Prevents the double taxation of income by providing an attorney a superior lien on judgments, decrees, orders, and awards entered in the client's favor.
HOUSE OF REPRESENTATIVES
TWENTY-SECOND LEGISLATURE, 2004
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO ATTORNEY'S LIENS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The purpose of this Act is to prevent double taxation of attorney's fees paid under a contingent fee contract between attorney and client. Some federal circuit courts have ruled that a person who receives a nonpersonal injury settlement or award must include the entire amount as a part of gross income, including that amount which is paid to the attorney. Since the attorney also pays taxes on the attorney's portion of the settlement or award, this results in double taxation.
By creating a lien superior to all liens except tax liens in actions, suits, and proceedings after commencement thereof, and judgments, decrees, orders, and awards in favor of the attorney, the attorney becomes vested with a property interest. The attorney's portion of the judgment, settlement, decree, order, or award can then be excluded from the client's gross income.
SECTION 2. Chapter 507, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§507- Attorney's lien upon actions and judgments. (a) An attorney has a lien upon:
(1) Actions, suits, and proceedings after commencement of the action;
(2) Judgments, decrees, orders, and awards entered by the court in favor of the client; and
(3) Any proceeds paid in satisfaction of the judgment, decree, order, or award.
(b) The lien shall be for:
(1) The fees and compensation specifically agreed upon with the client;
(2) The reasonable values of the services of the attorney, if there is no fee agreement; and
(3) Any fees or commissions taxed or allowed by the court.
(c) Except for tax liens and prior liens of record on the real and personal property subject to the lien created by this section, the attorney's lien is superior to all other liens.
(d) When the attorney's lien attaches to a judgment or decree allowing or enforcing a client's lien, the attorney's lien shall have the same priority as the client's lien with regard to personal or real property subject to the client's lien.
(e) The attorney's lien on a judgment, decree, order, or award remains valid as long as the judgment, decree, order, or award remains valid.
(f) To be enforceable under this section, a notice of claim of the attorney's lien shall be filed before the complaint is dismissed by stipulation, before the complaint is dismissed by order of the court, or not later than one year after entry of final judgment is filed and disposition of any appeal thereof.
(g) Except as provided by subsections (i) and (j) the attorney's lien is not affected by a settlement between the parties to the action, suit, or proceeding before or after the judgment, decree, order, or award.
(h) Except as provided by subsections (i) and (j), a party to the action, suit, or proceeding or any other person shall not have the right to satisfy the lien created by this section or any judgment, decree, or award entered in the action, suit, or proceeding until the lien and claim of the attorney for fees based thereon is satisfied in full.
(i) A judgment debtor may pay the full amount of a judgment or decree into court and the clerk of the court shall thereupon fully satisfy the judgment or decree on the record and the judgment debtor shall be thereby released from any further claims thereunder.
(j) If more than one attorney from the same firm appears of record for a party, the satisfaction of the lien created by this section by one of the attorneys is conclusive evidence that the lien is fully satisfied.
(k) Attorneys have the same right and power over actions, suits, proceedings, judgments, decrees, orders, and awards to enforce their liens as their clients have for the amount due thereon to them."
SECTION 3. Section 605-8, Hawaii Revised Statutes, is amended to read as follows:
"§605-8 Practice in all courts; fees. The practitioners shall have the right to practice in all the courts of the State, and to appear therein as attorneys in behalf of persons who may choose to retain them, for the prosecution or defense of actions.
Attorney's fees or commissions taxed or allowed by the court shall be collected for the benefit of the attorney[
.] as provided by section 507- ."
SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect upon its approval.