April 22, 2015 Top Story

Attorney's Lien Extends to E-Discovery Database

State appellate court finds law firm had possession because it directed work

Lisa R. Hasday

A law firm’s transfer of client documents to an e-discovery vendor does not constitute a release of possession that would destroy the firm’s retaining lien, the Appellate Court of Illinois held, even if the client paid almost all of the vendor’s fees. Cronin & Co., Ltd. v Richie Capital Mgmt., LLC. Central to the court’s decision was the fact that the vendor took its directions from the firm.

Dispute over Database Access

The client, various companies owned by a hedge fund manager, hired the law firm in 2009 to assist in recovering investment losses due to the companies’ unwitting participation in a Ponzi scheme. In 2012, the client authorized the firm to retain a third-party vendor to manage the case files electronically. The client gave money to the law firm to pay for the vendor’s services.

In 2013, the attorney-client relationship at issue ended, and a dispute over legal fees ensued. The law firm, claiming a retaining lien over its former client’s litigation file, asked the e-discovery vendor to make inaccessible the database that the vendor was hosting. The vendor complied. Soon thereafter, the client began pressuring the vendor for database access.

In exchange for the vendor’s returning all case materials to the law firm, the firm paid the vendor’s remaining fees. The vendor retained a copy of the files, however, which it gave to the client pursuant to an indemnification agreement. The law firm thereafter sued both the client and the vendor. Among other rulings, the circuit court granted a preliminary injunction that required the vendor to provide the law firm with all versions of the database in its possession.

Appellate Findings

The appellate court found first that the client had standing to appeal even though the preliminary injunction was directed at the vendor. Even if the law firm had not waived the argument by failing to raise it below, the client would still have standing because “the subject matter of the controversy concerns documents in which [the companies] claim an ownership interest.” The client also had standing as the vendor’s indemnitors.

Further, the court held that the circuit court had subject-matter jurisdiction to grant injunctive relief. The client argued that the circuit court lacked jurisdiction, because a retaining lien cannot be enforced in a judicial proceeding. The appellate court explained that the lower court’s order did not enforce the lien but merely determined which documents were subject to it. The higher court affirmed the lower court’s decision that the law firm had possession over the database, because the vendor “took its directions from [the firm] and it created and hosted the database at [the firm]’s direction.”

The court vacated the circuit court’s order, however, and remanded for further proceedings. Because there was no record that the circuit court had analyzed the factors required for a preliminary injunction, the appellate court concluded that additional proceedings were necessary.

Unfair Leverage

“In all but the exceptional case, the e-vendor is likely to take direction from the lawyer—not the client—suggesting that, in all but the exceptional case, documents held by an e-vendor, and, more importantly, the work product (the database and coding) is likely to be subject to the attorney lien,” remarks Jeffrey G. Close, Chicago, IL, cochair of the ABA Section of Litigation’s Pretrial Practice & Discovery Committee.

The court’s holding invites abuse on the part of attorneys, Close maintains. “I think the attorney’s lien is a good thing, but the court should have looked more at who paid for what,” he says. “If a client has paid for the e-vendor, why does the lawyer get to hold onto the work? It was only after the dispute arose that the lawyers paid the outstanding bills. In doing so, they essentially took over the database. It’s just wrong.”

Moreover, electronic databases “can be hundreds of thousands of dollars, if not seven figures,” Close adds. “To say that that belongs to the lawyers because they directed the work gives lawyers unfair leverage.” In fact, some jurisdictions bar attorneys from asserting retaining liens over client files, notes John D. Rue,Montclair, NJ, cochair of the E-Discovery Subcommittee of the Section of Litigation’s Pretrial Practice and Discovery Committee.

Lessons Learned

In those jurisdictions that allow retaining liens, Close recommends that clients negotiate with e-vendors for contractual provisions that protect the clients’ access to case files. Lawyers may also want to contract directly with an e-discovery vendor, Rue advises. “This strategy, however, is a two-edged sword,” he cautions. “It gives the firm a better argument that it retains possession of the data, but signing directly with the vendor could put the law firm directly on the hook for the bill.”

A law firm’s failure to contract directly with a vendor might not affect the scope of the firm’s lien. “This opinion suggests there’s an opportunity for litigation counsel to grab whatever work product they can and make it the subject of a lien,” Close explains. “I’m not sure I’d offer that as advice to counsel, because I’m not sure it’s an appropriate way to treat our clients."

This article presents the views of the author alone and not necessarily those of her employer, the U.S. Department of Justice.


Lisa R. Hasday is an associate editor for Litigation News.

Keywords: e-discovery, Illinois, legal fees, preliminary injunction, retaining lien

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