In re: Shaver Lakewoods Development Inc., EC-15-1311-JuKuMa

Debtor Shaver Lakewoods Development, Inc. owned subdivided real property; several lots ("Transferred Lots") were deeded to two principal shareholders, Loo and Angela, in 2009. Plaintiffs sued for construction defects and asserted fraudulent transfer claims against the Transferred Lots.
Attorney Henry Nunez represented Shaver, Loo, Angela, and Robert in the state suit; he executed a January 2011 retainer that the bankruptcy court characterized as a "hybrid" (hourly fees plus an option for one-third of lot value) and that purported to grant Nunez a lien on the Transferred Lots.
A lis pendens was recorded against the Transferred Lots; Nunez unsuccessfully tried to expunge it pre-petition. Shaver filed Chapter 7 on November 17, 2011.
As part of a compromise, Loo and Angela reconveyed the Transferred Lots to the estate; Nunez filed a proof of claim asserting a secured claim of $88,501.81 based on his purported lien. Trustee sold the lots and sought a declaratory judgment that Nunez’s lien was invalid.
The bankruptcy court held a three-day trial, ruled Nunez’s lien invalid for failure to comply with California Rule of Professional Conduct 3-300, declined to impose an equitable lien, and allowed Nunez an unsecured prepetition claim of $8,535.38 for fees benefiting the estate. Panel affirmed.

Issue	Nunez’s Argument	Trustee’s Argument	Held
Whether retainer created an enforceable secured (charging) lien without Rule 3-300 compliance	Retainer contract created a valid charging lien that need not meet Rule 3-300	Hybrid retainer created an adverse interest; Rule 3-300 applies and was not complied with	Court: Rule 3-300 applied; lien invalid for noncompliance
Whether retainer was a pure contingency (Plummer) exempting Rule 3-300	Agreement was effectively contingent or otherwise not an "adverse interest"	Agreement was a hybrid (hourly + option) not a pure contingency; Plummer inapplicable	Court: Not a pure contingency; Plummer does not apply
Whether an equitable lien should be imposed despite Rule 3-300 failure	Entitlement to equitable lien to secure reasonable attorney fees	Equitable lien inappropriate where attorney failed to follow Rule 3-300 and created conflict	Court: No equitable lien; equitable relief would undermine Rule 3-300 policy
Proper amount of allowed attorney fees as unsecured claim	Claim for $88,501.81; seek secured recovery	Postpetition fees disallowed; only reasonable prepetition fees benefiting estate allowed	Court: Disallowed postpetition and non-debtor-benefit fees; allowed $8,535.38 as unsecured claim

Fletcher v. Davis, 33 Cal.4th 61 (Cal. 2004) (attorney charging liens and Rule 3-300 compliance requirement)
Plummer v. Day/Eisenberg, 184 Cal. App. 4th 38 (Cal. Ct. App. 2010) (pure contingency fee lien does not create an "adverse interest" under Rule 3-300)
Cetenko v. United California Bank, 30 Cal.3d 528 (Cal. 1981) (charging lien principles)
Hawk v. State Bar, 45 Cal.3d 589 (Cal. 1988) (attorney must comply with ethics rule when taking security in client property)
Lamie v. United States Trustee, 540 U.S. 526 (U.S. 2004) (postpetition services by an unpaid attorney require court employment for estate compensation)
In re Southwest Restaurant Systems, 607 F.2d 1243 (9th Cir. 1979) (distinguishing charging vs. possessory attorney liens)