Retaining Liens in the Absence of Legal Malpractice

In both Federal District Court and in State Court in New York attorneys have a "retaining lien" under Judiciary Law 475.  In Federal District Court the rule is set forth in Katz v. Image Innovations Holdings Inc., 06 Civ. 3707;Decided: May 27, 2009; District Judge John G. Koeltl

U.S. DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK


"It is well settled in this Circuit that an attorney may claim a retaining lien for outstanding unpaid fees and disbursements on a client's papers and property that came into the attorney's possession as the result of his professional representation of that client. See Pomerantz v. Schandler, 704 F.2d 681, 683 (2d Cir. 1983) (per curiam) (citing In re San Juan Gold, Inc., 96 F.2d 60 (2d Cir. 1938)). This right to a retaining lien is grounded in common law, and is enforced in federal courts unless a specific federal law alters the parties' rights. See Allstate Ins. Co. v. Nandi, 258 F.Supp.2d 309, 311 (S.D.N.Y. 2003) (citing Rivkin v. A.J. Hollander & Co., Inc., No. 95 Civ. 9314, 1996 WL 633217, at *2 (S.D.N.Y. Nov. 1, 1996)). In this case, no federal law prevents the Court from fixing a retaining lien.

The decision to fix a retaining lien lies within the discretion of the district court. See Allstate, 258 F.Supp.2d at 311 (citing Pay Television of Greater New York, Inc. v. Sheridan, 766 F.2d 92, 94 (2d Cir. 1985) (per curiam)). A retaining lien attaches "when the action is commenced and remains in force when an attorney is discharged without cause." See Allstate, 258 F.Supp.2d at 312 (quoting Casper v. Lew Lieberbaum & Co., Inc., No. 97 Civ. 3016, 1999 WL 335334, at *8 (S.D.N.Y. May 26, 1999)). While an attorney who has been discharged for cause has no right to compensation or to a retaining lien, an attorney who has been discharged without cause is entitled to be paid a fee on a quantum meruit basis for the reasonable value of the legal services that were provided. See Viada v. Osaka Health Spa, Inc., No. 04 Civ. 2744, 2005 WL 3481196, at *2 (S.D.N.Y. Dec. 19, 2005) (citing Gurry v. Glaxo Wellcome, Inc., No. 98 Civ. 6243, 2000 WL 1702028, at *1 (S.D.N.Y. Nov. 14, 2000)). When counsel is granted leave to withdraw by the court, the discharge is not for cause. See Viada, 2005 WL 3481196, at *2. Absent a defendant's urgent need for the papers subject to the retaining lien, such as for a criminal trial, the Court of Appeals for the Second Circuit has held it an abuse of discretion to require withdrawing counsel to turn over papers subject to a retaining lien without conditioning it on payment or posting bond for payment of outstanding legal fees. See Pomerantz, 704 F.2d at 683-684."
 

How are "inefficiencies" such as intra-office conferences and duplication of effort handled?

"There is some duplication caused by McCarter's employment of 14 attorneys in this matter, and its billing for internal conferences. (See generally Ex. A, Moran Decl., Jan. 21, 2009.) A deduction of 5 percent from the attorney's fees adequately compensates for this inefficiency. See New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1146 (2d Cir. 1983) (endorsing percentage reductions as a practical means of reducing a fee application to avoid an excessive fee, and noting percentage reductions of 5 percent to 22 percent ); Mr. X v. New York State Educ. Dept., 20 F.Supp.2d 561, 564 (S.D.N.Y. 1998) (reducing requested attorney's fees award by twenty percent for, among other considerations, duplicative work)."

 

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