California Court of Appeal Allows Attorney to Enforce Fee Lien Against Assets Held in Trust

May 13, 2015

NOVAK v. FAY: California Court of Appeal Allows Attorney to Enforce Fee Lien Against Assets Held in Trust

By: Carl I. S. Mueller, The Maloney Firm, APC
 

In order to ensure payment for their services, attorneys oftentimes include language in their retainer agreements imposing a lien on the clients prospective recovery. In a recent California Appellate Court decision, Novak v. Fay, Case No. B256889, filed April 28, 2015, the California Court of Appeal upheld an attorney lien that granted a lawyer an interest in a trust established by his client’s deceased spouse.
 

In Novak, attorney Mark Novak represented Douglas Kelly in a probate matter involving the distribution of assets from his late spouse’s trust, the Dana Teitler Trust. Novak’s retainer agreement with Kelly provided for a 40% contingent fee and expansive lien rights in the event of a successful outcome:
 

[Kelly] agrees to pay [Novak] 40% of all recoveries by way of settlement . . . . “Recovery” includes, but is not limited to, all distributions to [Kelly’s wife’s] estate from the [trust], i.e. distribution to which [Kelly] is entitled to 50% as [spouse].
 

It is agreed that [Novak] may retain his share in full out of the amount finally collected by settlement; and it is further agreed that [Novak] shall have all general, possessory, or retaining liens, and all special or charging liens known to common law. [Kelly] expressly assigns to [Novak] to the extent of his fees and disbursements, all assets and sums realized by way of settlement […].

 

In the probate matter, Novak asserted that Kelly was a pretermitted spouse, i.e., that Dana Teitler had failed to provide for him in her trust. Eventually, Novak obtained a favorable settlement for Kelly, by which he obtained an interest in his deceased spouse’s trust. Unfortunately, Kelly passed before he paid Novak the contingent fee that Novak had earned.
 

After Kelly died, Novak filed a petition seeking to enforce his lien rights against the Dana Teitler Trust. Novak asserted he was entitled to 40% of the portion of the trust Kelly received through the settlement.
 

Not surprisingly, the successor trustee, Michael Fay, who was Teitler’s husband from a prior marriage, objected to Novak’s claim. The trial court rejected Novak’s claim, and Novak appealed.
 

The Court of Appeal rejected the Trustee’s argument that Kelly had not realized anything from the trust. It reasoned that Novak’s lien rights were created upon the execution of the agreement, and that those rights extended to “the litigation’s proceeds,” whatever they were. Therefore, “as soon as [Kelly’s] beneficial interest in [the trust] came into being, [Novak’s] lien attached to it.” The Court of Appeal held that the trust was among the assets contemplated by the lien provision in Novak’s retainer agreement. And so, under Section 9391 of the Probate Code, Novak could rightly file an action on the lien against the Dana Teitler Trust.
 

In sum, Novak teaches that attorneys are well advised to include carefully prepared lien language in their retainer agreements. The lien provision should cover any possible circumstance that may arise by way of settlement or other resolution of an action. In Novak’s case, he accomplished this by including language that provided for an assignment of an interest in any assets realized through the representation. Of course, whenever an attorney prepares a fee agreement that includes a lien provision, he should consider whether it is necessary under California Rule of Professional Conduct 3-300 to obtain the client’s informed written consent to the lien provision.
 

The Maloney Firm, APC is a full service law firm based in El Segundo, California. The professionals at The Maloney Firm focus on providing clients with efficient and effective service in business disputes and employment litigation. www.maloneyfirm.com


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