Cal. State Bar Formal Opn. No. 2009-177 — Jointly Payable Settlement Check

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THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON
PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 2009-177
ISSUE: In what manner may an attorney maintain her rights in a charging lien when her former
client demands that the attorney endorse a settlement check jointly payable to the client
and his current and former attorneys without violating the requirement of rule 4-100 of
the California Rules of Professional Conduct that the attorney promptly pay or deliver
funds to which the client is entitled?
DIGEST: When responding to a request to endorse a settlement check made jointly payable to a
client and his or her current and former attorneys where the former attorney has asserted
a valid lien on the settlement proceeds, the former attorney must take prompt steps to find
a reasonable method or methods of delivering the undisputed portion of the proceeds to
which the client is entitled. The former attorney does not violate rule 4-100 by refusing
to use a method that would extinguish the attorney’s charging lien, but has a duty to
consult governing legal authorities and make a reasonable determination of the amount to
which he or she is entitled under the circumstances. If the client does not agree to
proposed reasonable methods for delivering the undisputed portion or does not agree with
the former attorney’s determination of the amount of the proceeds that undisputedly
belong to the client, the attorney must promptly seek resolution of the fee dispute through
arbitration or judicial determination, as appropriate.
AUTHORITIES
INTERPRETED: Rules 3-700 and 4-100 of the Rules of Professional Conduct of the State Bar of
California.
Commercial Code section 3110(d).
Civil Code section 2913.
STATEMENT OF FACTS
Client retained Attorney A to represent Client in a personal injury action against a construction company. The
retainer agreement between Attorney A and Client provided for a contingency fee of 35 percent of any recovery
obtained by Client through judgment, settlement or other recovery and specifically included a legally valid charging
lien in favor of Attorney A upon the proceeds of Client’s prospective recovery. Upon receiving the signed retainer
agreement, Attorney A commenced work on the matter. After two years of active litigation, Client discharged
Attorney A and retained Attorney B. Attorney A filed a notice of lien in the litigation. The litigation was resolved
several months later by settlement when the opposing party sent Attorney B a check made out to “Client, Attorney
A, and Attorney B.” Client demanded that Attorney A endorse the check. Fearing that endorsing the check in that
manner would forfeit certain legal rights she had pursuant to the lien, Attorney A declined to endorse the check
under those conditions, but did offer to take prompt and reasonable steps so that the portion of the settlement check
that undisputedly belonged to Client, as determined in accordance with applicable governing authorities concerning
the reasonable value of the services Attorney A had rendered at the time of discharge, could be immediately released
to Client. Client refused to agree to the steps Attorney A proposed. Consequently, Attorney A initiated an
independent action to determine the amount of fees to which she is entitled and provided timely and proper notice to
Client of his right to arbitration.

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DISCUSSION
1. Rule 4-100 of the California Rules of Professional Conduct1/ Obligates an Attorney To Promptly Pay
or Deliver Any Funds or Property the Client Is Entitled To Receive.
The dilemma faced by Attorney A is created when the settlement check is jointly made payable to Client, Attorney
A and Attorney B. Attorney A does not want to endorse the check if it will forfeit her lien, but, alternatively, does
not want to take any action that improperly delays Client’s receipt of the settlement proceeds to which Client is
entitled.
Rule 4-100(B)(4) provides that an attorney shall “[p]romptly pay or deliver, as requested by the client, any funds,
securities, or other properties in the possession of the member which the client is entitled to receive.” Thus, where
an attorney has asserted no lien rights over the settlement proceeds and no valid rights to any portion of such
proceeds exist in favor of any third parties, the attorney must promptly pay or deliver all the settlement proceeds to
the client. (In the Matter of Kaplan (Rev. Dept. 1993) 2 Cal. State Bar Ct. Rptr. 509 [attorney who was not
protecting lien rights violated rule 4-100 by delaying and impeding his own endorsement of the client’s settlement
draft].) Where the attorney is asserting lien rights against less than all of the settlement proceeds, the attorney
nonetheless has a duty to promptly take reasonable steps to pay or deliver to the client the portion of the proceeds
that are not in dispute. (Rule 4-100(B)(4); In the Matter of Feldsott (Rev. Dept. 1997) 3 Cal. State Bar Ct. Rptr. 754
[an attorney with a charging lien did not violate rule 4-100 where attorney offered reasonable options to release the
undisputed portion of the proceeds to the client, but client refused]; Fletcher v. Davis (2004) 33 Cal.4th 61, 69 [14
Cal.Rptr.3d 58] [stating that, when the proceeds have been deposited into a client trust account, “the attorney may
withhold an amount equivalent to the disputed portion”].)
