Legal Ethics Opinion #1591

Client Funds--Trust Accounts: Attorney's Common Law Possessory
Lien On Escrowed Funds

You have presented a hypothetical situation in which Attorney was
retained by Client as the third counsel to represent him in his
domestic relations case. There had been some problems with the
payment of fees by Client to prior counsel, as a result of which,
Prior Counsel had filed an improper attorney's lien against
Client.  You indicate that Attorney wrote to Prior Counsel,
informing him that no lien of the type exerted by Prior Counsel
exists in Virginia.  Prior Counsel's lien against Client was
never enforced.

You further indicate that Client and his wife received certain
funds representing proceeds of the sale of a jointly owned
property which were deposited in an escrow account with Attorney
and Opposing Counsel as escrow agents.  The funds were to remain
in escrow pending the outcome of the litigation and a final
disposition of the marital estate.  On the motion of Client, and
over the objection of Wife, the circuit court ordered some funds
released to pay for joint mortgage obligations of the parties so
that the parties' property would not be foreclosed.

You advise that Wife later signed an agreement with Client
resolving all remaining issues in the case and agreeing to
release all of the escrow funds to Client.  Four days later, Wife
revealed that she had filed a bankruptcy petition prior to the
signing of the agreement in order to stop the foreclosure of the
parties' various properties; that she was in bankruptcy when the
parties signed the agreement; and that as a result of the
automatic stay of the bankruptcy court, the funds could not be
released to Client.

You further indicate that the agreement was not approved by the
bankruptcy court which did, however, grant the state court a
lift-stay with respect to the pending domestic relations action.
Over the objection of Wife, the state court granted Client an
equitable distribution award consistent with the parties'
agreement, thus ordering the escrow funds to be released to
Client. The bankruptcy court allowed for the enforcement of the
award, resulting in a dismissal of Wife's bankruptcy petition.

The facts presented also indicate that Client has been making
monthly payments, ranging from $l,000 to $3,000 per month, to
Attorney on account for legal services rendered.  As a result of
the protracted and intense litigation in this case, Client has
fallen behind in his monthly payments to Attorney and is in debt
to Attorney for more than $30,000.  This amount is now
outstanding.  Client does not dispute the reasonableness of these
fees and has even testified under oath that he believes the fees
to be reasonable.  In a phone conversation with Attorney's office
manager, Client stated that Attorney is aware that he would be
getting paid out of the escrow funds when these funds were
released.  Client retracted this statement when confronted by
Attorney and told Attorney that he was planning to pay over a
period of time.

Finally, you indicate that the escrow funds have been determined
to be the sole property of Client and have been released to
Attorney by the escrow agents (Attorney, Client, and previous
Opposing Counsel) to be delivered to Client.  Attorney would like
to withdraw from the case and exert a common law attorney's
possessory lien on a portion of these funds representing what is
owed to him by Client.  

You have asked the committee to opine whether, under the facts of
the inquiry, Attorney can exert a common law possessory
attorney's lien on that portion of the released escrow funds that
represent the amount of fees owed to him.

The appropriate and controlling Disciplinary Rules related to
your inquiry are DR 2-108(D) which states that upon termination
of representation, a lawyer shall take reasonable steps for the
continued protection of a client's interests, including giving
reasonable notice to the client, allowing time for employment of
other counsel, delivering all papers and property to which the
client is entitled, and refunding any advance payment of fee that
has not been earned; DR 9-102(B)(1) which provides that a lawyer
shall promptly notify a client of the receipt of his funds,
securities, or other properties; and DR 9-102(B)(4) which states
that a lawyer shall promptly pay or deliver to the client or
another as requested by such person the funds, securities, or
other properties in the possession of the lawyer which such
person is entitled to receive.
The committee has previously opined that, under certain
circumstances, it is not improper for a firm to maintain a lien
to secure payment of fees provided that the client has refused to
pay the firm's fees.  See LEO #996.

In the facts you present, the committee opines that, assuming
there is a lien permitted by law, it is not per se improper,
under DR 9-102(B)(1), for Attorney to assert a common law
possessory lien, provided that client is promptly notified of the
release of the escrowed funds and that he immediately receives
the excess portion of the funds along with a full accounting of
the funds upon which Attorney is asserting the lien.  The
committee cautions that the determination of what can be done
with the funds once the lien is asserted raises a legal question
beyond the committee's purview.  See DR 9-l02(A)(2) and DR 9-
l02(B)(4). The committee believes that since termination of
representation will be simultaneous with termination of the
litigation, client's interests will not, under DR 2-108(D), be
negatively impacted by the assertion of the lien.  See LEO #1471.
Committee Opinion
June 14, 1994