Overview

In the Matter of Feldsott is an important State Bar Court decision clarifying that an attorney does not violate trust account rules or fiduciary duties by refusing to endorse a settlement draft when the attorney holds a valid lien on disputed proceeds and does not possess the funds. The case emphasizes that attorneys may take reasonable steps to protect lien rights without committing misconduct.

Facts

Respondent represented a client in litigation under a contingency fee agreement that included an express attorney lien on any recovery. After disputes arose, respondent withdrew from representation but filed a notice of lien for approximately $5,000.

The client later settled the case for $26,500. The settlement check was made payable jointly to the client, respondent, and successor counsel. Respondent refused to endorse the check unless the disputed portion of the settlement funds was protected pending resolution of his lien claim.

Respondent proposed multiple reasonable alternatives, including depositing the disputed portion into a blocked account, placing funds in trust, or resolving the dispute through arbitration or court proceedings. The client rejected these proposals.

Charges

• Failure to promptly pay client funds (Rule 4-100(B)(4))
• Alleged breach of fiduciary duty to former client

Key Legal Principles

1) Rule requiring prompt payment applies only to funds in attorney possession

The court held that the duty to promptly deliver client funds applies only when the attorney actually possesses the funds. Because respondent never had possession of the settlement proceeds, the rule did not apply.

2) Attorneys may protect valid lien rights

An attorney with a properly perfected contractual lien may take reasonable steps to preserve that lien without violating fiduciary duties.

3) Fiduciary duty continues after representation ends

Even after withdrawal, attorneys owe former clients duties of good faith and fair dealing regarding matters related to the prior representation, including lien disputes.

4) Refusal to endorse a check may be justified

Where endorsement would extinguish an attorney’s lien rights and expose the attorney to loss, refusal to endorse a settlement draft may be reasonable and lawful.

5) Good faith efforts to resolve disputes defeat discipline

Respondent’s efforts to propose neutral solutions and pursue judicial resolution demonstrated good faith and supported dismissal of the disciplinary charge.

Aggravation

• None found

Mitigation

• Good faith efforts to resolve fee dispute
• Reasonable steps taken to protect lien rights

Outcome

The Review Department affirmed dismissal of the disciplinary proceeding with prejudice, concluding respondent acted lawfully and did not violate trust account rules or fiduciary duties.

Sanctions Table