Originally published in the New Jersey Family Lawyer, Vol. 35, No. 6/June 2015
The Ethical Labyrinth Facing the Matrimonial Attorney in the Collection of Fees
by Michael A. Weinberg and Marla Marinucci
The collection of fees by matrimonial attorneys in the state of New Jersey is among the more challenging areas of matrimonial ethics. The failure of an attorney to strictly adhere to the precise procedural requirements with regard to collection of fees can result in disciplinary action.
New Jersey Court Rule 5:3-5(b), entitled “Limitation of Retainer Agreements,” provides in part:
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During the period of the representation, an attorney shall not take or hold a security interest, mortgage, or other lien on the client’s property interests to assure payment of the fee. This Rule shall not, however, prohibit an attorney from taking a security interest in the property of a former client after the conclusion of the matter for which the attorney was retained, provided the requirements of RPC 1.8(a) shall have been satisfied. Nor shall the retainer agreement include a provision for a non-refundable retainer….
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Similarly, RPC 1.8(a) specifically disallows an attorney from entering into a business transaction with a client or knowingly acquiring "an ownership, possessory, security or other pecuniary interest adverse to a client." While there is an exception to RPC 1.8(a), it is not relevant for purposes of this article.
RPC 1.8(i) further provides that an attorney "shall not acquire a proprietary interest in the cause of action nor subject matter of litigation the lawyer is conducting for a client, except that the lawyer may: (1) acquire a lien granted by law to secure the lawyer's fee or expenses, (2) contract with a client for a reasonable contingent fee in a civil case."
The interplay of Rule 5:3-5(b) and RPC 1.8 was addressed in Van Horn v. Van Horn.1 In Van Horn, the appellate court was called upon to decide, among other things, whether an attorney who still actively represented his client was permitted to obtain a mortgage on the client’s property as security for fees owed to the attorney.2 In Van Horn¸ the parties' marriage was dissolved in a dual final judgment of divorce dated June 30, 2005.3 An amended judgment of divorce resolving the parties' claims to alimony, child support, equitable distribution and other issues was entered by the court on Dec. 9, 2005.4 Thereafter, on Dec. 27, 2005, plaintiff's counsel filed a notice of motion in aid of litigant's rights and for reconsideration of a portion of the amended judgment of divorce that denied the plaintiff's application for counsel fees, and sought other relief.5 While this motion was pending, the plaintiff executed a mortgage against his home in favor of his attorney on Feb. 13, 2006.6 In the mortgage document, the plaintiff stated: "In return for legal fees that I owe, I promise to pay Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00)…in accordance with the terms of a Mortgage Note dated February 13, 2006."7
Following the entry of the trial court's four post-judgment orders on March 10, 2006, the defendant filed a notice of appeal on March 30, 2006.8 The plaintiff, through his counsel, who now held a security interest in the plaintiff’s home, filed a cross-appeal on April 24, 2006.9 While the appeals were pending, plaintiff's counsel filed another motion with the trial court in aid of litigant's rights on behalf of the plaintiff on Feb. 7, 2007, seeking various forms of relief, including counsel fees.10 The defendant filed a cross motion requesting a stay of the plaintiff's motion pending the outcome of the appeals, and further sought an order disqualifying plaintiff's counsel from further representing the plaintiff in the case.11 The plaintiff opposed the cross motion and certified that he wished to have his attorney continue to represent him.12
On June 29, 2007, the trial court entered an order: 1) disqualifying the plaintiff’s attorney from continuing to represent him, finding that the attorney had violated Rule 5:3-5(b) by taking a security interest in the client's property before conclusion of the matter; 2) enforcing the amended judgment of divorce and ordered the defendant to pay $17,140 in counsel fees previously awarded to the plaintiff; and 3) denying all other relief.13
On review, the Appellate Division noted the comments to Rule 5:3-5(b) make clear that "not only must the representation have first terminated but also that the matter for which the attorney was retained must also have been concluded."14 The Appellate Division further noted that Rule 5:3-5(b) "has no enforcement mechanisms specified nor does it address standing to enforce the rule."15
In finding that a violation of Rule 5:3-5(b) had occurred, the Appellate Division explained that “a violation of the rule occurs if an attorney takes a security interest, mortgage or other lien on a client's property to assure payment of a fee during the period of representation."16 The court further cited Rule 1:11-3, which provides that an attorney's representation of a client terminates upon the expiration of the time for appeal from the final judgment or order entered therein. Specifically, the court determined that after the amended judgment of divorce was entered on Dec. 9, 2005, plaintiff’s counsel was required to represent the plaintiff for at least another 45 days.17 On Dec. 27, 2005,when the plaintiff, through his counsel, moved to enforce his rights under the judgment and for reconsideration, the time for appeal was tolled.18 It was during the time these motions were pending that plaintiff’s counsel secured the note and mortgage from the plaintiff.19
