Monday, May 6, 2019

Ohio Liens In

Also before the Ohio Supreme Court this week

Kisling, Nestico & Redick LLC v. Progressive Max Insurance Company et al., Case no. 2018-0682
Eighth District Court of Appeals (Cuyahoga County)

ISSUES:

  • Does a lawyer’s charging lien give the lawyer the right to be compensated from a settlement resulting from the lawyer’s services and skills provided during pending litigation?
  • Does R.C. 3929.06 bar a tort claimant’s former lawyer from suing a third party’s insurer to enforce a charging lien against a settlement paid by an insurer?

BACKGROUND:
Darvale Thomas was injured in a July 2014 automobile accident in Franklin County. The accident was allegedly caused by Todd Thorton, who was insured by Progressive Insurance. Thomas hired law firm Kisling, Nestico & Redick (KNR) to represent him under a contingent-fee agreement, in which the firm would be paid from the proceeds if it won the case.

After KNR worked on the case for about a year, Progressive notified KNR on June 30, 2015, of an offer to settle the claim for $12,500. KNR states that Thomas was unhappy with the offer and ended the firm’s representation, then hired another attorney. On July 9, KNR informed Progressive that the firm no longer was representing Thomas and asserted that it was entitled to its portion of any settlement based on the fee agreement Thomas signed.

The law firm’s fee was one-quarter of the gross amount of any recovery, and the agreement stated: “Attorney shall have a charging lien upon the proceeds of any insurance proceeds, settlement, judgment, verdict award or property obtained on your behalf.”

Progressive responded that KNR’s only recourse was against Thomas. On July 14, Thomas’ new lawyer informed Progressive that Thomas wanted to negotiate the claim himself. That day, Thomas and Progressive agreed to a $13,044 settlement, and payment was made directly to Thomas.

Law Firm Seeks Payment for Work from Insurance Company
KNR filed a lawsuit in Cuyahoga County Common Pleas Court against Progressive Max Insurance Company, Progressive Southeastern Insurance Company, and Progressive John Doe Companies – headquartered in Mayfield Village – as well as Thomas and Thorton. KNR’s former client – Thomas – didn’t appear or answer the firm’s complaint, and the court entered a default judgment against him for $3,411.48, which he hasn’t paid. In March 2016, Progressive and KNR agreed to dismiss Thorton as a party in the case.

The trial court granted summary judgment to KNR, determining Progressive was notified before the settlement of KNR’s fee agreement with Thomas, yet distributed the settlement proceeds to Thomas without making an effort to protect KNR’s interest.

Progressive appealed to the Eighth District Court of Appeals, which upheld the trial court’s ruling. The insurance company’s appeal to the Ohio Supreme Court was accepted for oral argument.

Insurer Contends It Wasn’t Responsible for Paying Former Law Firm
Progressive argues that a lawyer cannot use a charging lien that is in a contract with a client as a vehicle for separate litigation against a wrongdoer’s liability insurer to recover attorney fees not paid by the lawyer’s former client. Progressive maintains that the Eighth District is the first court in Ohio to make this holding, which the insurer believes is erroneous.

Progressive describes a “charging lien” as an “equitable rule of priority” against any other person or entity claiming a right to part of a “fund” that resulted from the lawyer’s services. Yet, in the insurer’s view, a settlement doesn’t exist until the payment is made in exchange for the claim’s release – and, in this case, the money at that point was with Thomas, not the insurance company. In these circumstances, a law firm can’t recover fees from an insurer, Progressive states.

In addition, Ohio courts have concluded that a charging lien can’t exist in the absence of a court-controlled fund, Progressive argues, but Thomas’ claim resulted in an out-of-court settlement. The insurer contends that the Eighth District was wrong to conclude that the notice KNR made to Progressive of the firm’s lien was all that was needed to allow KNR to pursue its lawsuit against the insurance company. But, Progressive counters, notice alone doesn’t allow enforcement of a charging lien, particularly before a settlement is paid.

The insurer also asserts that R.C. 3929.06 prevents an assignee of possible settlement proceeds, such as a law firm, from suing a third-party insurer in the absence of a final judgment against the insured. Progressive maintains that instead of shifting business risks to a third party, KNR could pursue other methods for resolving fee disputes without litigation or use another type of fee agreement.

Law Firm Maintains Insurer Had Duty to Pay Firm
KNR counters that the Eighth District’s decision isn’t the first in Ohio to recognize an attorney’s right to recover fees in such a manner, and the law firm points back as far as an 1898 Ohio Supreme Court decision (Pittsburgh, Cincinnati, Chicago & St. Louis Ry. Co. v. Volkert). The majority view nationally is that a discharged attorney may recover unpaid legal fees from a wrongdoer, including an insurance company acting on behalf of the wrongdoer, KNR maintains. Having acknowledged the need to protect attorneys from clients that deprive their attorneys from compensation, the Ohio Supreme Court has concluded that attorneys providing legal services and paying their own legal expenses before a client can pay “creates an equitable interest in the client’s property,” the law firm’s brief states.

KNR argues that charging liens are “an active, enforceable right” against one possessing the property – such as an insurance company issuing a settlement – and the possessor has a duty to hold the property and ensure that it is given to the true owner.

In addition, charging liens are enforceable not only against court judgments but also against settlements, KNR states, citing to multiple Ohio and federal court rulings. The law firm also disputes Progressive’s position that it couldn’t pay KNR its portion because the money was already with Thomas. The law firm contends that once a settlement is agreed on, the client’s recovery no longer is in question, and there is a window between the time the settlement is accepted and the time it is paid. If the Supreme Court rules otherwise, KNR stresses that contingent-fee agreements would be undermined because attorneys would have no recourse for obtaining compensation. Given that Progressive knew KNR was entitled to a portion of any settlement when Thomas accepted the settlement, the insurance company was obligated to ensure payment was made to the firm, KNR argues.

Progressive also cannot claim protection under R.C. 3929.06 because it agreed to stand in Thorton’s shoes when the insured was dropped from the case. The statute doesn’t bar a lawsuit against the wrongdoer’s insurance company when the claim is based on the insurer’s own misconduct rather than the company’s status as the insurer, KNR maintains.

Associations Take Stances on Each Side
An amicus curiae brief supporting Progressive’s position has been submitted by the Ohio Association of Civil Trial Attorneys. The Ohio Association for Justice has filed an amicus brief supporting KNR.

- Kathleen Maloney

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Contacts
Representing Progressive Max Insurance Company et al.: Richard Garner, 614.901.9600

Representing Kisling, Nestico & Redick LLC: Christopher Van Blargan, 330.869.9007

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2019/05/also-before-the-ohio-supreme-court-this-week-kisling-nestico-redick-llc-v-progressive-max-insurance-company-et-al-case.html

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