The Second District holds that clients cannot avoid their financial obligations by structuring a settlement that allows them to avoid a contractual lien for attorney fees.
Frank Martini and Satanand Sharma (the “Martini parties”) retained James Little to defend an action against them by Amber Hotel Company. The attorney-fee contract provided Little with a lien on sums recovered. The trial court awarded the Martini parties attorney fees and costs. They subsequently entered into a settlement agreement with Amber in which they waived their claims in exchange for cash.
Little sued the Martini parties for breach of contract and quantum meruit, and Amber for intentional interference with contract, constructive trust, and conversion. The jury found that Amber had interfered with the contract between Little and the Martini parties. Amber challenged the judgment, contending that a contractual attorney’s lien does not oblige the client to refrain from entering into a settlement that nullifies the attorney’s lien.
The Court of Appeal rejected Amber’s contention that the Martini parties’ conduct in settling the underlying action did not breach Little’s retainer agreement or improperly interfere with his lien. Little’s lien had attached to the recovery by the time of the settlement because the court had ordered the attorney fee award and it had not been appealed, vacated, or modified. Thus, the Martini parties had an obligation to Little arising out of their attorney-fee agreement. They breached that obligation when they settled the action, appropriated the award, and did not pay for the services of their attorney.
The Court also rejected Amber’s argument that the Martini parties had a right to settle the action in any manner they chose, even if the settlement prevented Little’s recovery under the lien. Fee agreements containing reasonable limitations on the client’s authority to settle the action are enforceable. Moreover, the fee agreement did not transfer control of the action from the Martini parties to Little or require his consent for settlement of that action. The agreement obligated the Martini parties to honor their contractual duties to Little concerning his lien right to any attorney fee award made by the court.
Comment: The Court’s decision in this case avoids what would have been an unfair result. A client cannot avoid a lien by settling with an adversary not privy to the attorney-client agreement.