Litigators must sometimes step into the middle of a case to replace former counsel. While this can be amicable, as when the prior law firm is not equipped to handle an upcoming trial, lawyers are sometimes called upon when the attorney-client relationship with the prior law firm has soured. In those situations, it is common for the unhappy client to withhold payment of the former counsel’s attorneys’ fees, prompting that attorney to assert a “retaining lien” and withhold the case file until payment is made. While retaining liens are permitted under New York law, they create challenges for the litigator taking over mid-suit, who must meet summary judgment deadlines or prepare for trial without access to the complete case file. This article examines the rules governing retaining liens and suggests creative solutions for new counsel to move forward on the case absent resolution of the underlying fee dispute with the prior law firm.
The New York Rule on Attorney Retaining Liens
Under New York Rule of Professional Conduct 1.16(e), “upon termination of representation, a lawyer shall take steps, to the extent reasonably practicable, to avoid foreseeable prejudice to the rights of the client, including . . . delivering to the client all papers and property to which the client is entitled . . .” Typically, the client has “presumptive access to the attorney’s entire file on the represented matter” unless the client’s former law firm makes a “substantial showing … of good cause to refuse client access …” Sage Realty Corp. v. Proskauer Rose Goetz & Mendelsohn L.L.P., 91 N.Y.2d 30 (1997). Notwithstanding the above, a lawyer discharged without cause is entitled to a common law retaining lien on the client’s file in the lawyer’s possession as security for compensation and is entitled to recover the fair and reasonable value of the services rendered as a condition of releasing the file. See Maher v. Quality Bus Service, LLC, 144 A.D.3d 990, 991 (2d Dep’t 2016).
Generally, courts will not “order turnover of an outgoing attorney’s file before the client fully pays the attorney’s disbursements or provides security therefor.” Warsop v. Novik, 50 A.D.3d 608, 609 (1st Dep’t 2008). In Warsop, the First Department reversed the lower court’s order to remit a client’s case file to new counsel, and instead only required the file to be turned over after the client paid prior counsel’s disbursements. And in Adamson v. Wurtsboro Gardens Recreation Ctr. Inc., 229 A.D.2d 863, 864 (3d Dep’t 1996), the Third Department similarly noted, that “in cases where a client has demanded the return of files from his or her former attorney, so long as the attorney has not been dismissed for cause he may not be compelled to turn over his files until he has either been paid or until the client has otherwise posted adequate security ensuring payment of the attorney’s fees.”
New York courts routinely deny requests to extinguish the retaining lien and order transfer of the files. Unfortunately for the new client and lawyer, there is a consistent application of the principle that “[t]he retaining lien is extinguished only when the court, which controls the functioning of the lien, orders turnover of the file in exchange for payment of the lawyer’s fee or the posting of an adequate security therefor following a hearing.” Dayan v. Dayan, 58 Misc. 3d 957, 964 (N.Y. Sup. Ct. 2017).
Exceptions and Possible Strategies
New York courts have identified several exceptions to the attorney’s right to a retaining lien, which can allow the client (and new counsel) to obtain the file and move forward, while also allowing the client and prior counsel to reserve their rights to the fee dispute:
Discharge for Cause. Should the new client have a meritorious argument that prior counsel was discharged for cause, prior counsel may be bound to relinquish the file. See Warsop v. Novil, 50 A.D.3d 608 (1st Dep’t 2008). While “[a]n attorney who is discharged for cause is not entitled to compensation or a lien . . . more than a generalized dissatisfaction with counsel’s services is required, and the client must make a prima facie showing of cause in order to trigger a hearing on the issue.” Maher v. Quality Bus Service, LLC, 144 A.D.3d 990, 992 (2d Dep’t 2016). If there is going to be litigation of the fee dispute, a client should assert any defenses he as to the nonpayment, including for-cause termination where appropriate, possibly allowing for transfer of the case file and moving both disputes along toward a resolution.
Exigent Circumstances. “Where there are ‘exigent circumstances,’” a court can “direct counsel to turn over the client’s file to the client and direct counsel to proceed to a hearing on the amount of a charging lien on any proceeds to be received by the client upon resolution of the action instead of a retaining lien on the file.” Moraitis v. Moraitis, 181 Misc.2d 510, 514–15 (Nassau Cnty. Sup. Ct. 1999). However, this exception and the definition of “exigent circumstances” have been narrowly limited to instances of: (1) a client’s indigency (see Pileggi v. Pileggi, 512 N.Y.S.2d 142, 143 (2d Dep’t 1987) (in “exigent circumstances, such as the client’s indigency, it would be inequitable for the former attorney to retain the client’s papers in the action, since that would render it almost impossible to prepare his case for trial)); (2) an impending murder trial (see Hauptmann v. Fawcett, 243 A.D. 613 (2d Dep’t 1935); or (3) an acrimonious and prolonged custody dispute “where retaining the file would harm the children involved and prejudice the opposing party.” (Moraitis, 181 Misc.2d at 515). Of note, in these circumstances a court will often award prior counsel a charging lien upon any litigation proceeds under Judiciary Law § 475, even while discharging the retaining lien. See Pileggi, 512 N.Y.S.2d at 143.
Post a Bond. When there is a pressing need for the file, “[t]he court retains full discretion to secure the fees and to order the files to be returned to the client before the fees have been paid.” Cosgrove v. Tops Markets, Inc., 39 Fed.App’x. 661, 664 (2d Cir. 2002). When a client disputes the amount claimed by outgoing counsel but can secure an undertaking, posting a bond offers another path forward. This approach allows the client to continue defending the dispute while gaining access to the case file in situations where the materials are needed on a time-sensitive basis. See also Leviten v. Sandbank, 291 N.Y. 352, 357 (1943) (“Where the retention of papers by an attorney serves to embarrass a client the attorney should be required to deliver up the papers upon receiving proper security for his compensation, because insistence upon his lien under such circumstances is not in accordance with the standard of conduct which a court may properly require of its officers.”); Doubleday & Co. v. Garden Spot Apartments, 68 N.Y.S.2d 716, 717 (Nassau Cnty. Sup. Ct. 1947) ([s]ince the client has an immediate need for the papers, the attorney is directed to release them upon the filing of an undertaking by the client with sufficient sureties conditioned for the payment of any fee which may hereafter be allowed.”).
Conclusion
Fee disputes between a new client and outgoing counsel can create unique and time-sensitive problems for lawyers trying to pick up the baton and carry the case and their new client across the finish line. In New York, the common-law retaining lien is a powerful tool for prior counsel to maintain the leverage of withholding client files pending full payment. Practitioners should pay close attention to the contours of the rule and its exceptions, which provide some opportunities for creative problem solving by incoming counsel.
