Indiana District Court Examines “Material Adverse Change” Default Provision
Unreleased Line of Credit Mortgage Lien Negated By Payoff

Indiana Attorney Fee Liens In Commercial Cases

Can attorneys for parties to Indiana commercial foreclosure actions file liens for unpaid legal fees?  Miller v. Up In Smoke, 2011 U.S. Dist. LEXIS 80684 (N.D. Ind. 2011) (rt click/save target as for pdf) sheds light on the matter. 

Context.  In Miller, the Court ultimately appointed a receiver to oversee the management and operation of a defendant company.  Attorneys representing the defendants contested the receivership proceedings.  The attorneys did not get paid and filed notices of attorney fee liens in the case.  The attorneys then filed a motion to enforce their liens.  The receiver opposed the motion, resulting in the Miller opinion. 

Retaining lien.  Indiana law recognizes only two kinds of attorney’s liens.  The first is a “retaining” lien, which prevents a client from utilizing materials held by the attorney until the client either settles the fee dispute or posts security for payment.  The existence of a retaining lien depends upon the attorney’s possession “of money, property or papers of the client.”  Basically, attorneys can retain their clients’ stuff until they get paid.  As a practical matter, this lien acts as a leverage tool, but is unlike a more traditional lien that can be foreclosed. 

Charging lien - generally.  The second and potentially more meaningful lien is a “charging” lien for “services rendered in a particular cause of action or proceeding to secure compensation for obtaining a judgment, award or decree on the client’s behalf.”  Indiana case law says that an attorney “has a lien for his costs upon a fund recovered by his aid, paramount to that of the persons interested in the fund or those claiming as their creditors.”  This lien is based upon the idea that “the client should not be allowed to appropriate the whole of the judgment without paying for the services of the attorney who obtained it.”  The Court explained that “an attorney’s charging lien attaches to the fruits of the attorney’s skill and labor . . . [but] if the attorney’s work produces no fruit, then the attorney has no lien.” 

Charging lien - statute.  Indiana’s charging lien is statutory:  Ind. Code § 33-43-4.  The statute provides that an attorney “may hold a lien for the attorneys’ fees on a judgment rendered in favor of a person employing the attorney to obtain the judgment.”  The lien arises if the attorney files a written notice on the docket of an intention to hold a lien on the judgment, along with the amount of the claim, no later than sixty days after the date of the entry of judgment.  I.C. § 33-43-4-2.  I.C. § 33-43-4-1 expressly states that “no lien can be acquired before judgment . . ..”  Indiana law strictly enforces this “judgment” requirement.

No judgment = no charging lien.  The attorney fee claim in Miller was an alleged charging lien.  But the services of the attorneys did not produce a “fund” upon which they sought to impose the lien.  The alleged fund was the receivership estate (property of) the defendant company.  The attorneys’ efforts, however, did not secure or create the receivership estate.  If anyone deserved a lien, it would be the receiver and the receiver’s counsel, not the counsel of the defendants, who resisted the appointment of the receiver. 

Lender’s counsel.  Miller tells us that lender’s counsel can file a charging lien against a judgment that counsel secures for its client.  Miller even hints that lender’s counsel could file a lien on real estate acquired by the client at a sheriff’s sale.  The point is that plaintiff lenders can be exposed to attorney/charging liens if they don’t pay their lawyers.  Alas, lenders typically possess both the willingness and capacity to pay. 

Borrower’s counsel.  Unlike lenders, defendant borrowers and guarantors come to attorneys already in financial distress.  Getting paid can be a challenge, no question.  As stated in Miller, very rarely can defense counsel assert a charging lien.  Essentially, counsel must obtain an affirmative judgment in favor of their client, such as in a case of set-off or counterclaim.  (The Court cited to a Georgia case for the proposition that a defense attorney could obtain a lien on a client’s land if he successfully defended an adverse claim on such land.)  The bottom line is that, even assuming the defendant won the case, there still must be a judgment or fund to which a defense counsel’s charging lien could attach.  This is why, in the vast majority of cases, defense counsel at best may have a retaining lien on the client’s money, property or papers (usually, the file and attorney work product), but this lien is not particularly valuable.  Hence the need for up-front retainers.