Legal Malpractice actions often start with the termination of the target attorney, and even more of them have the common aspect of take-overs by successor attorneys.  What happens to the file, how does it get transferred and who pays for the transfer?

This weeks decision in Moore v. Ackerman, Supreme Court, Kings County is a thoughtful discussion of how transition of attorneys interacts with charging liens, retaining liens, termination for cause and without cause.  While it does not really deal with charging liens [the right of an attorney to have his fees paid for with the client’s successful award] it does deal with the question of disbursements made both during and after the representation ends.

There are only a handful of cases which deal with this matter, even though it is a frequent occurrence.  We’ll let Justice Jack M. Battaglia, Kings County Supreme Court  explain:

""[A] client may at anytime, with or without cause, discharge an attorney." (Demov, Morris, Levin & Shein v. Glantz, 53 NY2d 553, 556 [1981].) As the Court of Appeals has noted, an attorney’s discharge does not in itself imply a lack of competence or diligence on the part of the attorney.

"Attorney-client relationships frequently end because of personality conflicts, misunderstandings or differences of opinion having nothing to do with any impropriety by either the client or the lawyer. Others end because of unexpected conflicts of interests or changes in litigation strategy that require different lawyering skills. In some of those situations, the client may ask the attorney to withdraw. In others, it may be the attorney who initiates the termination process by offering to withdraw in order to avoid embarrassment, avert further conflict, preserve the relationship on a long-term basis or simply save the client from the discomfort of having to fire the attorney. Importantly, in many such cases, the decision to terminate the relationship is the product of a mutual choice." (Klein v. Eubank, 87 NY2d 459, 463 [1996].)

"The three remedies of an attorney discharged without cause – the retaining lien, the charging lien, and the plenary action in quantum meruit – are not exclusive but cumulative." (Levy v. Laing, 43 AD3d 713, 715 [1st Dept 2007]; see also Schneider, Kleinick, Weitz, Damashek & Shoot, v. City of New York, 302 AD2d 183, 186-89 [1st Dept 2002].) "[I]n disputes between attorneys, the discharged attorney may elect to receive compensation based on quantum meruit or on a contingency basis, whereas as against a former client, the discharged attorney is entitled to quantum meruit only, unless the client and attorney agree otherwise." (Levy v. Laing, 43 AD3d at 715.)

The instant dispute concerns only the retaining lien. "A common-law retaining lien, also known as a general possessory lien, entitles the attorney ‘to retain all papers, securities or money belonging to the client’ that come into the attorney’s possession in the course of representation as security for payment of attorneys’ fees." (Hope v. Ortiz, 83 NY2d 323, 311 [1994] [quoting People v. Keefe, 50 NY3d 149, 155 (1980)].) "[A]n attorney’s rendition of services and expenditure of disbursements on behalf of the client entitles him to a common-law retaining lien on the client’s file." (Theroux v. Theroux, 145 AD2d 625, 626 [2d Dept 1988].) "A retaining lien remains in force until the client’s account is paid in full." (Id.)
 

For present purposes, and in the first instance, "disbursements" must be understood as amounts "advanced" on behalf of the client. (See Lansky v. Easow, 304 AD2d at 533; Madison v. Spancrete Machine Corp., 278 AD2d 867, 868 [4th Dept 2000]; Silverstein v. National Auto Renting Corp., 4 AD2d 869, 869 [1st Dept 1957].) But in the only New York decision this Court has found that provides insight on the issue, the Court of Appeals has suggested that the outgoing attorney may seek more.

In Matter of Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn (91 NY2d 30 [1997]), the Court of Appeals was asked to resolve a dispute between the former counsel for corporate clients and the clients’ successor counsel about material in the clients’ files that successor counsel requested and former counsel refused to deliver. Successor counsel asked former counsel "to turn over its files in their entirety on the financing and restructuring matters, and tendered a check for [former counsel’s] bindery expenses for those transactions, that being the only remaining outstanding claim of [former counsel] for payment with respect to services and disbursements arising out of those matters." (See id. at 33.)

The Court of Appeals adopted the majority view: "A majority of courts and State legal ethics advisory bodies considering a client’s access to the attorney’s file in a represented matter, upon termination of the attorney-client relationship, where no claim for unpaid legal fees is outstanding, presumptively accord the client full access to the entire attorney’s file on a represented matter with narrow exceptions." (See id. at 34-37.) "Barring a substantial showing by [former counsel] of good cause to refuse client access, [former clients] should be entitled to inspect and copy work product materials, for the creation of which they paid during the course of the firm’s representation." (Id. at 37 [emphasis added].)
 

In addition, with respect to specified claims or actions, including those for personal injury, property damage, or wrongful death due to negligence, the Second Department requires that "[a]ttorneys for both plaintiff and defendant . . . shall preserve, for a period of seven years" virtually the entire file of the attorney. (See 22 NYCRR §691.20 [f].) Specifically, the retention requirement includes

"the pleadings and other papers pertaining to such claim or cause of action, including but not limited to, letters or other data relating to the claim of loss of time from employment or loss of income; medical reports, medical bills, X-ray reports, X-ray bills; repair bills, estimates of repairs; all correspondence concerning the claim or cause of action; and memoranda of the disposition thereof as well as canceled vouchers, receipts and memoranda evidencing the amounts disbursed by the attorney to the client and others in connection with the aforesaid claim or cause of action." (Id.)

Neither the Disciplinary Rules nor the Second Department’s rules make any exception to the retention requirements where the attorney withdraws from representation or is discharged. As to the "bookkeeping records," however, the applicable Disciplinary Rule provides that, upon dissolution of a law firm, "the former partners or members shall make appropriate arrangements for the maintenance by one of them or by a successor firm of the [bookkeeping] records." (See Disciplinary Rule 9-102 [H]; 22 NYCRR §1200.46 [h].) "A lawyer, upon termination of his practice may properly cause the closed files to be delivered to another lawyer, but the receiving lawyer will hold them only as custodian." (See N.Y. St. Bar. Assn. Comm. Prof. Eth. 460, 1977 WL 15688, * 2.) In any event, the obligations of a lawyer upon termination of a practice and a lawyer continuing in practice would, presumably, be different.

In short, there is no clear authority as to whether a charge for copying the client’s file is appropriate as a "disbursement" for purposes of a retaining lien, or whether for purposes of general ethical obligations a lawyer may charge for copying a file before releasing it to the client …."