Computer One, Inc. v. Grisham & Lawless

• Decision Date: 23 June 2008
• Docket Number: No. 30,425.,30,425.
• Citation: 188 P.3d 1175,2008 NMSC 038
• Parties: COMPUTER ONE, INC., a New Mexico corporation, and Caroline C. Roberts, individually, Plaintiffs-Petitioners, v. GRISHAM & LAWLESS P.A., a professional association, Thomas L. Grisham, and Stephen F. Lawless, Defendants-Respondents.
• Court: New Mexico Supreme Court

188 P.3d 1175

2008 NMSC 038

COMPUTER ONE, INC., a New Mexico corporation, and Caroline C. Roberts, individually, Plaintiffs-Petitioners, v. GRISHAM & LAWLESS P.A., a professional association, Thomas L. Grisham, and Stephen F. Lawless, Defendants-Respondents.

No. 30,425.

Supreme Court of New Mexico.

June 23, 2008.

Law Office of William G. Gilstrap, William G. Gilstrap, Albuquerque, NM, for Petitioners.

Sheehan, Sheehan & Stelzner, P.A., Jaime L. Dawes, Briggs F. Cheney, Albuquerque, NM, for Respondents.

OPINION

BOSSON, Justice.

{1} A legal malpractice claim against a client's former attorneys was barred when the court ruled that, as a compulsory counterclaim, the allegations of legal malpractice had to be filed in response to an attorney charging lien previously filed by those same attorneys. Relying upon Bennett v. Kisluk, 112 N.M. 221, 814 P.2d 89 (1991), we conclude that the client's malpractice claim was not a compulsory counterclaim and was not barred by res judicata. The Court of Appeals having decided otherwise, we reverse and remand to the district court to proceed with the claim for legal malpractice.

BACKGROUND

{2} Computer One was awarded a contract to supply computer equipment and training to Sandia Corporation (Sandia). After Computer One entered into the contract, Sandia began to request less equipment and training than it had indicated in the request for bid proposals. Eventually, Computer One filed a lawsuit against Sandia alleging breach of contract and misrepresentation.

{3} Computer One was represented by Grisham & Lawless, P.A. (the Firm), who are the defendants in this appeal.¹ In that litigation, the Firm entered into a settlement agreement with Sandia on Computer One's behalf. Computer One refused to ratify the settlement agreement and maintained that it had not authorized the Firm to enter into the settlement agreement. The Firm then withdrew from representing Computer One, and on February 21, 2001, filed a notice of an attorney charging lien against the settlement proceeds in the amount of its attorney fees owed and unpaid.

{4} Sandia filed a motion in district court to enforce the settlement. The court held an evidentiary hearing on Sandia's motion on June 5, 2001, to determine whether the Firm had the authority to enter into the settlement agreement. In July 2001, the district court found that Computer One had given the Firm sufficient authority, and the court ordered the settlement agreement enforced.

{5} During the July 2001 proceedings, the district court held an ancillary hearing to attempt to resolve a dispute regarding the form of the order for disbursement of the settlement funds. During that hearing, Computer One indicated that it believed that the Firm's charging lien might not be enforceable. The court suggested that Computer One file objections to the charging lien and that Computer One file a motion asking the court to determine the reasonableness of the fees.

{6} After the Firm amended its charging lien to add accrued interest, Computer One filed its objections to the charging lien and argued that the fees were "unreasonable and excessive." In its objections, Computer One renewed its argument that the Firm had acted without authority in entering the settlement agreement. Computer One also argued that the Firm's fees were unreasonable and inflated. Finally, Computer One contended that the charging lien was void because the contingency fee agreement upon which the charging lien was based did not comply with the procedural requirements of Rule 16-105(C) NMRA, which controls contingency fee agreements. Computer One asked the court to disallow the charging lien or reduce the amount of fees payable to the Firm from the settlement proceeds.

{7} In response, the Firm argued that Computer One's objections "[were] nothing more than an attempt to relitigate matters that have already been litigated;" namely, the Firm's authority to negotiate the settlement with Sandia. The district court held a hearing on February 11, 2002, in which it entertained argument from all counsel. The court rejected Computer One's objections as untimely filed.² Shortly thereafter, the court ordered disbursement of the settlement funds including payment of the Firm's charging lien.

{8} A year and a half later, in November 2003, Computer One brought a legal malpractice claim against the Firm, arguing that the Firm had been negligent in the manner in which it had evaluated Computer One's claims against Sandia and their potential settlement value. Responding, the Firm moved for summary judgment and characterized the malpractice claim as a compulsory counterclaim that Computer One had failed to assert against its charging lien and was, therefore, precluded from raising it in a separate lawsuit. The district court denied summary judgment on August 30, 2004.

