Using Charging Liens to Collect Business Debt in California

Charging liens, often referred to as attorneys’ liens, can be an effective means to ensure that attorneys receive payment from their clients for the work that they performed.  It is something that all attorneys should be aware of, and carry in their tool belt.

A charging lien is a lien on a client’s future recovery to secure the client’s obligation to pay the attorney when the recovery is received. Often, attorneys insert the lien language in the fee agreement with the client.  It is also possible that a lien may be implied if the fee agreement indicates that the attorney’s payment will come from the client’s recovery.  However, it is not advisable to rely on this implication, and much more prudent to insert an explicit written lien provision in the fee agreement.

Judgment creditor’s liens and charging liens are different in that the former is created when notice of the lien is filed after the judgment comes into existence. The latter is created and takes effect immediately upon execution of the fee agreement.  See Cetenko v United Cal. Bank (1982) 30 C3d 528, 534, 179 CR 902.

For this reason charging liens are often referred to as “secret liens”, because they are valid and protected even without a notice of lien – though it is common and encouraged to file a notice of lien as well.

An added benefit of charging liens is that they have priority over other established liens – including judgement creditor’s liens.  See Cetenko v United Cal. Bank. However, charging liens must generally be enforced in a separate legal proceeding.  The court in which the case is pending and in which a notice of lien may be filed lacks jurisdiction to determine the validity or amount of an attorney’s lien.  To enforce the lien, you must wait until the judgment has been awarded and then bring forward a separate suit to collect.  See Carroll v. Interstate Brands Corp.

However, since the California Supreme Court has held that an attorney’s charging lien is an interest that is adverse to his or her client (see Fletcher v Davis (2004) 33 C4th 61, 68, 14 CR3d 58), it is necessary that attorneys comply with Cal Rules of Prof Cond 3-300 before a lien is acquired.  In order to comply with Rule 3-300, attorneys must (1) make sure the acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a way that he or she can reasonably understand; (2) advise the client in writing that he or she may seek the advice of an independent lawyer of the client’s choice and has a reasonable opportunity to do so; and (3) obtain the client’s consent in writing to the terms of the transaction.  Keep in mind, the fairness of a fee agreement and the lien to secure it is viewed by the courts as of the time the agreement was made.

For examples of attorney’s charging liens that comply with Rule 3-300, you can visit the State Bar of California’s website. The Wallin Firm is experienced in the procurement and enforcement of liens and has assisted many businesses and legal practices in the Orange County, Los Angeles County and throughout California with their various collection matters.