Dorsey & Whitney Llp, v. Grossman

• Decision Date: 27 May 2008
• Docket Number: No. A07-0358.,A07-0358.
• Citation: 749 N.W.2d 409
• Court: Minnesota Court of Appeals
• Parties: DORSEY & WHITNEY LLP, lien claimant, Respondent, v. Andrew GROSSMAN, et al., Appellants.

749 N.W.2d 409

DORSEY & WHITNEY LLP, lien claimant, Respondent, v. Andrew GROSSMAN, et al., Appellants.

No. A07-0358.

Court of Appeals of Minnesota.

May 27, 2008.

Perry M. Wilson, III, Angela M. Hall, Dorsey & Whitney, Minneapolis, MN, for respondent.

Timothy D. Kelly, Carrie L. Zochert, Kelly & Berens, Minneapolis, MN, for appellants.

Considered and decided by WRIGHT, Presiding Judge; TOUSSAINT, Chief Judge; and WILLIS, Judge.

OPINION

WRIGHT, Judge.

This appeal arises out of a disagreement regarding compensation to respondent law firm for its legal representation of appellants. After a summary proceeding under Minn.Stat. § 481.13 (2006), the district court concluded that respondent is entitled to two attorney liens and ordered entry of two judgments against appellants. On appeal, appellants argue that (1) their relationship with respondent constituted a joint venture and was, therefore, not governed by section 481.13; (2) the district court erroneously interpreted their contract with respondent by (a) miscalculating the amount due, and (b) excluding certain work from the scope of the contract; and (3) the district court erroneously interpreted section 481.13 by (a) entering judgments contrary to the plain language of the statute, and (b) declining to entertain their legal-malpractice claim.

We affirm except as to the nature of the judgments entered. Because the district court erroneously directed entry of a $126,236.23 personal judgment against appellant-corporation and failed to identify the property subject to the attorney lien, we affirm the determination of the amount of the lien but reverse as to the nature of the lien and remand for determination of the property subject to this lien. To eliminate ambiguity regarding the nature of the $586,312.20 judgment, we affirm that judgment as modified.

FACTS

Appellant ABCO Research (ABCO) owns several patents relating to a method for restoring teeth. ABCO obtained these patents from the inventor, Dr. Robert Hasel. Hasel and appellant Andrew Grossman formed ABCO in 1988 for the sole purpose of enforcing and exploiting the patents (the Hasel patents).

In October 1997, respondent Dorsey & Whitney (Dorsey) began representing ABCO and its representatives in licensing and other non-litigation matters, including patent prosecution before the United States Patent and Trademark Office (USPTO). Dorsey billed ABCO on an hourly basis for this representation.

By August 1999, ABCO decided that it needed to pursue multiple legal actions to stop infringement and to make the Hasel patents profitable. But because the Hasel patents were not generating income sufficient to finance multiple legal actions simultaneously, ABCO could not continue to pay for legal services under a straight billable-hours fee arrangement. Consequently, Grossman, ABCO, and Dorsey entered into a written agreement (the agreement), which "sets out the basis on which [Dorsey] shall provide legal services" to Grossman and ABCO "for the purposes of patent enforcement, patent exploitation, and patent license efforts."¹ The agreement specifies that it does not pertain to "legal services [Dorsey] may provide to [ABCO and Grossman] in matters unrelated to the patent enforcement, patent exploitation, and patent license efforts" for the Hasel patents. The agreement also explicitly provides that ABCO and Grossman are not obligated to undertake "any specific litigation or other enforcement effort," and Dorsey is not required to represent ABCO and Grossman in connection with any specific legal action.

The agreement requires Dorsey to create and maintain two separate billing files: one for litigation services (litigation file) and one for licensing services (licensing file). All time spent on legal services that Dorsey provided on any litigation, including infringement investigations, is billed to the litigation file; all time spent on legal services provided for licensing negotiations and nonlitigation-related agreements is billed to the licensing file. The agreement also requires Dorsey to send ABCO and Grossman monthly statements indicating the "standard matter value at then-current standard rates" for legal services provided with respect to time billed to each file.

In relevant part, the agreement requires ABCO and Grossman to pay Dorsey 40 percent of "any recovery received during [each] quarter as attorneys' fees." The agreement defines "recovery" as

any income received by [ABCO and Grossman], at any time after the effective date of this agreement, whether through litigation or licensing, and whether through payment on a judgment, court order, settlement, contract, license agreement, or other royalty mechanism, or any other means by which money is paid to or on behalf of [ABCO and Grossman] with respect to patent enforcement, exploitation, and patent license efforts....

