RI-376

December 8, 2017

SYLLABUS

A lawyer may ethically obtain a client's agreement for a lien on real property to be awarded in the future to the client in a divorce proceeding if, at the time of the agreement:

1. the terms of the proposed lien are fully disclosed, fair and reasonable to the client and communicated in writing in a manner that can be reasonably understood by the client;
2. the client is given an opportunity to seek the advice of independent counsel before agreeing to the proposed lien; and
3. the client consents in writing to the proposed lien.

References: Michigan Rules of Professional Conduct (MRPC) 1.8(a), 1.8(j); RI-40, RI-354; George v. Sandor Gelman, PC, 201 Mich App; 506 NW2d 583 (1993)

TEXT

The inquirer represents clients in divorce cases and asks if it is ethically permissible to obtain a client's agreement that, as security for any unpaid fees, the lawyer will be granted a lien by the court on real property that may be awarded to the client in the judgment of divorce.

The question posed implicates both MRPC 1.8(a) (business transactions with a client) and MRPC 1.8(j) (acquiring a proprietary interest in the subject matter of the representation). MRPC 1.8(a) provides:

(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;

(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

(3) the client consents in writing thereto.

MRPC 1.8(j) states, in relevant part:

(j) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of the litigation the lawyer is conducting for a client, except that the lawyer may:

(1) acquire a lien granted by law to secure the lawyer's fee or expenses.

George v. Sandor M Gelman, PC, 201 Mich App 474; 506 NW2d 583 (1993), addressed the scope of an attorney's charging lien. The Court of Appeals explained that a charging lien "is an equitable right to have the fees and costs due for services secured out of the judgment or recovery in a particular suit. The attorney's charging lien creates a lien on a judgment, settlement, or other money recovered as a result of the attorney's services."1 The court held that a lawyer's charging lien attaches only to funds or other personal property recovered on behalf of a client, and may not be imposed on real property "even if the attorney has successfully prosecuted a suit to establish a client's title or recover title or possession for the client, unless . . . the parties have an express agreement providing for a lien." (Emphasis added.).2

Based on Gelman, it appears to the Committee that family law practitioners began incorporating contractual lien provisions in fee agreements with clients.3

The Committee has previously opined that outside of the divorce proceeding context, it is permissible for a lawyer to obtain a consensual lien on real property of a client provided the above provisions of MRPC 1.8(a) are satisfied. Ethics Op RI-40 (1989). In accordance with RI-40, a contractual provision granting a lawyer a right to obtain a lien on a client's real, as well as personal, property that is not the subject matter of litigation must comply with the provisions of 1.8(a).

The application of MRPC 1.8(j) is a more difficult issue.4 In Ethics Op RI-354 (2012), the Committee addressed a proposed transaction whereby, at the outset of the representation, the sole asset of the marital estate, the marital home, would be conveyed by warranty deed to the lawyer, to secure the lawyer's fee. The Committee opined that such a transaction would constitute the acquisition of a proprietary interest in the subject matter of the representation, thus implicating MRPC 1.8(j). As the proposed transaction did not fit the exception in MRPC 1.8(j)(1)—a lien granted by law to secure the lawyer's fee—the proposed transaction was ethically impermissible.

The facts presented in this inquiry are distinguishable from RI-354. Here, the lawyer will not acquire a proprietary interest in property that is the subject matter of the litigation; instead, the agreement authorizes a right to obtain a future lien to be granted by the court on property awarded to the client pursuant to a judgment of divorce. The attorney's lien rights arise upon entry of the judgment of divorce to the limited extent that the client has not paid the lawyer's fees. Thus, the agreement seeks to enhance the lawyer's potential charging lien—a lien "granted by law to secure the lawyer's fee or expenses" within the meaning of MRPC 1.8(j)(1)—by reaching the client's real, as well as personal, property. This enhancement is approved by Michigan case law, including Gelman, as long as the parties' agreement expressly provides for such a right to obtain the lien. Thus, Rule 1.8(j)(1) is satisfied.

In summary, a lawyer may ethically obtain a client's agreement for a lien on real property to be awarded in the future to the client in a divorce proceeding if, at the time of the agreement:

1. the terms of the proposed lien are fully disclosed, fair and reasonable to the client and communicated in writing in a manner that can be reasonably understood by the client;

2. the client is given an opportunity to seek the advice of independent counsel before agreeing to the proposed lien; and

3. the client consents in writing to the proposed lien.

1 Gelman, 201 Mich App at 476 (citations omitted).

2 Gelman, 201 Mich App at 478 (footnote omitted). The court recognized two other instances, not germane to this opinion, where the charging lien could be imposed on real property: the attorney obtains a judgment for the fees and follows the proper procedure for enforcing a judgment, or special equitable circumstances exist to warrant imposition of a lien. Id.

3 See, e.g., David L. Skidmore, Legal and Ethical Issues Raised by an Attorney Acquiring a Lien or Mortgage Against A Client's Real Property, Michigan Real Property Review, Fall 2012/Winter 2013.

4 See ABA Formal Ethics Opinion 02-427, which discusses varying interpretation of Rule 1.8(j), now ABA Model Rule 1.8(i), and changes in the language from "granted by law" to "authorized by law."