Based upon the foregoing, the Appellate Division in Van Horn concluded that a clear violation of Rule 5:3-5(b) occurred when the plaintiff's attorney took a note and mortgage on the plaintiff's home during the course of the representation, noting that the attorney represented the plaintiff until April 6, 2006, at which point the time to appeal had expired and the matter for which the attorney was retained concluded.20 However, after noting that neither Rule 5:3-5(b) nor RPC 1.8(a) require disqualification of an attorney where a violation occurs, the Appellate Division held:
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This leaves only the question of what remedy should there be for a violation of Rule 5:3-5(b) where the attorney took a security interest in the client's property while the action was still pending and the client was represented by the attorney. We have found no case considering the issue. However, it seems to us that the prohibition in Rule 5:3-5(b) should not trigger a more severe sanction that that afforded by RPC 1.8. As a result, we are thoroughly satisfied that disqualification [of plaintiff's attorney] was unjustified. At most, the Family Part judge should have required the discharge of the mortgage, which she could have ordered even over the objection of plaintiff in order to enforce the rule…21
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A far more problematic issue facing the matrimonial attorney involves the procedure for attempting to collect fees given the interplay between Rule 5:3-5(b) and Rule 1:20A-6, which prohibits an attorney from filing an action to recover a fee until after giving the client notice of the right to have a fee dispute submitted to the Fee Committee for adjudication. Rule 1:20A-6 provides:
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No lawsuit to recover a fee may be filed until the expiration of the 30 day period herein giving Pre-Action Notice to a client; however, this shall not prevent a lawyer from instituting any ancillary legal action. Pre-Action Notice shall be given in writing, which shall be sent by certified mail and regular mail to the last known address of the client, or, alternatively, hand delivered to the client, and which shall contain the name, address and telephone number of the current secretary of the Fee Committee in a district where the lawyer maintains an office. If unknown, the appropriate Fee Committee secretary listed in the most current New Jersey Lawyers Diary and Manual shall be sufficient. The notice shall specifically advise the client of the right to request fee arbitration and that the client should immediately call the secretary to request appropriate forms; the notice shall also state that if the client does not promptly communicate with the Fee Committee secretary and file the approved form of request for fee arbitration within 30 days after receiving pre-action notice by the lawyer, the client shall lose the right to initiate fee arbitration. The attorney's complaint shall allege the giving of the notice required by this rule or it shall be dismissed.
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In Mateo v. Mateo,22 a civil action, plaintiff's attorney did not file a complaint demanding payment of an attorney's fee.23 Instead, the attorney moved in the underlying action for an attorney's lien pursuant to N.J.S.A. 2A:13-5,24 which provides:
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After the filing of a complaint or third-party complaint or the service of a pleading containing a counterclaim or cross-claim, the attorney or counsellor at law, who shall appear in the cause for the party instituting the action or maintaining the third-party claim or counterclaim or cross-claim, shall have a lien for compensation, upon his client's action, cause of action, claim or counterclaim or cross-claim, which shall contain and attach to a verdict, report, decision, award, judgment or final order in his client's favor, and the proceeds thereof in whosesoever hands they may come. The lien shall not be affected by any settlement between the parties before or after judgment or final order, nor by the entry of satisfaction or cancellation of a judgment on the record. The court in which the action or other proceeding is pending, upon the petition of the attorney or counsellor at law, may determine and enforce the lien.
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The court found that this procedure "was not the proper way to establish the attorney's lien."25 In citing Rosenfeld v. Rosenfeld26 with approval, the court then held that "the Pre-Action Notice requirement applies to a petition to establish an attorney's lien as well as to a complaint for attorney's fees. In the absence of compliance with the Rule, such a petition must be dismissed."27
Thus, based upon the court's holding in Mateo28 and its reliance upon Rosenfeld,29 it would appear that even if an attorney is entitled to file a lis pendens against marital property to enforce a charging lien against the client in an equitable distribution action, the lis pendens stands on no different footing than the charging lien, and hence the pre-action notice required by RPC 1:20A-6 would be a prerequisite to the validity of the charging lien.
