I. INTRODUCTION: Pay Your Bills!
As a general rule, it is always a good idea to pay your bills. It is particularly important to pay your legal bills. And I’m not just saying that because I work in the legal field. While it is true that the costs of legal services can be quite high, keep in mind that you are paying for services conducted by individuals who have been rigorously trained to deal with highly complex legal matters. They know what they’re doing. So what can happen if an individual fails to pay their legal bills? Under Minnesota law, attorneys are entitled to a lien for their compensation on the cause of action and on the client’s interest in money or property involved in or affected by the action. This lien does not let the attorney simply take the client’s property. To collect on it, the attorney must apply to the court to have the lien established and its amount determined summarily, after which the court directs entry of judgment for the amount due. The statute states:
An attorney has a lien for compensation whether the agreement for compensation is expressed or implied (1) upon the cause of action . . . and (2) upon the interest of the attorney’s client in any money or property involved in or affected by any action or proceeding in which the attorney may have been employed . . . .
Minn. Stat. 481.13, Subdivision 1. Therefore, regardless of whether the agreement between the attorney and client explicitly established compensation terms or not, the attorney is authorized to claim a lien on the legal action as well as on any money or property involved in the legal action. As a result, even if the client wins a judgment, the attorney will be able to claim any recovery from the lawsuit in order to satisfy unpaid legal fees.
II. HOW THE PROCESS WORKS
For practicing attorneys, it will be extremely beneficial to become familiar with the procedure for obtaining an attorney’s lien. The process is not overly difficult, and following the proper procedure can result in significant rewards. The following information, therefore, will be particularly helpful to attorneys who are attempting to obtain and/or execute upon attorney’s liens, but will also be informative to clients who would like to educate themselves on how the process works.
A. Client Screening
Attorneys and law firms alike should consider getting into the habit of screening their clients before agreeing to accept their case. This practice can alleviate significant financial and procedural headaches down the road for any practitioner. One of the simplest ways to start is by conducting a judgment search on the Minnesota Judicial Branch website. This will immediately inform the attorney as to whether there are any judgments against the potential client, and will also give the attorney insights into the potential client’s legal history. If there are judgments against the potential client, it is important to realize that the party in whose favor the judgment was rendered may have priority over all other creditors, including future attorneys. The statute states that “an attorney has a lien for compensation . . . from the commencement of the action or proceeding, and, as against third parties, from the time of filing the notice of the lien claim, as provided in this section.” Therefore, an attorney’s lien is subject to the claims of third parties with perfected liens (recall that a perfected lien has priority over a non-perfected lien). This scenario becomes particularly complicated when the attorney would be compensated on a contingency basis. If the potential client wins their case, the contingency fee that the attorney is entitled to could easily be eaten up by a previous judgment creditor. It is therefore important to consider accommodating such risk into the representation agreement.
In light of the above-mentioned complications, another step in the client screening process ought to include a UCC search on the Minnesota Secretary of State website. This will allow the attorney to determine whether the potential client has creditors who have perfected their liens; giving them priority over other creditors, including attorneys. As mentioned before, if there are creditors who have priority, there is a good chance that any proceeds from the client’s lawsuit will first get paid to the perfected creditors. That being said, it may be possible to negotiate with perfected creditors in order to ensure that the attorney is properly compensated before perfected creditors take their portion. After all, the attorney’s representation of the potential client could be the perfected creditor’s only shot at getting paid.
B. Accepting the Case & Signing a UCC Security Agreement
Once the attorney has done her due diligence on the status of the potential client, and is satisfied with her findings, she may proceed with accepting the client’s case by entering into a representation agreement. If, however, the attorney is still a bit apprehensive about the client’s financial accountability, it may be wise to consider having the client enter into a UCC security agreement. The consideration is both strategic and defensive. Under the statute mentioned above, an attorney’s lien will only attach to “money or property involved in or affected by any action or proceeding in which the attorney may have been employed.” Therefore, the lien will not attach to other legal fees or other property not involved in the action or proceeding. This loophole, however, can be closed by having the client sign a UCC security agreement, which is a contractual pledge of collateral by a debtor to a creditor, enabling the attorney to obtain a lien on property/collateral not covered under the attorney’s lien statute. Unlike the statutory attorney’s lien, which Minn. R. Prof. Conduct 1.8(i)(1) permits an attorney to acquire without more, a negotiated UCC security agreement is a security interest the lawyer is taking adverse to the client, and it is governed by Rule 1.8(a). That rule prohibits the transaction unless (1) its terms are fair and reasonable to the client and are fully disclosed in writing in a manner the client can reasonably understand, (2) the client is advised in writing of the desirability of, and given a reasonable opportunity to seek, independent legal counsel on the transaction, and (3) the client gives informed consent in a separate signed writing covering the essential terms and the lawyer’s role. This step, though nontraditional, can help protect against the incomplete coverage of the statute, but only where the attorney satisfies Rule 1.8(a) first.