{9} In November 2004, the Firm again moved for summary judgment. The Firm pointed out to the court that Computer One had filed formal objections to their charging lien and those objections were "in large part the same objections which are the subject of [the] legal malpractice suit." In other words, the substance of the malpractice claims had already been litigated and lost by Computer One. Computer One disagreed, arguing that its objections to the charging lien only challenged the Firm's authority to enter into the settlement agreement with Sandia, while the malpractice claim challenged the quality of the legal representation actually provided. Persuaded that the legal malpractice claim had to be brought as a compulsory counterclaim to the charging lien, the district court granted the second motion for summary judgment in the Firm's favor, thereby barring Computer One from proceeding with its legal malpractice suit.

{10} Computer One appealed to the Court of Appeals which affirmed the district court. Computer One, Inc. v. Grisham & Lawless, P.A., 2007-NMCA-079, 141 N.M. 869, 161 P.3d 914, cert. granted, 2007-NMCERT-006, 142 N.M. 17, 162 P.3d 172. The Court concluded that Computer One was in the position of an "opposing party" to the Firm's charging lien, and was therefore obligated to bring its legal malpractice claim as a compulsory counterclaim under Rule 1-013(A) NMRA, or be forever barred. Computer One, Inc., 2007-NMCA-079, ¶¶ 11-15, 141 N.M. 869, 161 P.3d 914. Additionally, the Court of Appeals held that Computer One's legal malpractice claim and its objections to the Firm's charging lien arose out of the same transaction, and therefore, the malpractice claim was barred by principles of res judicata. Id. ¶¶ 16-23. We granted certiorari in recognition of the important policy questions inherent in any decision that bars a client from bringing legal malpractice charges against its former counsel.

STANDARD OF REVIEW

{11} Because there are no disputed issues of fact in this case, we review the district court's grant of summary judgment de novo. Salazar v. Torres, 2007-NMSC-019, ¶ 5, 141 N.M. 559, 158 P.3d 449. Similarly, we review de novo the district court's determination of whether our compulsory counterclaim rule, Rule 1-013(A), or res judicata bars a party's claims. Deflon v. Sawyers, 2006-NMSC-025, ¶ 3, 139 N.M. 637, 137 P.3d 577.

DISCUSSION

{12} We begin our discussion with a brief overview of the history of attorney charging liens, because "[t]he resolution of the issue presented here becomes clear when the historical basis for the `charging lien' is considered." N. Pueblos Enters. v. Montgomery, 98 N.M. 47, 49, 644 P.2d 1036, 1038 (1982). Unlike many other states, New Mexico does not have a statute providing an attorney with the right to assert a charging lien against the fruits of a settlement or a judgment. See Prichard v. Fulmer, 22 N.M. 134, 139, 159 P. 39, 40 (1916). Therefore, our courts have looked to common law and principles of equity to determine the rights afforded an attorney by such a lien. Id. This Court has defined a charging lien as

the right of an attorney or solicitor to recover his fees and money expended on behalf of his client from a fund recovered by his efforts, and also the right to have the court interfere to prevent payment by the judgment debtor to the creditor in fraud of his right to the same, and also to prevent or set aside assignments or settlements made in fraud of his right. It does not usually attach until the recovery of judgment, and then does not prevent an honest settlement, nor a payment to his client until the attorney has notified the debtor of his intention to claim a lien.

Id. at 140, 159 P. at 41.

{13} The charging lien arises from a recognition that when an attorney assists a client in procuring a judgment or a "fund recovered by his efforts," the attorney needs to be paid from that fund for the value of services rendered before the proceeds are disbursed. A court, sitting in equity, has a responsibility to enforce the lien against the judgment to protect lawyers from dishonest clients. See id. at 145, 159 P. at 42 ("The court, having control of its own process, saw to it that the client did not utilize it so as to defeat the attorney of his fee."). Thus, a lien acts as "indirect payment" from the client to the attorney for services rendered. Id. at 142, 159 P. at 41.

{14} "In New Mexico, there are four requirements for the imposition of an attorney charging lien." Sowder v. Sowder, 1999-NMCA-058, ¶ 10, 127 N.M. 114, 977 P.2d 1034. First, there must be a valid contract between the attorney and the client, although the contract need not be express. Id. Second, there must be a judgment, or "fund," that resulted from the attorney's services. Id. ¶ 11. Third, the attorney must have given clear and unequivocal notice that he intends to assert a lien, and notice must be given to the "appropriate parties." Id. ¶ 12. Finally, the lien must be timely — notice of the lien must be given "before the proceeds [from] the judgment have been distributed." Id. ¶ 14. Our cases have put...