article.

In general, however, laying out the collateral effects of a charging lien, while at the same time demonstrating the merits of a legal malpractice claim has been the most successful approach. On occasion, a court will determine that it has not heard any of the merits of a legal malpractice claim; hence there will be no collateral estoppel aspect of its decision. This is not always the case, however. The application of collateral estoppel and a bar upon subsequent legal malpractice litigation is harsh and absolute.

Andrew Lavoott Bluestone is a sole practitioner, specializing in legal malpractice litigation in Manhattan. He is board certified in legal malpractice by the American Board of Professional Liability Attorneys.