Wednesday, June 24, 2009

Client Is Trustee

The Oklahoma Supreme Court reversed a holding of the Court of Civil Appeals and held that a law firm had a lien on a counsel-fee award entered by the trial court to the former client in a divorce case. After the fee award, the firm had withdrawn over a fee dispute and given notice of its attorney's lien to the court. The client declared bankruptcy and listed the law firm obligation as an unsecured debt. 

The client later sought to enforce the award of fees against her former spouse. The firm moved to enforce a charging lien before the client received any money. The client appealed the trial court finding that she had abandoned any claim to the fee award by filing for bankruptcy. The court here concluded that the law firm gets the fees: 

When an award for an attorney's fee is made directly to the client who is a party, a constructive trust attaches eo instante by operation of law to the award for the benefit of the lawyer who performed the services for which compensation is allowed. The legal entitlement to the award goes to the client, but the beneficial interest is created in favor of the lawyer. The client stands as a constructive trustee and the lawyer as a constructive beneficiary (cestui que trust). It is the dual title - the splitting of title into legal and equitable components - that creates the constructive trust. If money for satisfaction of the counsel-fee award comes into the hands of a constructive trustee it stands impressed eo instante in trustee's hands with the earmarks of the trust res.

The application of constructive-trust law to a counsel-fee award operates to protect the ethical restraints upon legal practitioners. These restraints prohibit a lawyer from sharing fees with nonlawyers and disallows a nonlawyer's attempt to lay claim to an attorney's fee.

The constructive trust arises here from the wording of the counsel-fee award and the attorney-client relationship. When the wife was awarded an attorney's fee, she then stood as a constructive trustee of the award for the benefit of the Law Firm by operation of law. An ethical conflict would have arisen in violation of law if she were declared the sole beneficiary of that award. This is so because such declaration would constitute a legally impermissible award of an attorney's fee to a nonlawyer. In short, the imposition of a constructive trust in favor of the service-rendering lawyer assures the award's conformity to applicable law.

(Mike Frisch)

http://lawprofessors.typepad.com/legal_profession/2009/06/the-oklahoma-supreme-court-reversed-a-holding-of-the-court-of-civil-appeals-and-held-that-a-law-firm-had-a-lien-on-a-counsel-.html

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