THOMAS A. FOSTER & ASSOCIATES v. Paulson, No. A04-2132.

• Decision Date: 28 June 2005
• Docket Number: No. A04-2132.
• Citation: 699 N.W.2d 1
• Parties: THOMAS A. FOSTER & ASSOCIATES, LTD, petitioner, Respondent, v. Scott PAULSON, et al., Appellants.
• Court: Minnesota Court of Appeals

699 N.W.2d 1

THOMAS A. FOSTER & ASSOCIATES, LTD, petitioner, Respondent, v. Scott PAULSON, et al., Appellants.

No. A04-2132.

Court of Appeals of Minnesota.

June 28, 2005.

Thomas A. Foster, Thomas A. Foster & Associates, LTD, Minneapolis, MN, for respondent.

Phillip Gainsley, Minneapolis, MN, for appellants.

Considered and decided by WRIGHT, Presiding Judge; KALITOWSKI, Judge; and PORITSKY, Judge.¹

OPINION

WRIGHT, Judge.

To collect outstanding legal fees, respondent law firm moved to establish and determine the amount of an attorney lien under Minn.Stat. § 481.13 (2004). Appellants, former clients of respondent, argued that, because respondent forfeited the attorney fees by committing legal malpractice, a lien cannot be established. The district court declined to consider appellants' allegations of legal malpractice and breach of fiduciary duty in a summary proceeding and determined the amount of attorney fees incurred pursuant to the retainer agreement. Appellants now contend that the district court erred in failing to consider their claims. Appellants also move to supplement the record with a letter from respondent's insurance carrier and to recover attorney fees for expenses incurred in drafting the motion. We affirm and deny the motions.

FACTS

In February 2003, appellants Scott and Bernadette Paulson (the Paulsons) retained respondent Thomas A. Foster & Associates, LTD (Foster) to represent them in a construction-arbitration action against the builder of their residence. The parties entered into a retainer agreement, whereby the Paulsons agreed to pay Foster a $10,000 non-refundable retainer fee and 25 percent of any dollar amount recovered in the litigation. In May 2004, the Paulsons recovered $118,952 in settlement of their claims. Shortly thereafter, the Paulsons refused to pay Foster the attorney fees and costs contemplated in the retainer agreement, alleging that Foster committed legal malpractice and breached its fiduciary duty to them. On May 20, 2004, Foster served the Paulsons with notice of an attorney lien.

In June 2004, the construction company issued a check for the settlement amount payable to the Paulsons and Foster. Foster endorsed the check but requested that the Paulsons' new counsel hold in trust the disputed attorney fees and costs.

Foster then brought a motion under Minn.Stat. § 481.13, subd. 1(c) (2004), to determine the amount of the attorney lien and enter judgment on the lien. At the hearing on the motion, the Paulsons argued that Foster forfeited its right to attorney fees and costs when, acting in bad faith, it failed to inform the Paulsons of an expert witness's impeachable background and failed to convey settlement offers. In support of their claims, the Paulsons proffered two expert affidavits. The Paulsons requested that the district court either stay entry of judgment on the lien until the malpractice and fiduciary-duty claims were litigated or "declare that there has been a lawsuit, complete forfeiture [of] fees and [turn the money] over to Mr. and Mrs. Paulson." Immediately following the hearing, the Paulsons served Foster with a complaint alleging malpractice, breach of fiduciary duty, breach of contract, and deceit and collusion.

The district court declined to order forfeiture of the fees or "declare that there ha[d] been a lawsuit" without a decision on the merits of the legal-malpractice claims. Instead, based on the terms of the retainer agreement, the district court entered judgment in favor of Foster for $30,204.56.

Aware of the Paulsons' intent to sue Foster for legal malpractice, the district court ordered Foster to verify that its malpractice insurer would accept defense of the Paulsons' malpractice claim before disbursing the fees. The district court received the requisite verification on October 26, 2004. Upon receiving the letter, the Paulsons moved to stay the entry of judgment pending further clarification as to whether Foster's insurance would cover the non-malpractice claims in their complaint. The district court interpreted the Paulsons' letter as a motion for reconsideration, which it denied. This appeal followed.

ISSUES

I. Did the district court err in establishing and determining the amount of an attorney lien without considering appellants' professional-malpractice claims?

II. May appellants supplement the record with a letter from respondent's insurer regarding coverage for appellants' professional-malpractice claims?

III. May appellants recover attorney fees incurred in bringing the motion to supplement the record?

ANALYSIS

I.

