Thursday, January 16, 2020
Dan Trevas summarizes a decision issued today by the Ohio Supreme Court
An insurer that settles a personal-injury claim with a victim who discharged his lawyers before a lawsuit is filed has no obligation to distribute a portion of the settlement to the lawyers for their prior work. Instead, the law firm must take legal action against its former client to get paid, the Ohio Supreme Court ruled today.
In a unanimous opinion, the Supreme Court ruled that lawyers can obtain the help of a court to enforce their ability to get paid for legal work through a “charging lien” — an attorney’s lien on a claim that the attorney has helped the client perfect — when a case is [filed]. But when no case is filed, the lawyers cannot successfully bring a separate action to make the opposing party deduct money from the settlement to pay the lawyer’s claim for services.
Writing for the Court, Justice Sharon L. Kennedy wrote that a charging lien “follows the fund,” not the entity that paid it. When Progressive Insurance paid a former client of law firm Kisling, Nestico & Redick (KNR) before a case was filed against Progressive, the money transferred to the former client. Progressive had no obligation to ensure the firm received any portion of it, she concluded
The Court’s opinion stated that for well over a century Ohio courts have recognized the ability of attorneys to use charging liens to ensure payment from clients after a court case concludes. But unlike the majority of states, Ohio has no statute that guides the enforcement of charging liens, and instead relies on common law. Under common law, the lawyer can seek “equitable relief” from the client.
Today’s decision reversed an Eighth District Court of Appeals decision, which found that since Progressive was “on notice” that KNR was seeking payment for its work on the matter even before any lawsuit was filed, KNR could file a lawsuit against Progressive for its share of the out-of-court settlement.
Accident Victim Signs Law Firm’s Fee Agreement
Darvale Thomas was injured in an auto accident caused by a man who was insured by a subsidiary of Progressive. In July 2014, Thomas entered into a contingent-fee agreement with KNR that entitled the firm to 25 percent of all amounts recovered and, in order to secure payment for its services, gave the firm “a charging lien upon the proceeds of insurance proceeds, settlement, judgment, verdict award, or property obtained” for Thomas.
KNR and Progressive began negotiating, and the insurer offered to settle for $12,500. Thomas fired KNR, and in July 2015, Thomas settled the claim himself with Progressive for $13,044. A week before the settlement, KNR informed Progressive that Thomas discharged the firm, and that it was claiming a lien against any settlement funds paid to Thomas. Progressive made no promise to KNR to protect the lien.
Progressive paid the settlement to Thomas. Thomas did not pay KNR its attorney fees or expenses KNR said it incurred. KNR sued Thomas, Progressive, and the driver who caused the accident. The Cuyahoga County Common Pleas Court granted a default judgment against Thomas to KNR and dismissed the case against the driver.
The court ruled that Progressive failed to protect KNR’s charging lien. Because the firm and the insurer were negotiating, and KNR informed Progressive about the lien, Progressive had a duty to protect KNR’s interest. The parties agreed KNR was owed about $3,400, and the trial court granted KNR summary judgment for the amount it was owed.
Progressive appealed the decision to the Eighth District, which affirmed the trial court’s decision. The Eighth District ruled that under Ohio law, the charging lien KNR had against Thomas became binding on Progressive because Progressive had notice of its existence.
Progressive appealed the decision to the Supreme Court, which agreed to hear the case.
Liens Long Recognized by Courts
The Court’s opinion explained that the philosophy behind charging liens is that “an attorney who has not been paid for his or her legal services is entitled to receive payment for those services from a judgment or fund that was created through his or her efforts.” Charging liens have long been supported by courts to insure that lawyers are paid “out of the fund to be distributed” when there is a final judgment or decree in a case. To enforce a lien, an attorney must have a contract with the client and there must be funds recovered by the attorney. The attorney must provide notice of an intent to enforce the lien and seek to enforce it in a timely manner.
Because a lien is filed against the “fund” and not a person, the nature of any lawsuit is to obtain money from an identifiable fund created by a judgment or settlement, the opinion stated. Typically, the “fund” is created while a case is under the jurisdiction of the court after a lawsuit has been filed and the parties work toward a settlement, or litigate the case until there is a judgment, the Court explained.
In contrast, KNR and Progressive were never involved in a lawsuit regarding Thomas.
“Thomas never filed a personal-injury lawsuit, and therefore, there was no involvement by a court and there was no existing action in which KNR could pursue its claim to a portion of the fund created by the settlement,” the opinion stated.
KNR filed its lawsuit after the fund was created, and the Court considered whether Progressive controlled that fund. The Court ruled the fund was created when Progressive paid Thomas and Thomas agreed not to sue Progressive for additional payment. The money was out of Progressive’s hands when KNR attempted to assert its charging lien, and KNR had no right to seek relief from the insurer, the Court concluded.
The Court remanded the case to the trial court for further proceedings.