Under current California law, if Attorney A were to endorse the settlement check as Client has requested, Attorney
A would forfeit her legal rights under the charging lien. (Feldsott, supra, 3 Cal. State Bar Ct. Rptr. at pp. 757-758,
citing Civ. Code, § 2913.)2/ Section 2913 of the California Civil Code provides that “[t]he voluntary restoration of
property to its owner by the holder of a lien thereon dependent upon possession extinguishes the lien as to such
property, unless otherwise agreed by the parties, and extinguishes it, notwithstanding any such agreement, as to
creditors of the owner and persons, subsequently acquiring a title to the property, or a lien thereon, in good faith, and
for value.” In circumstances like those presented by the fact pattern considered herein, namely, when the settlement
check is made payable jointly to the Client, Attorney A (the former attorney) and Attorney B (the successor
attorney), the former attorney may refuse to endorse the check in order to preserve the charging lien until a
resolution is reached. (Fletcher v. Davis, supra, 33 Cal.4 th at p. 69; Feldsott, supra, 3 Cal. State Bar Ct. Rptr. at p.
758.) Because rule 4-100 requires prompt payment or delivery of only those funds “which the client is entitled to
receive” (emphasis added), the Committee is of the opinion that the attorney need not endorse the check because the
check includes certain funds that in some part are owed to the attorney and to which the client is not entitled. “The
unfortunate effect . . . is that ‘[t]he settlement proceeds will thus be tied up until everyone involved can agree on
how the money should be divided . . . or until one or the other brings an independent action for declaratory relief.’”
(Carroll v. Interstate Brands Corp. (2002) 99 Cal.App.4th 1168, 1176 [121 Cal.Rptr.2d 532], internal citation
omitted.)3/
As a result, the attorney must fulfill his or her duty to promptly find other reasonable methods of delivering the
undisputed portion to the client. Indeed, where the client requests that the attorney disburse the funds to the client
and the attorney claims an interest in such funds, “the attorney violates rule 4-100(B)(4) if he or she does not
1/ Unless otherwise indicated, all rule references are to the Rules of Professional Conduct of the State Bar of
California.
2/ In accordance with section 3110(d) of the California Commercial Code, “[i]f an instrument is payable to two or
more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all
of them.”
3/ An independent action is often required because the court in the underlying action may lack jurisdiction to
determine the validity of the charging lien where the attorney is neither a party nor an intervenor in the action.
(Carroll, supra, 99 Cal.App.4th at pp. 1176-1177.)

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promptly take appropriate, substantive steps to resolve the dispute in order to disburse the funds.” (In the Matter of
Kroff (Rev. Dept. 1998) 3 Cal. State Bar Ct. Rptr. 838.) Attorney A may not simply sit back and wait for such a
resolution. Where the attorney and client cannot reach agreement on disbursement of the funds, and the client has
requested payment or delivery of those funds, the attorney has an affirmative obligation to seek arbitration or a
judicial determination without delay in order to comply with rule 4-100(B)(4). (L.A. County Bar Assn. Formal Opn.
No. 438.)
Rule 4-100 does not suggest how an attorney may comply with the rule when there is a lien dispute as to a portion of
the proceeds from the underlying matter. In Feldsott, supra, the attorney who was asserting his lien acted
reasonably in offering to place the disputed funds in his trust account or in a separate blocked account requiring
signatures from the attorney and the client, among other reasonable alternatives, and both of those alternatives were
held not to be in violation of the rule. (3 Cal. State Bar Ct. Rptr. at p. 757.) Alternatively, in Kroff, supra, the
attorney participated in a fee arbitration requested by the clients and promptly abided by the arbitration award. The
Review Department of the State Bar Court also determined that such conduct did not violate rule 4-100(B)(4). (3
Cal. State Bar Ct. Rptr. at p. 854.)
The Committee is of the opinion that agreeing to place the settlement proceeds in the successor counsel’s account,
pursuant to an express agreement to hold the disputed portion of the funds in trust for former counsel pending
resolution of the lien dispute, also would be reasonable where the successor counsel has notice of a valid lien in
favor of the former attorney and the dispute over the amount to which the former attorney is entitled. The successor
counsel assumes a fiduciary obligation to the former attorney when agreeing to hold such funds, and cannot favor
his or her client by converting the property to the client’s use pending resolution of the competing claims to the
funds. (See: Virtanen v. O’Connell (2006) 140 Cal.App.4th 688, 693, 702-703 [44 Cal.Rptr.3d 702]; Cal. State Bar
Formal Opn. No. 2008-175; but see In the Matter of Respondent H (Rev. Dept. 1992) 2 Cal. State Bar Ct. Rptr. 234
[rejecting argument that attorney owes fiduciary duties to hold in trust funds that third parties claim to have an
interest in, when no evidence exists that the funds are subject to a proper lien by the prior attorney].)