Typically, the charging lien arises when a discharged attorney seeks the imposition of the lien for compensation against the former client. However, at issue in In re Simon30 was whether, after being denied on his motion to be relieved, the attorney violated RPC 1.7(a)(2) when he filed suit to recover fees against the client, thereby knowingly creating an irreconcilable conflict of interest resulting in the court having no recourse but to relieve him as the client’s counsel due to the obvious conflict.31
In Simon, the attorney’s client faced murder charges.32 A significant pre-trial fee, plus expenses, had been incurred, with only a portion having been paid by the client's relatives who, along with the client, had signed Simon’s retainer agreement.33 With his fees still outstanding, and prior to the scheduling of the trial, Simon sent his client and his client's family four letters over the course of four months seeking payment.34 Each letter contained a warning that if payment arrangements were not made, Simon would seek to be relieved as counsel.35 In other correspondence to the family, Simon indicated he intended to file suit if payment was not forthcoming.36 Receiving no further payments, Simon filed a motion to be relieved as counsel, which was denied, and a trial date was scheduled for four months later.37 Simon appealed the trial court's decision.38
Shortly after his motion to be relieved was denied, on Aug. 29, 2008, Simon filed suit against his client and the client’s family to recover fees in the approximate amount of $75,000.39 On Sept. 23, 2008, after learning his client’s family had transferred their home to another family member for nominal consideration, Simon filed an amended complaint alleging fraudulent transfer of the home, the proceeds of which were supposed to be used to pay Simon’s fees based upon an earlier verbal representation made by the client’s brother to Simon.40 When the client learned of the lawsuit, he wrote the judge and requested another attorney. The court granted the application and entered an amended order relieving Simon as counsel, finding that in light of the lawsuit filed by Simon against his client, “any further representation of the defendant by [respondent] is impossible.”41
Simon was subsequently awarded $55,000 against the client's family members at fee arbitration.42 In its subsequent review of the matter, the court found a conflict of interest existed, as RPC 1.7(a) specifically prohibits an attorney from suing a present or existing client during active representation or seeking any remedy against the client.43 The court thus determined that "by filing suit against his client for unpaid fees while defending that client against murder charges, respondent violated RPC 1.7(a)(2) by placing himself in an adversarial relationship vis-à-vis his client and thus 'jeopardize[ing] his duty to represent [his client] with the utmost zeal.'"44 Additionally, the court found that Simon’s action in filing suit against his client after his motion to be relieved was denied, amounted to “self help” in order to force his own withdrawal from the matter.45 Specifically in that regard, the court stated, “By filing suit, respondent knowingly created an irreconcilable conflict of interest for that purpose, and that conduct cannot be tolerated.”46
Most recently, in the matter of In re Lord,47 at issue, among other things, was whether the plaintiff attorney's service of the pre-action notice to her clients while still representing them created a conflict of interest in violation of RPC 1.7(a)(2).
On March 29, 2012, while in court, the parties to the lawsuit executed a marked-up stipulation of settlement, with a final version to be circulated and executed at a later time. The stipulation of settlement required installment payments by the plaintiffs to the defendant/counterclaimant to be made over the course of 12 months, with the first installment payment being due on or before April 25, 2012.48
Thereafter, on April 16, 2012, plaintiff’s attorney sent her clients the pre-action notice required by Rule 1:20A-6, informing the plaintiffs of their right to fee arbitration.49 Nine days later, on April 25, 2012, plaintiff's attorney sent her clients correspondence reminding them that the first installment payment was due that day, and advising them that opposing counsel had advised the payment had not been received.50
The Disciplinary Review Board (DRB) rejected the argument of plaintiff's counsel that the representation was not "active," given that only "ministerial" items remained to be done at the time the April 16, 2012, pre-action letter was sent to the plaintiffs, and concluded that a violation of RPC 1.7(a)(2) had occurred.
