Elam v. Monarch Life Ins. Co.

• Decision Date: 08 November 1991
• Docket Number: No. 90-1510.,90-1510.
• Citation: 598 A.2d 1167
• Parties: Martha S. ELAM, Appellant, v. MONARCH LIFE INSURANCE COMPANY, Appellee.
• Court: D.C. Court of Appeals

598 A.2d 1167

Martha S. ELAM, Appellant, v. MONARCH LIFE INSURANCE COMPANY, Appellee.

No. 90-1510.

District of Columbia Court of Appeals.

Argued June 25, 1991.

Decided November 8, 1991.

Richard S. Schrager, with whom Howard M. Rensin was on the brief, for appellant.

Loretta J. Garcia, with whom James L. Nolan was on the brief, for appellee.

Before TERRY, FARRELL and WAGNER, Associate Judges.

FARRELL, Associate Judge:

In this certification of questions of law pursuant to D.C.Code § 11-723 (1989), we are asked to decide the following two related questions regarding the nature of an attorney's charging lien under District of Columbia law arising from a contingent fee agreement between an attorney and client:¹

1. Under District of Columbia common law, does a contingent fee agreement between an attorney and his client which sets contingent compensation at "a sum equal to" a portion of any recovery on the client's cause of action create an attorney's charging lien in favor of the attorney?

2. Under District of Columbia common law, does a validly created attorney's charging lien attach to the proceeds of settlement when the settlement fund out of which the attorney seeks payment is within the possession or control of the court?²

Consistent with general principles of contract interpretation, we conclude that whether or not an attorney's charging lien has been created depends on the language and surrounding circumstances of the employment agreement. Consequently, we hold that an agreement providing for the client's payment of "a sum equal to 331/3% (1/3) of any sum I shall recover as the result of this accident" creates an attorney's lien on the funds recovered when, under the circumstances, it is reasonable to conclude that the parties looked to the recovered funds for payment. The present agreement satisfies that test. We also hold that, in general, a lien so created attaches when the fund comes into existence, whether by judgment or by settlement.

I.

Appellant Elam and her attorney, Howard M. Rensin, executed an employment contract for Rensin's services in regard to Elam's claim for damages against Sonya Steele.³ The agreement provided:

I, Martha Elam, the undersigned, hereby retain and employ HOWARD M. RENSIN, Attorney at Law to represent me in my claim for damages against Sonya Steele for injuries sustained on Nov. 13, 1985 at 3rd St. N.W.

I hereby agree to pay my attorney for his services, a sum equal to 331/3% (1/3) of any sum I shall recover as the result of this accident. I agree to reimburse my attorney for all out-of-pocket expenses including, but not limited to, filing fees, court costs, investigative fees, process serving fees, deposition costs and the like incidental with the handling of my case.

In the event nothing is recovered, my attorney shall receive nothing for his services.

In September 1987, Elam filed suit against Steele for damages in the United States District Court for the District of Columbia. On October 26, 1988, the parties agreed to settle the case. Under the settlement agreement, Steele's insurance company agreed to pay Elam $19,000 in exchange for Elam's promise to dismiss the lawsuit against Steele.

While the settlement was being consummated, appellee Monarch Life Insurance Company (Monarch) filed an action in the United States District Court for the District of Columbia to enforce a judgment Monarch had previously obtained against Elam,⁴ and the District Court issued a writ of attachment in judgment. This judgment was served on Steele's insurance company, which was holding Elam's $19,000 in proceeds from the settlement of the lawsuit against Steele. In response to Monarch's motion for condemnation, Elam asserted Rensin's attorney's charging lien on the proceeds of the lawsuit.⁵ The District Judge refused to recognize the attorney's lien on the funds and granted judgment in favor of Monarch.

On appeal to the United States Court of Appeals for the District of Columbia Circuit, Monarch argued that the terms of Elam's contingent fee contract with her attorney—providing for payment of a sum "equal to" a percentage of the recovery— failed to create a lien on the settlement proceeds in favor of the attorney. See Thurston v. Bullowa, 42 App.D.C. 18, cert. denied, 234 U.S. 756, 34 S.Ct. 674, 58 L.Ed. 1578 (1914); Annotation, Terms of Attorney's Contingent-Fee Contract as Creating an Equitable Lien in His Favor, 143 A.L.R. 204, 220 (1943) ("Ordinarily, where the language is, in substance, that the client will pay "an amount equal to" a specified percentage or fraction of the recovery, no lien is created"). Moreover, even if an attorney's lien exists in such circumstances, Monarch argued that it would attach only to judgment funds and not pre-judgment proceeds obtained under a settlement agreement. See Lyman v. Campbell, 87 U.S.App.D.C. 44, 46, 182 F.2d 700, 702 (1950).

