Dunn & Black, P.S. v. U.S.

Decision Date25 February 2005
Docket NumberNo. CV-04-0229-LRS.,CV-04-0229-LRS.
Citation366 F.Supp.2d 1008
CourtU.S. District Court — District of Washington
PartiesDUNN & BLACK, P.S., Plaintiff, v. THE UNITED STATES of America; and Environmental Reclamation, Inc., an Idaho corporation; and John Doe Corporations 1-10, Defendants. Fidelity and Deposit Company of Maryland, a Maryland corporation, and American Guaranty & Liability Insurance Company, a New York corporation, Intervenors.

Richard Duncan Campbell, Robert A. Dunn, Dunn & Black PS, Spokane, WA, for Plaintiff.

Jennifer D. Auchterlonie, U.S. Department of Justice Tax Division, Washington, DC, for Defendants.

Gerri Sirek, Gerri Sirek Law Office, Spokane, WA, Michelle R. Points, Hawley Troxell Ennis & Hawley, Boise, ID, for Intervenors.

ORDER

SUKO, District Judge.

BEFORE THE COURT is Intervenors' Fidelity and Deposit Company of Maryland and American Guaranty & Liability Insurance Company's [Intervenors1] Motion for Declaratory Judgment, filed October 19, 2004 (Ct.Rec.20); Plaintiff Dunn and Black, P.S.'s [law firm] Motion for Summary Judgment (Ct.Rec.28), filed November 2, 2004; and Intervenors' Alternative Motion For Stay of Plaintiff's Motion For Summary Judgment under Fed.R.Civ.P. 56(f) (Ct.Rec.40), filed November 16, 2004. These motions were heard with oral argument on December 20, 2004, at which time the court requested supplemental briefing on jurisdiction and lien priority issues.

I. BACKGROUND FACTS AND SUMMARY OF THE PARTIES' ARGUMENTS

On June 20, 2004, plaintiff law firm, Dunn & Black, brought a complaint in this court for declaratory judgment against the United States and plaintiff's former client Environmental Reclamation, Inc. [ERI]2, the non-participating defendant construction company. Plaintiff requested this court to declare that its fees and costs of $361,037.20 are reasonable for the legal services rendered and that it was entitled to assert an attorney's fee lien. First Amended Complaint, Prayer for Relief. Further plaintiff requested that the court declare its attorney's fee lien superior to all subsequent liens, claims, interest in and to the judgment in the matter of Environmental Reclamation, Inc. v. United States, case number 02-5C, before the U.S. Court of Federal Claims [Court of Claims litigation]. Id. Alternatively, plaintiff requested that this court declare that the United States' setoff constitutes unjust enrichment without fairly compensating Dunn & Black for its services in creating the judgment fund, which reasonable amount is $361,037.20. Id. Additionally, plaintiff requested this court declare that the United States' setoff would be a violation of due process and plaintiff be paid $361,037.20.

On September 16, 2004, the court allowed intervenors, judgment creditors of ERI, to intervene. Ct. Rec. 19.

The matter before the court on cross motions for declaratory judgment and summary judgment began as a contest of liens: an attorneys' lien for services rendered in winning the disputed settlement/judgment fund3 against the government versus liens by the intervenors versus IRS liens on the judgment fund based on taxes owed by the law firm's former client ERI. There are combinations of four distinct theories set forth by the parties for this court to consider in its determination of the destiny of the Judgment Fund: lien priority, equitable subrogation, equity, and set-off.

On July 24, 1997, ERI executed an Indemnity Agreement agreeing to indemnify, save, and hold harmless the intervenors as sureties for its execution or procurement of bonds or undertakings on behalf of ERI as the principal. Ferguson Aff., ¶ 4.

On September 29, 1998, ERI executed a second Indemnity Agreement agreeing to indemnify, save, and hold harmless the intervenors as sureties for its execution or procurement of bonds or undertakings on behalf of ERI as the principal. Ferguson Aff., ¶ 5.

On March 11, 1999, ERI and Flying Eagle Corporation executed an Application for Performance and Payment Bond and Indemnity Agreement with the intervenors as the surety. Ferguson Aff., ¶ 8. Flying Eagle Corporation (a dissolved corporation) and ERI jointly, severally, and unconditionally agreed to indemnify and reimburse intervenors for said Payment and Performance Bond and reimburse intervenors for and against any loss in connection with said Bond. Id.

On July 8, 1999, the Western Federal Lands Highway Division of the Federal Highway Administration [FHWA] awarded a contract to ERI in the amount of $3,499,464.50. Points Aff., Exh. D. The overall purpose of the contract was to rebuild Forest Development Road # 340 in the Payette National Forest near Warren, Idaho. Id. The project involved rebuilding four bridges, pioneering a new alignment for the road across a steep hillside, and other miscellaneous work. Id. ERI began work on July 22, 1999. Id. ERI's original completion date was October 12, 2000. Id. This date was later extended to July 9, 2001. Id.

