Can a lawyer take a security interest in a client's fee-recovery lawsuit, or its proceeds, to secure unpaid fees from an earlier case the lawyer is also handling?
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This page answers the general question as of 2007. Ezel answers yours: whether it's allowed on your facts, under the current New York Rules of Professional Conduct, with citations.
Plain-English summary
Defense counsel in a "Primary Action" (for example, defending an executive whose fees a company was supposed to indemnify) may go unpaid when the third party does not honor the fee obligation. The client may then bring a "Fee Litigation" to recover those fees, and the same lawyer may handle it. Assuming no charging lien is available to cover the unpaid Primary-Action fees (a question of law the committee does not decide), the committee was asked whether the lawyer may take a security interest in the proceeds of the Fee Litigation, or in the Fee Litigation itself, and whether the answer changes if the lawyer does not represent the client in the Fee Litigation.
The committee applies DR 5-103(A), which bars a lawyer from acquiring a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting. As explained in N.Y. State 786, the rule guards against a financial stake skewing the lawyer's independent judgment and against interested counsel subsidizing litigation that should not be brought (EC 5-7). The lawyer's interest in a Fee Litigation is especially acute because the only relief sought is recovery of the lawyer's own fees. Reading "proprietary interest" broadly (an interest in property, per Black's Law Dictionary), the committee concludes a "security interest" is a proprietary interest within DR 5-103(A); taking one in the Fee Litigation, or in its proceeds, while representing the client there is barred.
The committee distinguishes liens granted by law: New York's DR 5-103(A) permits assertion of legally permissible liens, such as the Judiciary Law section 475 charging lien attaching to funds the lawyer's efforts create, even though doing so gives the lawyer an interest in the outcome. The opinion assumes such a lien is unavailable or insufficient here. Critically, the bar applies because the lawyer is conducting the Fee Litigation: the committee concludes DR 5-103(A) does not prohibit taking a proprietary interest in the Fee Litigation if the lawyer is not representing the client in it.
In practice
The opinion holds, under the former Code as it stood at the time, that a security interest is a proprietary interest under DR 5-103(A), so a lawyer conducting the client's Fee Litigation may not take a security interest in that action or its proceeds to secure prior-matter fees. The committee frames the prohibition as turning on the lawyer's role in the litigation: the same security interest is not barred by DR 5-103(A) where the lawyer does not represent the client in the Fee Litigation. It treats charging liens granted by law as a separate, permitted category and assumes none is available here.
Common questions
Q: Can a lawyer take a security interest in a client's lawsuit to secure unpaid fees?
A: Not while handling that suit. The committee concludes a security interest is a proprietary interest barred by DR 5-103(A) when the lawyer is conducting the litigation, so the lawyer may not take one in the Fee Litigation or its proceeds.
Q: Does it matter whether the lawyer is handling the fee-recovery lawsuit?
A: Yes. The committee concludes DR 5-103(A) does not prohibit a lawyer from taking a proprietary interest in the Fee Litigation so long as the lawyer is not representing the client in that litigation.
Q: How is this different from a charging lien?
A: The committee explains that DR 5-103(A) permits assertion of legally permissible liens, such as the Judiciary Law section 475 charging lien attaching to funds the lawyer's efforts create; the opinion assumes such a lien is unavailable or insufficient to cover the Primary-Action fees.
Background and rules framework
The opinion interprets DR 5-103(A) (a lawyer may not acquire a proprietary interest in the cause of action or subject matter of litigation being conducted, the analogue of ABA Model Rule 1.8(i)), with EC 5-1 and EC 5-7, and references Judiciary Law section 475 (the attorney's charging lien).
Citations and references
Rules of Professional Conduct:
- MR 1.8 (proprietary interest in a client's cause of action)
- Former Code DR 5-103(A); EC 5-1, EC 5-7
Statutes:
- Judiciary Law section 475 (attorney's charging lien)
Other opinions cited:
- N.Y. State 786 (2005): the policies underlying the bar on proprietary interests in litigation
- ABA Formal Op. 02-427: "authorized by law" liens under the Model Rules
See also
- NY State Bar Op. 840: Paying a pro bono client's litigation expenses
- NY State Bar Op. 819: Settling a court-awarded divorce fee with the client
Source
- Landing page: https://nysba.org/ethics-opinion-808/
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