Application of the attorney-lien statute is a question of law, which we review de novo. Boline v. Doty, 345 N.W.2d 285, 288-90 (Minn.App.1984). Although the reasonable value of attorney fees is a question of fact, Ashford v. Interstate Trucking Corp., 524 N.W.2d 500, 502 (Minn.App.1994), when considering whether the district court employed the proper method to calculate the amount of an attorney lien, we undertake a de novo review, In re L-tryptophan Cases, 518 N.W.2d 616, 619 (Minn.App.1994). The Paulsons challenge the district court's calculation of the amount of the attorney lien, arguing that Foster is not entitled to any attorney fees because it committed professional misconduct. Foster maintains that the district court properly awarded attorney fees based on the terms of the retainer agreement. The arguments here present a novel question, namely whether the district court is required to entertain a legal-malpractice defense in a summary proceeding to establish and determine the amount of an attorney lien.

A.

We first examine the nature of the attorney-lien proceeding under Minn.Stat. § 481.13 (2004). Derived from common law and later codified in statute, an attorney lien attaches to any recovery by the attorney in the course of representation.² Minn.Stat. § 481.13, subd. 1(a), (b); Boline, 345 N.W.2d at 289. Thus, if a client recovers money as a result of an attorney's services, the attorney has a lien on the recovery as security for fees owed by the client. St. Cloud Nat'l Bank & Trust Co. v. Brutger, 488 N.W.2d 852, 855 (Minn.App.1992), review denied (Minn. Nov. 17, 1992).

As an equitable lien, the attorney lien protects against a successful party receiving a judgment secured by an attorney's services without paying for those services. Johnson v. Blue Cross & Blue Shield of Minn., 329 N.W.2d 49, 53 (Minn.1983); Schroeder, Siegfried, Ryan & Vidas v. Modern Elec. Prods., Inc., 295 N.W.2d 514, 516 (Minn.1980). Because this form of lien is based on principles of equity, the nature of the attorney lien and the procedure for enforcing it differ from most other liens. Blazek v. N. Am. Life & Cas. Co., 265 Minn. 236, 240, 121 N.W.2d 339, 342 (1963).

Minn.Stat. § 481.13 governs attorney liens and provides in relevant part:

(a) An attorney has a lien for compensation... (1) upon the cause of action... and (2) upon the interest of the attorney's client in any money or property involved in or affected by any action or proceeding in which the attorney may have been employed....

(b) An attorney has a lien for compensation upon a judgment, whether there is a special express or implied agreement as to compensation, or whether a lien is claimed for the reasonable value of the services....

(c) A lien provided by paragraphs (a) and (b) may be established, and the amount of the lien may be determined, summarily by the court under this paragraph on the application of the lien claimant or of any person or party interested in the property subject to the lien.

Judgment shall be entered under the direction of the court, adjudging the amount due.

Minn.Stat. § 481.13, subd. 1. Subdivision 1 grants an attorney an inchoate lien on a recovery obtained through his or her efforts on behalf of a client. 7A C.J.S. Attorney & Client § 450 (2004). The attorney may petition a district court to establish the lien, determine the proper amount of the lien, and enter judgment accordingly. N. States Power Co. v. Gas Servs. Inc., 690 N.W.2d 362, 365-66 (Minn.App.2004); Empro Corp. v. Scottland Hotels, Inc., 449 N.W.2d 734, 737 (Minn.App.1990). The value of the lien ordinarily is determined based on the terms of the fee provisions of a retainer agreement. Blazek, 265 Minn. at 240,121 N.W.2d at 342-43. When such an agreement does not exist, the amount of the lien is determined by the reasonable value of the services rendered. Roehrdanz v. Schlink, 368 N.W.2d 409, 412 (Minn.App.1985).

Minnesota caselaw has long characterized attorney-lien actions as summary proceedings. See, e.g., Vill. of New Brighton v. Jamison, 278 N.W.2d 321, 323-24 (1979)

; Akers v. Akers, 233 Minn. 133, 138, 46 N.W.2d 87, 91 (1951); Westerlund v. Peterson, 157 Minn. 379, 381-82, 197 N.W. 110, 111 (1923). Section 481.13 specifies that the proceeding to establish and determine the amount of the lien will be conducted "summarily" upon application of the lien claimant. Minn.Stat. § 481.13, subd. 1(c); In re L-tryptophan Cases, 518 N.W.2d at 622 (holding that district court may establish and enforce lien in one summary action); Gaughan v. Gaughan, 450 N.W.2d 338, 343 (Minn.App.1990) (noting that "proceedings under Minn.Stat. § 481.13 retain their summary nature"), review denied (Minn. Mar. 16, 1990).

The 2002 amendment to section 481.13 further clarified that an attorney-lien action will be conducted summarily regardless of the location and timing of the proceeding. 2002 Minn. Laws ch. 403, § 2; N. States Power Co., 690 N.W.2d at 365-66. Prior to this amendment, section 481.13 distinguished between a hearing in the original action to establish and determine the amount of an attorney lien and a separate action to enforce an attorney lien. Minn.Stat. § 481.13, subd. 1 (2000). Interpreting the predecessor statute, we concluded that a proceeding to establish the attorney lien was summary, but the separate proceeding to enforce the lien was not. Boline, 345 N.W.2d...