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Attorney Who Left Firm Not Entitled To Equitable Lien On Settlement Proceeds

Posted on Wednesday, October 10, 2018

An attorney who performed work on a personal injury lawsuit, but then left the law firm before a settlement was reached in the case, was not entitled to an equitable lien on the proceeds of the settlement, the Michigan Court of Appeals has ruled.

In Pounders v Fawaz (Docket No. 338348), the Court of Appeals reversed the trial court’s order  denying the plaintiff’s motion to terminate the equitable lien on the settlement proceeds.

Because no contractual relationship existed between the attorney and the clients that remained with the law firm, the attorney had no right of recovery against those clients, the Court of Appeals explained.

Rather, the attorney’s right to recovery was a breach of contract suit against the law firm for allegedly breaching its employment contract with him, the Court of Appeals said.

Personal Injury Settlement

The plaintiff hired the Rasor Law Firm to represent her in a personal injury lawsuit. Jonathan R. Marko was employed with Rasor Law under an employment contract. Marko performed work on the plaintiff’s case but departed the firm before the plaintiff’s case was resolved.

After Marko left, Rasor Law helped the plaintiff reach a settlement with the defendants. Thereafter, Marko asserted that Rasor Law failed to pay him the fees to which he was entitled pursuant to his employment agreement. However, rather than seeking the fees in a breach of contract suit against Rasor Law, Marko tried to recover the fees through imposing an equitable lien on the personal injury settlement (a case to which neither Marko nor Rasor Law was a party).

The Wayne County Circuit Court ruled that Marko held a 25 percent lien on the net attorney fees that were to be paid Rasor Law. According to the trial court, an equitable lien can be imposed on an identifiable piece of property that the parties intended to be security for a debt. The trial court concluded that Marko and Rasor Law had such an agreement and the agreement gave rise to Marko having a lien on the plaintiff’s settlement funds.

The trial court subsequently denied Rasor Law’s motion for reconsideration.

Adequate Legal Remedy

On appeal, the Court of Appeals pointed out the dispute involved Marko’s claim that Rasor Law did not pay him the fees to which he was entitled under his employment contract.

“Because Marko could sue Rasor Law for breach of contract and, if he prevailed, obtain the same relief he seeks here – an order requiring Rasor Law to pay him a percentage of the attorney fees it collected in this case – Marko has an adequate legal remedy which precludes him from obtaining an equitable lien,” the Court of Appeals wrote.

However, Marko claimed this legal remedy was insufficient because litigation would be “difficult, long, and expensive.” The Court of Appeals refuted this argument. “[T]he underlying contract dispute requires resolution whether it is addressed in the context of a breach-of-contract suit or an action for an equitable lien. And the difficulty of the issue favors resolution in a separate suit as opposed to grafting the costs and delays onto plaintiff’s case.”

Marko further asserted that Rasor Law’s “solvency issues” precluded him from obtaining an adequate legal remedy. Again, the Court of Appeals disagreed. “[W]hile Marko presented evidence of Rasor Law being unable or unwilling to pay certain bills, Marko presented no evidence that Rasor Law is insolvent. Rather, Rasor Law’s participation in this and other cases indicates that it is a functioning enterprise. Accordingly, Marko has not shown that his remedy at law is inadequate.”

Therefore, “we reverse the trial court’s approval of an equitable lien on plaintiff’s settlement,” the Court of Appeals said. “Given our conclusion that Marko is not entitled to an equitable lien, we need not address Marko’s other argument that the trial court improperly interpreted the terms of Marko’s employment agreement with Rasor Law.”

Not The First Fee Dispute

The Court of Appeals further emphasized this case is “just one of several similar attorney-fee disputes between Marko and Rasor Law” that have come before the Court.

“Indeed, this is not the only attorney-fee dispute before the immediate panel,” the Court of Appeals explained. “In Docket No. 338474, we conclude that Rasor Law is entitled to a charging lien against the proceeds of a settlement by one of Rasor Law’s former clients that took his case to Marko’s new law firm, Ernst & Marko, after Marko’s resignation from Rasor Law. While this result may seem inequitable in light of our conclusion in this case that Marko is not entitled to an equitable lien against the proceeds of a settlement by one of Rasor Law’s clients, the analysis supporting these different conclusions is rather straightforward and has been consistently applied by this Court in each dispute Marko and Rasor Law have brought before it.”

According to the Court of Appeals, Rasor Law’s entitlement to attorney fees results from its previous contractual relationship with a client. “In each of these cases, the client had an initial retainer agreement with Rasor Law,” the Court said. “When the client discharged Rasor Law, Rasor Law obtained a right to recovery from the client, making a charging lien on the client’s settlement the appropriate remedy.”

On the other hand, Marko’s alleged entitlement to attorney fees results from his previous employment relationship with Rasor Law, the Court of Appeals said. “Because no contractual relationship existed between Marko and the clients that remained with Rasor Law, Marko has no right of recovery against those clients. Rather, Marko’s right of recovery is against Rasor Law for allegedly breaching its employment agreement with Marko. Because this right may be vindicated in a breach-of-contract suit against Rasor Law, Marko has an appropriate legal remedy that renders inappropriate an equitable lien on the client’s settlement.”

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