Sunday, December 7, 2014

Would You Like Some Garnish on that Retainer?

EVER SINCE the Colorado Supreme Court’s decision in Sather and its subsequent codification in Colo. RPC 1.5(f), attorneys have come to grips with the reality that the fattest retainer is, in fact, no more than a security deposit for the last month’s legal “rent.”  So long as clients have an absolute right to discharge counsel, a retainer in a lawyer’s trust account cannot be booked as the equivalent of fees to come.  

      Whatever misgivings lawyers may have about the treatment of general retainers and flat fees in Rule 1.5(f), it is difficult to condone the court’s denouncement of “nonrefundable retainers.”  See In re Sather, 3 P.3d 403 (Colo. 2000).  The Rules of Professional Conduct are by design client-centric, and few things are more central to a client’s interest than not having to pay for legal work never performed.  

     Against this backdrop, In re Marriage of Rubio, 313 P.3d 623 (Colo. App. 2011) (cert. denied), appears a curious anomaly, if not a cruel joke, applying Sather to allow a judgment creditor husband to garnish his wife’s retainer in a divorce case.  The result, while demonstrating some judicial myopia regarding the policy of client protection underlying Sather, is, for the most part, legally correct.  Nonetheless, the unfortunate result for the lawyer and Louise Rubio was entirely avoidable.

      In finding no legal impediment to Frank Rubio garnishing the retainer his wife had given the Marrison Law Firm, Rubio’s analysis is straight forward: “Because unearned retainers belong to the client, not the lawyer, . . ., they fall within the broad category of property that is subject to garnishment.”  Rubio at 625.
      The court took comfort that several other jurisdictions had reached a similar result, and speculated that “a contrary rule would invite unethical practice.”  See id.  The court dismissed the firm’s argument that allowing the garnishment of retainers would allow parties to gain an unfair advantage in litigation by depriving their opponents of legal representation, noting that “in a dissolution of marriage case, a trial court may level the playing field by requiring one spouse to pay the other spouse's attorney fees.”  Id.

      Finally, the court rebuffed counsel’s claim that it had a lien on the retainer, observing that, “it is undisputed that the money was received, not on wife's behalf as a result of the firm's efforts, but directly from wife. Attorney liens under section 12-5-119 attach only to property that an attorney has obtained or has assisted in obtaining on the client's behalf.”  Id. at 625-26.
      The irony of hoisting Louise Rubio with the petard of Sather is delicious.  Sather protects clients against the use of “nonrefundable retainers” by establishing that a retainer remains property of the client until a lawyer provides legal services, thereby preserving a client’s right to discharge counsel without penalty.  Ms. Rubio clearly did not seek, need, or want any such protection.

      On the contrary, she wanted legal representation against her husband who had fortuitously secured a judgment against her.  Deprived of its retainer, the Marrison firm would have good cause to withdraw.  Yet the Rubio court condoned Frank Rubio’s tactic—patently designed to deprive his wife of legal representation—saying only, “This argument is difficult to credit generally because it rests on questionable premises. (Is it always true that the debtor has greater need than the creditor?),” while speculating that a divorce court might require Mr. Rubio to pay his wife’s legal fees – perhaps with the retainer the court gave him leave to garnish.  Id. at 625. 

      Rubio’s discussion of the Marrison firm’s attorney’s lien argument is muddled.  The opinion begins by noting that the firm “argued [below] that it had a possessory attorneys' lien against the unearned portion of the retainer.”  Id. at 624 (emphasis added).  It concludes by holding the firm had no charging lien, observing the obvious – that the retainer was received directly from Louise Rubio, and not as a result of the firm's efforts.  

      Rubio is hardly the first decision to conflate a retaining lien with a charging lien: “[F]ailure to distinguish between [the two] has led to confusion, not to say conflict, in the decisions.” Collins v. Thuringer, 92 Colo. 433, 21 P.2d 709, 710 (1933).  However, it is unassailable that the firm had a possessory retaining lien in the retainer.  See In the Matter of Attorney G., 302 P.3d 248, 252 (2013) (defining a client's “papers” for purposes of section 12-5-120 to include “money coming into an attorney's possession in the course of his professional employment.”)  The only question was whether or not the Marrison firm’s retaining lien had priority over Frank Rubio’s judgment, since only charging liens enjoy the coveted position of a “first” lien.  See N. Valley Bank v. McGloin,Davenport, Severson & Snow, Prof’l Corp., 251 P.3d 1250, 1254-55 (Colo. App. 2010) (charging lien takes priority over all other charges or encumbrances on the same property, including security interests that are perfected when the charging lien comes into existence.)

      The painful reminder of Rubio is that a retainer offers no security for a lawyer, and sometimes none for a client.  The harshness of its lesson could have been avoided had the Marrison firm perfected a security interest in the retainer as permitted by the Uniform Commercial Code, and the Rules of Professional Conduct.  See Colo. Bar Ass’n Ethics Op.110, Assertion of Attorney’s Charging Lien/Security Interest in Property (2002).

[Ed. Note: This blog was first published in the 20 October 2014 edition of Law Week Colorado]