In certifying these issues to this court, the United States Court of Appeals questioned the validity of Thurston in view of subsequent decisions recognizing valid liens under similar contingent fee agreements.⁶ The court also questioned the distinction, in deciding when an attorney's lien attaches, between funds recovered by judgment and funds recovered by settlement.

II.

Under the common law, an attorney has a nonpossessory lien to secure payment for services rendered in a particular case. 2 S. SPEISER, ATTORNEYS' FEES § 16.14, at 381 (1973).

The special or charging lien, as recognized by the common law, gives an attorney the right to recover his taxable costs, or his fees and money expended on behalf of his client, from a fund recovered by his aid, and the right to have the court interfere to prevent payment by the judgment debtor or the creditor in fraud of the attorney's right to it, and to prevent or set aside assignments or settlements made in fraud of his right.

Id.⁷ Once "the contracting party the client sufficiently indicates an intention to make some particular property or fund a security for a debt or other obligation," an equitable lien is created "on the property so indicated." De Winter v. Thomas, 34 App.D.C. 80, 84 (1909), cert. denied, 215 U.S. 609, 30 S.Ct. 411, 54 L.Ed. 347 (1910); see also Lindberg v. Humphrey, 53 App. D.C. 243, 289 F. 901 (1923), overruled on other grounds sub nom. Morgenthau v. Fidelity & Deposit Co., 68 App.D.C. 163, 166, 94 F.2d 632, 635 (1937); Annotation, Attorney's Contract for Contingent Fee as Amounting to an Equitable Assignment of Interest in Cause of Action, or Proceeds of Settlement Thereof, 124 A.L.R. 1508, 1509 (1940). The test is whether the parties "looked to the fund itself for payment, and did not rely upon the personal responsibility of the owner of the claim of which the fund was the result." De Winter, 34 App.D.C. at 84.

While it is not necessary that there be an outright legal assignment of the judgment to the attorney, it is indispensable that there exist between the client and his attorney an agreement from which the conclusion may reasonably be reached that they contracted with the understanding that the attorney's charges were to be paid out of the judgment recovered.

Pink v. Farrington, supra note 2, 67 App. D.C. at 316, 92 F.2d at 467 (emphasis added).

In the present case, the employment agreement "sufficiently indicates an intention" by Elam, De Winter, supra, to create a lien in favor of the attorney on the funds received in her claim for damages against Steele. Elam promised to pay her lawyer "a sum equal to" one third of her ultimate recovery. She agreed to pay him, however, only "in the event" of recovery since if nothing was recovered on the claim, the contract provided that the "attorney shall receive nothing for his services." Implicit in the agreement, therefore, was the attorney's understanding that he would look to the fund recovered for payment and not to the personal resources of Elam. Applying Pink v. Farrington, supra, the "conclusion may reasonably be reached that the parties contracted with the understanding that the attorney's charges were to be paid out of the judgment recovered." See also In re Brass Kettle Restaurant, Inc., 790 F.2d 574, 576 (7th Cir.1986) (contingent fee agreement for "Forty Percent (40%) of any recovery made in Brass Kettle's behalf" created enforceable lien under Illinois common law).

It is true, as Monarch argues, that in Thurston v. Bullowa, supra, the court of appeals rejected a claim that "a contract for an amount equivalent to a certain proportion of the amount recovered" created an attorney's lien against the fund recovered. 42 App.D.C. at 23. If the law had stood still since Thurston, a division of this court might well be impelled to the same result in construing the present agreement to pay "a sum equal to" a percentage of the recovery. See M.A.P. v. Ryan, 285 A.2d 310 (D.C.1971). But, as the Circuit Court recognized in this case, as early as Kellogg v. Winchell, supra, decided seven years after Thurston, the court held identical language adequate to permit intervention by an attorney when the client sought to dismiss the suit filed at the client's behest. Under the contingent fee agreement, the attorney was to receive "a sum equal to 50 per cent of any amount obtained by his client, either directly or indirectly, through his efforts." Kellogg, 51 App.D.C. at 18, 273 F. at 746 (emphasis added). When the client withdrew the attorney's authority to proceed further, the court allowed the attorney to intervene on his own account, for "it was undoubtedly the intention of the parties that he should be permitted to prosecute the case to a final determination" and so earn his contingent fee. Id. at 19, 273 F. at 747. In Continental Casualty Co. v. Kelly, supra note 6, the court declared that "Kellogg ... determines the principle which should control," id. 70 App.D.C. at 322, 106 F.2d at 843, in holding that an agreement providing for a contingent fee of "331/3% out of any judgment" obtained against...