Arbitrators’ Charging Lien was originally published in Resolution Roundtable (New York State Bar Association, Dispute Resolution Section) on August 13, 2013

A charging lien is sttutory mechanism for protecting the value of services which New York has now been extended to arbitrators.  This has been a necessary evolution.  Over the past few years there has been increased economic pressure on disputants to explore alternatives to court litigation and a corresponding increase in taking advantage of the more cost-efficient processes offered in commercial arbitrations/mediations. Counsel representing clients in these ADRs now have the means of protecting their fees in these proceedings through a charging lien due to a recent amendment to Judiciary Law §§ 475 and 475-a. Prior to this amendment, charging liens were only available where a court proceeding had been commenced. To the New York City Bar, which proposed the amendment in 2008, it made no sense that the “fruits of productive attorney labor should [not be protected by a charging] lien – even absent the commencement of a court proceeding.” (Our section endorsed the amendment.) In the New York State Senate Introducer’s Memorandum in Support of a bill to amend sections 475 and 475-a, Senator Sampson stated that “[t]he practice of law has changed tremendously since Section 475 was last revised in 1946 and Section 475-a was adopted in 1955.” The Senator went on to explain that “[a]lternative dispute resolution also benefits the court system by taking disputes that are ripe for resolution out of the often overtaxed courts.”

Before the amendment, counsel in arbitration and mediation were at a disadvantage in securing their fees. In re Taylor, Jacoby & Campo, 208 A.D.2d 400, 401 (1st Dept. 1994); In re Matter of Weldon v. De Martini, 231 N.Y.S.2d 530, 533 (Queens Cty 1962) (“The action or proceeding must have actually been commenced and the attorney seeking to enforce the lien must have appeared in the action or proceeding as attorney of record.”) If the only appearance was to confirm or vacate the award only that portion of counsel’s fee could be charged as a lien. The only way of protecting against “the knavery of his client” [In re City of New York, 5 N.Y.2d 300, 307 (1959)] was to commence a lawsuit or (less expensively) a mediation or arbitration under Part 137 of the Rules of the Chief Administrator of the Court (limited to fees under $50,000 unless otherwise agreed to by the client). At one time the predecessor statute to CPLR 7502, section 1459 of the Civil Practice Act classified arbitration as a special proceeding, but the successor statute “omitted any such reference and instead sought to avoid imposing the formality of a judicial proceeding upon arbitration until the first application is made to a court.” Spinello v. Spinello, 70 Misc.2d 521, 525, 334 N.Y.S.2d 70 (NY Sup. 1972). Dropping reference to a “special proceeding” had the unintended result of making it more difficult for an attorney to protect the “fruit of [his or her] productive … labor,” which the Legislature has now corrected.

The amendments which became law on January 1, 2013 (effective January 19, 2013) expand coverage – from “the commencement of an action, special or other proceeding in any court” – to include mediation, arbitration and settlement negotiations. Post January 19, 2013, counsel has the right to a charging lien. In the amendments, the Legislature made two additions Section 475. The first which is substantive, adds the words “commencement of an action…” following “or the initiation of any means of alternative dispute resolution including, but not limited to, mediation or arbitration, or the provision of services in a settlement negotiation at any stage of the dispute, the attorney who appears for a party has a lien upon his or her client’s cause of action, claim or counterclaim.” The second addition is more in the nature of correcting male gender specific grammatical usage by adding the pronoun “her” so that the law now reads that counsel has a right to a charging lien “upon his or her client’s cause of action, claim or counterclaim.” In fairly recent history, “his” was regarded as gender neutral. This change was Legislature driven and was not part of the proposal made by the bar associations.

One of the first questions raised under the new law was whether the amendment was retrospective or prospective. In a recent decision, Justice Louis York held that law is prospective. In Bonnaig v. Walton, 110429/11 (NY Sup. 6-3-13), he stated:

“In the amendment at hand, there is no express discussion of the issue of retroactivity. However, the amendment does state that “[t]his act shall take effect on the ninetieth day after it shall have become a law.” NY Jud. Law. Section 475. A postponement of the effective date of a statute is strong evidence that the Legislature did not intend for it to be retroactive.”

Justice York rejected the plaintiff’s argument that the law “should apply retroactively to lien cases which currently are pending in the Court system.” The plaintiff had represented a client in an EEOC proceeding that was concluded before the enactment of the Section 475 amendment. “Had the amendment occurred prior to the commencement of the EEOC mediation, Plaintiff undisputedly could have enforced a charging lien,” the Court added. Gerald M. Levine is a member of Levine Samuel, LLP. He practices in New York City and is on the list of neutrals of the American Arbitration Association. Mr. Levine runs an ADR blog on domain names and cybersquatting at http://www.udrpcommentaries.com.