Readers of these pages who make their living by practicing law in private law firms will be interested in the recent Delaware Supreme Court opinion captioned Katten Muchin Rosenman LLP v. Sutherland, No. 151, 2015 (Del. Jan. 6, 2017). Others–not so much. Why would private lawyers care about this decision? Because, generally speaking, it will make it easier to collect attorneys’ fees from deadbeat clients.

Short Overview: This ruling permitted a charging lien to be imposed on a judgment obtained by a former client, which was awarded in her favor by the trial court, in order to allow a law firm to collect its unpaid legal fees owed by the former client. Delaware’s high court reasoned that such a lien is equitably justified because to hold otherwise would deny an attorney full compensation for the work he contracted to do on behalf of his client, and would discourage counsel from providing legal services by not protecting their contractual right to a fee.

Brief Background. The factual history of this case includes a multitude of prior Delaware decisions over many years in long-running litigation between family members who engaged in hotly contested internecine litigation in which the family members who were stockholders challenged the actions of siblings who managed the family-owned business. Highlights of 12 of those prior decisions, spanning the last 10 years, have appeared on these pages.

For the limited purposes of the narrow issue in this decision, the essential facts most noteworthy for fellow attorneys, is that the ex-client in this case incurred about $3.5 million in fees in just three years–apparently not including the fees incurred by local Delaware counsel. The ex-client only paid about $2.7 million of that amount–leaving about $766,000 unpaid. (The litigation continued for several more years with another attorney.) Last year, the Court of Chancery awarded the ex-client $250,000 and the Katten Muchen law firm intervened to impose a charging lien on that amount.

Even though there was somewhat of a factual issue regarding no clearly executed fee agreement, there was no genuine issue that the firm charged the ex-client on an hourly basis and that she paid a few million dollars based on that arrangement–before she just stopped paying.

The Court of Chancery held that no charging lien could be imposed because the unpaid services did not directly relate to the client’s recovery. The Supreme Court reversed, reasoning that such a prerequisite was not a proper obstacle to asserting the equitable right of a charging lien.

Key takeaways: The court reasoned that: “[I]n the case of hourly billing, unlike with a contingency fee, the total amount the client is required to pay her lawyer is not based on the client’s recovery.” The opinion added that: “it is no secret that litigation is expensive and that the costs of prosecution easily can exceed recovery.” The court explained that the client was required to pay the firm’s reasonable fees whether she won or lost.

The opinion concluded by observing that by agreeing to pay on an hourly basis, the ex-client assured her counsel that it would not suffer the damages of unpaid services if it pressed her case as aggressively as she requested and as the law permits.