After entering into such a security agreement, the attorney should make no delay in filing the UCC security agreement with the Minnesota Secretary of State. This ensures that the security agreement is properly perfected; a prerequisite for obtaining priority over other creditors who might assert claims later. Just like we mentioned earlier, filing with the Secretary of State will serve as the attorney’s announcement to the rest of the world that they have a first priority position over other creditors or attorneys who might show up later. Note, however, that depending on the results of the UCC search on the Secretary of State’s website (one of the steps in the client screening process), the client’s property may already be secured by other perfected creditors. Be wise; don’t claim a security interest in collateral that is already claimed by a secured party.
C. Perfecting the Attorney’s Lien
After the client has signed the representation agreement and, if applicable, the UCC security agreement, the attorney should proceed to perfect the attorney’s lien in the money or property involved in the action (for clarity, please note that if the client signed a UCC security agreement, the attorney will be perfecting two liens: (1) the lien on collateral described in the UCC security agreement (property not involved in the action – described above), and (2) the attorney’s lien on property involved in the action). Subdivision 2 of Minn. Stat. 481.13 describes the process for perfecting the attorney’s lien. If the attorney is claiming a lien on the client’s interest in real property (real estate) involved in the action, the attorney must file a notice in the applicable county recorder’s office of her intention to claim a lien on the property involved. This filing goes to the county recorder or the registrar of titles, whichever is appropriate for the property, in the county where the real property is located, and the notice must be noted on the certificate or certificates of title affected. This notice of intention may not be filed more than 120 days after the last item of the attorney’s claim. Following satisfaction of this requirement, the attorney must deliver a written notice of the lien to the property owner within 30 days of filing. Failure to provide such notice will render the attorney’s lien void. Even a timely, properly noticed lien is good only if the attorney then asserts it by complaint or answer within one year after filing the notice of intention (extendable only by a recorded written agreement of the owner), and in no event more than three years after filing.
If an attorney wishes to claim a lien in the client’s personal property involved in the action (money, possessions, etc.), the statute states that the filing requirements are identical to those for security interests. This means that the attorney must file a UCC financing statement with the Minnesota Secretary of State’s Office; the same process for perfecting the UCC security agreement discussed above. This form, easily downloadable from the Secretary of State’s website, requires the name of the client/debtor, the name of the secured party/attorney, and an indication of the collateral covered by the security agreement. The collateral covered will be the personal property of the client involved in the action (whether it be money, possessions, or some other ownership interest). It is important that the attorney review the laws pertaining to security agreements to ensure that collateral is properly described in the UCC financing statement.
D. Execution
After the attorney has perfected the necessary liens in the client’s property interests, the attorney is in a good position relative to creditors who file or perfect later. Under Minn. Stat. § 336.9-322, conflicting perfected security interests rank by time of filing or perfection, so perfection fixes the attorney’s place in line as of the filing date; it does not lift the attorney above a creditor who filed or perfected earlier. If the client has not paid their bill, or has only partially or inconsistently paid their bill, the attorney cannot simply repossess the client’s property. The attorney holding a statutory lien under Minn. Stat. § 481.13 must first apply to the court to establish the lien and its amount and obtain judgment under subd. 1(c), as described in Section I above. Chapter 551 of the Minnesota Statutes, titled “Attorney’s Summary Executions,” is not that route: Minn. Stat. § 551.01 lets an attorney for a judgment creditor who already holds a money judgment and a writ of execution levy on indebtedness a third party owes the judgment debtor, such as funds at a bank (§ 551.05) or an employer’s owed earnings (§ 551.06), with no more than $10,000 recoverable by a single execution notice. It does not reach a client’s own property and does not authorize repossession of collateral; under Minn. Stat. § 551.04, subd. 2, a levy attaches only nonexempt earnings and other nonexempt money or indebtedness owed by the third party served. Repossessing collateral is instead a secured party’s remedy under UCC Article 9, available only where the client has signed a consensual security agreement of the kind described in Section B, and even then only after the attorney has satisfied Rule 1.8(a) and properly perfected the security interest.
III. CONCLUSION
The law does not favor those who neglect to pay their bills. Quite the contrary, the law provides numerous provisions that allow those who are owed money the ability to take steps to obtain what is owed to them. These procedures can be quite effective, and are usually not pleasant for the debtor. The individuals who typically know these procedures best are the attorneys themselves. It should come as no surprise, then, that choosing to not pay your attorney will, in the end, not bode well for you. Therefore, the take-home message remains the same: pay your bills!