RPC 1.7(a)(2) provides:
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Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
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(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer.51
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In finding that a violation of RPC 1.7(a)(2) had occurred, the DRB explained the plaintiffs were still "current" clients at the time the pre-action letter was sent and that plaintiff's counsel "still had legal tasks to perform for her clients, including the preparation and distribution of the final draft of the stipulation of settlement and the monitoring of the installment payments for the year to follow."52
RPC 1.7(a)(2) prohibits representation of a client if the representation involves a "concurrent conflict of interest." The DRB, in In re Lord, found the collection of legal fees is a "personal interest of the lawyer."53 In assessing what actions by the attorney constitute "collection" for purposes of RPC 1.7(a)(2), the DRB cited Simon v. Simon with approval, and posed the issue as "whether Simon applies to a case in which the attorney has only launched the first salvo—the required pre-action letter—in collecting a fee, but has not yet sued the client."54 In finding that the rationale in Simon supports the proposition that a pre-action letter to a current client creates a conflict of interest under RPC 1.7(a)(2), the DRB noted:
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Under R. 1:20A-6, an attorney may not sue the client for fees, without first sending a pre-action letter affording the client an opportunity to resolve the dispute through the fee arbitration process. That required letter is no less an indicator that the attorney is pursuing the collection of the fee than is an actual suit. In Simon, the parties were well past the fee arbitration stage. Therefore, the Court did not have to visit this question. Having said that, nothing in the Court's opinion suggests that sending a pre-action letter is any less litigious an act or that it would not signal the beginning of an adversarial relationship between the attorney and the client….55
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Based upon the foregoing, the DRB concluded that sending the pre-action letter to a current client creates a conflict of interest proscribed by RPC 1.7(a)(2).56
Conclusion
An attorney’s failure to abide by the applicable Rules of Court and Rules of Professional Conduct in the collection of fees can result in detrimental consequences. The court opinions discussed above—Van Horn, Simon, Mateo, and Rosenfeld—examine the appropriate and inappropriate process for collection of attorney’s fees, from the pre-action notice requirement as well as the interplay between the requisite Rules of Court and Rules of Professional Conduct. However, with regard to the In re Lord opinion, what impact there be on situations matrimonial lawyers encounter on a regular basis? For example, in a situation in which an attorney is finalizing a qualified domestic relations order (QDRO) after the time frame for representation has expired and unforeseen problems arise that prolong the process, is it now a violation of RPC 1.7(a)(2), which could result in disciplinary action, to send a pre-action letter to a client who owes a practitioner fees before the QDRO is finalized? As the saying goes, “Look before you leap.”
Michael A. Weinberg is a partner with Archer & Greiner in Haddonfield. Marla Marinucci is a partner in the law firm of April & Marinucci, P.A., located in Marmora.
Endnotes
1. Van Horn v. Van Horn, 415 N.J. Super. 398 (App. Div. 2010).
2. Van Horn, supra, at 403.
3. Id.
4. Id.
5. Id.
6. Id.
7. Id. at 403-404.
8. Id. at 404.
9. Id.
10. Id.
11. Id.
12. Id.
13. Id. at 405.
14. Id. at 411.
15. Id.
16. Id. at 413.
17. Id.
18. Id.
19. Id.
20. Id. at 413-414.
21. Id. at 416.
22. 281 N.J. Super. 73 (App. Div. 1995).
23. Mateo, 281 N.J. Super. at 79.
24. Id.
25. Id.
26. 239 N.J. Super. 77 (Ch. Div. 1989).
27. Mateo, 281 N.J. Super. at 79-80, citing Rosenfeld v. Rosenfeld, 239 N.J. Super. 77 (Ch. Div. 1989).
28. Mateo, supra.
29. Rosenfeld, supra.
30. 206 N.J. 306 (2011).
31. Simon, 306 N.J. at 317.
32. Simon, 306 N.J. at 308.
33. Id.
34. Id. at 309.
35. Id.
36. Id.
37. Id.
38. Id.
39. Id. at 310.
40. Id.
41. Id. at 309-310.
42. Id. at 310.
43. Id. at 319.
44. Id. at 318.
45. Id. at 320-321.
46. Id. at 321.
47. In the Matter of Estelle Flynn Lord, An Attorney at Law, Supreme Court of New Jersey, Disciplinary Review Board, Docket No. DRB 14-105.
48. Id.
49. Id.
50. Id.
51. Id.
52. Id.
53. Id.
54. Id.
55. Id.
56. Id.