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20 September, 2007  
Fruit on the sideboard

Sometimes the dragon in the Oriental rug can only be seen after staring at it for some time. It’s the same with the vast maze of the justice system. Take lawyers’ “fruits of the action” liens, for instance. Do they amount to blackmail, racketeering or lawyering?

imageOn November 20, 2006 Dennis Jacobs, Chief Judge of the United States Court of Appeals for the Second Circuit, gave a speech in which he referred to an insidious judicial bias in favour of the legal profession, which …

“is hard to make out, in the vast maze of judicial work and outcomes, the statutes, doctrines, and precedents that are woven together like an elaborate oriental rug in which the underlying image of the dragon emerges only after you stare for a while. I discern in this jumble a bias in favour of the bar and lawyers: what they do; how they do it; and how they prosper in goods and influence. This is the ‘figure in the carpet’.”

In 1990 Morris J. Eisen, PC was a reasonably big (40 people) New York law firm that specialised in bringing personal injury cases on behalf of plaintiffs.

In 1991 seven of its attorneys, investigators and office personnel, including it founder lawyer Morris Eisen, were put on trial for conducting and conspiring to conduct the affairs of the Eisen firm as a racketeering enterprise. (Australian law firms cannot be prosecuted for racketeering – our lawyers have ensured we don’t have any such laws).

Prosecutors presented evidence that Eisen and six co-defendants won multimillion-dollar verdicts by fabricating evidence and bribing witnesses.

For example, they smashed a car with a sledgehammer to increase the apparent damage, enlarged a pot-hole with a pickaxe to exaggerate its danger and used shrunken images of rulers to make potholes appear deeper. It seems that the Eisen firm came unstuck when someone worked out that one of their “repeat witnesses” was in jail at the time of a “witnessed” accident.

Eisen and others were convicted.

Following his release after three years, Eisen started suing law firms that he claimed had wrongfully withheld his share of legal fees on various cases they had taken over from his firm.

One such law firm was Shapiro Uchman Myers. One might have thought that someone such as Eisen, coming along so late in the day, trying to extract fees from a respectable outfit, would be given short shrift.

Shapiro Uchman Myers asked for his claims to be summarily dismissed for delay and so on, but in June 2007 New York Supreme Court Justice Marylin G. Diamond refused.

imageThe dragon Jacobs (pic) referred to is huge. Eisen’s claim against Shapiro Uchman involved only a little bit of it: lawyers’ liens.

Lawyers and judges, both here and in the US, have advantaged lawyer creditors over other sorts of creditors, by creating (through case law) “fruits of the action” liens (which purists say are not true liens at all, but “equitable rights”) and “possessory liens”. Eisen was demonstrating the power of lawyer liens.

The concept of a lien is not unique to lawyering. Anyone who does work on something can often keep hold of it until they are paid, although the lawyer’s version of that sort of lien (a possessory lien) enables lawyers to do work on one thing but to keep hold of other stuff they haven’t done work on, as well.

Halsbury, that fount of legal wisdom, says that it extends to …

“all costs due to the solicitor and is not limited to the costs incurred in relation to the particular documents in question or upon the particular instructions in consequence of which the property came into the solicitor’s possession”.

In 2003 the Queensland Court of Appeal said that:

“The extent of the general (or retaining) lien by its coverage of all documents and property brought into the solicitor’s possession is wide indeed.”

While a possessory lien is fairly static, a “fruits of the action” lien turns up at harvest time. One lawyer does some work on a case then gets fired, but can turn up when the case is a winner and demand a share of the proceeds.

In Australia a lawyer’s “fruits of the action” lien can even defeat a statutory notice by Centrelink. An article in the March 2003 issue of the NSW Law Society Journal discussing that situation said:

”[T]he equitable lien that arises on the fruits of action when solicitors act for a party is both recognised by the courts and is able to be traced, even against the government.”

A “fruits of the action” lien can also defeat a creditor who has obtained judgment and is enforcing that judgment. This emerges from a judgment of Associate Justice Joanne Harrison of the NSW Supreme Court, delivered on September 12, 2007, which upheld a magistrate’s decision on the point.

In that case a lawyer (Firth) obtained judgment for fees against a former client, and sought to enforce it against money held (for the credit of the client) in the trust account of law firm Russell McLelland Brown.

This “garnishee” procedure would normally work, but RMB successfully said it had a “fruits of the action” lien that defeated Firth’s attempt to enforce his judgment.

Associate Justice Harrison also noted that:

“It may well be that Firth also has a solicitor’s ‘fruits of the action’ lien over the amount held in the garnishee’s trust account. However, if Firth wishes to assert that lien, then he would be required to commence proceedings in the Equity Division of the Supreme Court … this court does not have the jurisdiction.”

If Firth did do that whose fruits of the action lien would prevail?

It appears that a fruits of the action lien can also defeat bankruptcy. In other words, a lawyer creditor need not settle for a few cents in the dollar in a bankrupt debtor’s estate, but can turn up and claim full past fees against any litigation proceeds that have fallen into the estate.

The fruits of the action lien is so well woven into the rug that comprises our law that it is probably impossible to pull it out. The possessory lien, however, could be – but one would have to get the ACCC to do it. Ireland’s Competition Authority issued a report in December 2006 that said:

”[T]he right of a solicitor to withhold clients’ files hinders a consumer’s ability to switch from one solicitor to another thereby restricting competition between solicitors.”

It recommended that lawyers’ possessory liens be abolished. For more visit and go to the link at the end.

Back in 1998 the NSW Legal Services Commissioner said that:

“A common problem is that of a solicitor who has performed work on behalf of a client and receives a request from that client to transfer the file to another practitioner, but claims a lien on the file, based on the fact that they have not received payment for the work already performed. Most such clients find themselves in the unenviable position of having to face litigation or other legal obligations without access to the file or essential documents. They may well consider a solicitor’s lien as no more than a form of blackmail to have a bill paid.”

Blackmail? Racketeering? Lawyering? Sometimes it’s difficult to tell the difference.