2. An Attorney May Decline To Promptly Pay or Deliver Only That Portion of the Settlement Proceeds
to Which the Attorney Is Reasonably Entitled under a Valid Charging Lien.
The Review Department of the State Bar Court determined in Feldsott, supra, that, in a situation such as the one
between Attorney A and Client, the former attorney “continue[s] to owe [the client] a fiduciary duty of utmost good
faith and fair dealing with respect to, at least, the subject matter of [the attorney’s] prior representation of [the
client], including [the attorney’s] express lien for his attorney’s fees.” (3 Cal. State Bar Ct. Rptr. at p. 757; see also
Rest.3d, Law Governing Lawyers § 33.) In that case, the State Bar Court reviewed a determination that the
respondent attorney did not violate rule 4-100(B)(4) by refusing to endorse a draft settlement check jointly payable
to the client, the respondent attorney and the client’s current attorney when the funds were subject to a charging lien
in favor of the respondent attorney and the client continued to dispute the attorney’s right to the fees. The client had
signed a retainer agreement with the respondent attorney to represent him in litigation for a flat fee of $2,000 and 25
percent of any gross recovery. The agreement also granted the attorney a lien on any recovery in favor of the client.
Due to attorney-client relationship problems and unspecified ethical issues, the attorney moved for a continuance of
the trial date and permission to withdraw as counsel shortly before trial. Although the motions were denied initially,
the client obtained substitution counsel at a later date after an unrelated four-month continuance was ordered. The
respondent attorney filed a notice of lien in the action for $5,000, which was substantially less than the attorney
would have been able to charge if the engagement had been based on an hourly arrangement only. The underlying
lawsuit was settled and the opposing party issued a check payable to the client and both his former and current
attorneys, which the client and his new attorney asked the respondent attorney to endorse. The respondent attorney
offered to accept $2,000, and when the client refused, the attorney offered multiple suggestions for dealing with the
funds or participating in binding arbitration. Although the client agreed to the suggestion of placing $5,000 of the
settlement funds in a blocked account, he did not follow through on the agreement and, instead, filed a malpractice
action against the attorney. The attorney filed a cross-complaint to recover the reasonable value of his services. In
response to the State Bar’s contention that the attorney was required by rule 4-100(B)(4) to endorse the check and
could only pursue fees through his cross-complaint, the Review Department disagreed:
Respondent affirmatively demonstrated good faith by asserting and perfecting his lien only on
$5,000 out of the full $26,500 settlement proceeds. His duty of good faith and fair dealing did not

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require that he abandon his lawfully perfected lien by endorsing the $26,500 settlement draft when
it was under [the client’s] control. Under Civil Code section 2913, had respondent endorsed the
settlement draft when it was under [the client’s] control as the State Bar contends he was required
to do, respondent’s lien would have been immediately extinguished as to [the client’s] creditors
and thereafter subject to extinguishment if [the client] spent the money.
(3 Cal. State Bar Ct. Rptr. at pp. 757-758.)
Consequently, Attorney A must make a reasonable determination of the amount of fees to which she is entitled
under the lien and promptly offer reasonable suggestions for the disbursement or release of any and all remaining
funds belonging to Client. An attorney’s duty under rule 4-100(B)(4) to pay or deliver any funds which the former
client is entitled to receive is not extinguished by the termination of the attorney-client relationship.4/
A single rule does not exist to determine in all cases the fees to which an attorney is entitled, if any, after
withdrawing or being discharged from a matter. (See Vapnek, et al., “California Practice Guide: Professional
Responsibility” (TRG 2006), section 5:1030, et seq.) The amount of the funds in dispute in such situations may turn
on several factors, including: whether the attorney fully or partially performed the agreement with the client (see,
e.g., Fracasse v. Brent (1972) 6 Cal.3d 784, 790-791 [100 Cal.Rptr. 385]); whether the attorney was discharged or
withdrew, whether withdrawal was justifiable or not (see, e.g., Hensel v. Cohen (1984) 155 Cal.App.3d 563, 568-
569 [202 Cal.Rptr. 85]); and other factors, such as the reasonable value of the services, taking into account the
hourly or contingent nature of the fee agreement (see, e.g., Cazares v. Saenz (1989) 208 Cal.App.3d 279, 287 [256
Cal.Rptr. 209]), and the availability of contractual pre-judgment interest (Civ. Code, § 3287; see, e.g., Fitzsimmons
v. Jackson (Bankr. 9 th Cir. 1985) 51 B.R. 600, 612-613).