But the agreement deducts from the recovery "any amounts paid by [ABCO and Grossman] for expenses and service charges," including out-of-pocket expenses, such as court filing fees, local-counsel fees, costs for depositions and expert witnesses, photocopying, costs for obtaining file histories, telephone and fax charges, and similar expense items.

Pursuant to the agreement, Dorsey represented ABCO in litigation against various entities and pursued licensing efforts on behalf of ABCO and Grossman. Dorsey consistently billed ABCO and Grossman for this work according to the terms of the agreement. During this same time, Dorsey also conducted patent-prosecution work on behalf of ABCO. And Dorsey consistently billed ABCO for the patent-prosecution work on an hourly fee basis.

In October 2005, Dorsey withdrew from its representation of ABCO and Grossman. By that time, Dorsey had received a total of approximately $53,729 from ABCO and Grossman, which the parties agree represents the total amount that ABCO and Grossman paid Dorsey for its legal services prior to Dorsey initiating this attorney-lien action.

In November 2005, Dorsey sent ABCO and Grossman notices of two attorney liens, identifying as the bases for the asserted liens its representation under the agreement and its patent-prosecution work for ABCO. Dorsey also filed a UCC financing statement in connection with each lien. Shortly thereafter, Dorsey petitioned the district court pursuant to Minn.Stat. § 481.13, subd. 1(c) (2006), to determine the amounts of the attorney liens and to enter judgment against ABCO and Grossman for those amounts.

ABCO and Grossman countered Dorsey's petition, arguing that (1) their relationship with Dorsey was a joint venture and, therefore, outside the scope of section 481.13; (2) Dorsey breached the agreement and, therefore, was not entitled to an attorney lien based on the agreement; (3) Dorsey was not entitled to a separate attorney lien for Dorsey's patent-prosecution work because the agreement included that work; (4) the amount that Dorsey claimed was incorrect under the agreement; and (5) Dorsey could not seek a personal judgment pursuant to section 481.13.

After a hearing, the district court wrote to the parties, advising them of its intent to rule in favor of Dorsey. The district court indicated, however, that, based on the evidence submitted by the parties, the district court was unable to determine the "recovery" amount, including applicable deductions, from which fees, and therefore the amount of the liens, were to be calculated.

Consequently, the parties conducted discovery and ultimately stipulated to a number of facts, including the gross recovery from the Hasel patents. But they disagreed as to (1) the amount deductible from the recovery, and (2) whether the agreement included the patent-prosecution work. After a hearing on these remaining issues, the district court concluded that Dorsey is entitled to an attorney lien on the Hasel patents limited to the Hasel patents' proceeds. The district court directed entry of one judgment in the amount of $586,312.20 in favor of Dorsey and against ABCO and Grossman, jointly and severally, and another judgment in the amount of $126,236.23 in favor of Dorsey and against ABCO. The district court further ordered that the liens "remain in existence until the obligations are paid."

Less than one month after the judgments were entered, counsel for ABCO and Grossman wrote to the district court to request clarification of its order. Counsel advised the district court that Dorsey had been attempting to collect on both judgments without regard to whether the funds sought were proceeds from the Hasel patents. In response, the district court issued an amended order, which specified that the $586,312.20 judgment is limited to the proceeds from the Hasel patents but the $126,236.23 judgment "is a separate lien" that is "not limited to the proceeds from the `Hasel Patents' or in any other way."

This appeal followed. After ABCO and Grossman filed their notice of appeal, Dorsey filed a timely notice of review pursuant to Minn. R. Civ.App. P. 106.

ISSUES

I. Does the agreement establish a joint venture?

II. Did the district court erroneously interpret the agreement by rejecting appellants' claimed deduction and excluding respondent's patent-prosecution work from the agreement?

III. Did the district court erroneously interpret the attorney-lien statute, Minn.Stat. § 481.13 (2006), by directing entry of personal judgments against appellant-corporation and declining to entertain a legal-malpractice claim in the summary proceeding?

ANALYSIS

I.

ABCO and Grossman first argue that the agreement is a joint-venture agreement and, therefore, is not subject to the attorney-lien statute, Minn.Stat. § 481.13 (2006). The district court did not explicitly address this joint-venture argument. But from the district court's silence on this issue and its application of the attorney-lien statute, we infer that the district court concluded that there was no competent evidence demonstrating a joint venture.

The existence of...