In addition, the legal procedures for establishing the amount the attorney is entitled to receive and for enforcing the
lien vary depending on the circumstances. In many instances where a contractual lien for attorneys’ fees is
contested, an independent action by the attorney against the client must be used to establish the amount of the lien
and to enforce it. (See, e.g., Valenta v. Regents of the Univ. of Cal. (1991) 231 Cal.App.3d 1465, 1470 [282
Cal.Rptr. 812]; Hansen v. Jacobsen (1986) 186 Cal.App.3d 350, 356 [230 Cal.Rptr. 580]; Bandy v. Mount Diablo
Unified School Dist. (1976) 56 Cal.App.3d 230, 234-235 [126 Cal.Rptr. 890].) In certain types of actions, the court
hearing the underlying matter has jurisdiction to determine the validity of the claim and a reasonable amount to be
paid to the attorneys. (See, e.g., Padilla v. McClellan (2001) 93 Cal.App.4 th 1100, 1104-1106 [113 Cal.Rptr.2d
680]; Curtis v. Fagan (2000) 82 Cal.App.4 th 270, 278-280 [98 Cal.Rptr.2d 84].) In some circumstances, mandatory
fee arbitration may be pursued (Bus. & Prof. Code, § 6200 et seq.; State Bar Rules of Proc. for Fee Arbitrations,
Rules 1.0 et seq.; see Hansen, supra, 186 Cal.App.3d at p. 356, fn. 5 [“The discharged attorney is not required to
comply with the procedures set out in Business and Professions Code sections 6200-6206 for fee arbitration until his
or her independent action to establish the amount of the fees is commenced.”]), or the retainer agreement with the
client may provide for an alternative form of arbitration (see: Schatz v. Allen Matkins Leck Gamble & Mallory LLP
(2009) 45 Cal.4th 557, 571-575 [87 Cal.Rptr. 3d 700, 710-714]; Aguilar v. Lerner (2004) 32 Cal.4th 974, 987-990
[12 Cal.Rptr.3d 287]).
In light of the different considerations applicable in any individual case, the attorney has a duty to consult governing
legal authorities and make a reasonable determination of the amount to which he or she is entitled under the
circumstances.5/ If the client does not agree with that determination, the attorney should seek prompt resolution
through arbitration or judicial determination, as appropriate.
Here, it is the Committee’s opinion that Attorney A did not violate rule 4-100(B)(4) by refusing to endorse the check
because her charging lien was valid and she reasonably believed she was entitled to a portion of the proceeds, she
4/ Termination of the attorney-client relationship itself triggers the duty to promptly return unearned fees that are
paid in advance under rule 3-700(D).
5/ In Feldsott, supra, the State Bar Court used the term “fiduciary duty” to describe the duty of utmost good faith and
fair dealing in the context of dealing with an express lien for attorneys’ fees. Although the duty of good faith and
fair dealing is typically understood as contractual in nature, attorneys should be aware that the State Bar Court may
view such a duty as arising from the fiduciary relationship.

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suggested reasonable alternatives to enable Client to promptly receive those funds to which he was undisputedly
entitled, and she initiated proceedings to promptly resolve the issue while providing timely and proper notice to
Client of his right to arbitration. While attempting to informally resolve the matter with Client, Attorney A also
made a reasonable determination concerning the amount of funds she would be entitled to receive under the
circumstances so that the undisputed amount could be delivered to Client.
CONCLUSION
When a former attorney has valid lien rights in settlement proceeds, that attorney will not violate rule 4-100 by
taking prompt and reasonable action to resolve a dispute with his or her former client over the amount which the
attorney is entitled to receive, and any undisputed amount to which the client is entitled is promptly disbursed
through a method upon which the attorney and client agree. In light of the different considerations applicable in any
individual case, the attorney has a duty to consult governing legal authorities and make a reasonable determination
of the amount to which he or she is entitled under the circumstances. If no agreement can be reached with the
former client on these issues, the attorney has an affirmative obligation to promptly seek resolution of the dispute
through arbitration or judicial determination, as appropriate. However, the attorney is not required to endorse a
settlement check that is jointly payable to him or her, the client and successor counsel pending resolution of the
dispute, because doing so would extinguish the attorney’s charging lien under current California law.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of
California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors,
any persons, or tribunals charged with regulatory responsibilities, or any member of the State Bar.

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