On August 18, 1999, ERI executed a third Indemnity Agreement agreeing to indemnify, save, and hold harmless the intervenors as surety for its execution or procurement of bonds or undertakings on behalf of ERI as the principal. Ferguson Aff., ¶ 6.

In the year 2000, ERI retained the plaintiff law firm to advise it regarding a road project called the Warren Profile Gap Road Project [Warren Project] in South Central Idaho for FHWA. Plaintiffs' SOF,4 ¶ 1. The government was refusing to grant extensions of time and increases to ERI's contract amount. Id. At the time ERI engaged Dunn & Black to advise it on the Warren Project, Dunn & Black had an ongoing client relationship with ERI and was representing ERI on several other matters at an hourly rate. Id., ¶ 2.

On January 4, 2001, the contracting officer for the government issued a termination for default to ERI for the Warren Project. Points Aff., Exh. D. According to Dunn & Black, the alleged wrongful termination of ERI by the government caused tremendous financial stress on ERI, including ERI's inability to pay taxes. Plaintiffs' SOF, ¶ 5.

On January 3, 2002, plaintiff filed an action in the United States Federal Court of Claims on behalf of ERI to recover monetary damages for alleged wrongful termination in the amount of $1,724,295.98 against the FHWA, a U.S. Department of Transportation organization. [Court of Claims litigation]. Plaintiffs' SOF, ¶ 3, Aff. of M. Points, Exh. D. In the Court of Claims litigation, ERI also requested that the termination for default be converted into a termination for convenience. Id.

The Court of Claims litigation presented complex issues involving scheduling, accounting, rock geology and blasting. Plaintiffs' SOF, ¶ 3. The United States asserted a claim for reprocurement costs in the amount of $948,168.82. Id. Dunn & Black engaged and paid experts to assist in proving ERI's case and defending the government's claim. Id.

On November 20, 2002, Dunn & Black amended its existing hourly fee agreement it had with ERI, negotiated5 and entered into a contingency fee agreement due to the high balance of accounts receivable carried on the Warren Project and other matters. Plaintiffs' SOF, ¶ 4. At this time, ERI was indebted to Dunn & Black in the amount of $137,682.33 for past due legal services rendered on the Warren Project as well as on other matters. Id. The contingency fee agreement stated that Dunn & Black "shall be entitled to the first $137,682.33 of any recovery from any claims related to the project." Id. The agreement further stated that "Dunn & Black shall be compensated for its further services relating to the [Warren] Project in the amount of 50% of any remaining recovery and that ERI was responsible for all litigation costs." Id.

On November 14, 2003, Fidelity & Deposit Company of Maryland [F & D], et al. (intervenors in this action) brought an action against ERI in the United States District Court, District of Idaho, Civ. No. 03-497-EJL, to recover for the amount paid out against the ERI bonds and related collection expenses, including Bond # SUR-3596528 for the Warren Project. F & D filed a motion for summary judgment for the cumulative total of $931,860.84 claimed to be owed by ERI to F & D. (Ct.Rec.14, Civ. No. 03-497-EJL). ERI did not respond to the dispositive motion. On July 29, 2004, Judge Edward Lodge entered judgment in favor of the surety companies (intervenors in this action) against ERI for $931,860. (Ct.Rec.22, Civ. No. 03-497-EJL).

On March 30, 2004, a "Stipulation For Entry of Judgment" was entered in the Court of Claims litigation. Points Aff., Exh. D. The stipulation was entered to settle the claims asserted in ERI's complaint and to permit entry of final judgment upon those claims without constituting an admission of liability upon the part of the government. Id. ERI offered to settle all of its claims in exchange for payment by the United States of $450,000 (inclusive of interest, costs, expenses, and attorney fees) and the government's agreement to convert the termination for default into a termination for the convenience of the Government. Id.

Subsequent to that stipulation, a $450,000 judgment was entered against the United States on April 5, 20046 [hereinafter referred to as the judgment fund]. Id. This $450,000 judgment fund lies at the vortex of this litigation.

According to Dunn & Black, ERI was required to pay the law firm $361,037.20 from the judgment fund pursuant to the contingency fee agreement. Plaintiff's SOF, ¶ 6.

The Internal Revenue Service [IRS], upon learning of the settlement, asked the government to stop payment of the judgment so that the IRS could offset certain federal tax liabilities of ERI against the judgment.

On May 5, 2004, plaintiff was informed by a government attorney that the IRS would be making claims to the settlement funds as an intended offset of the entire amount of the judgment based on an unrelated federal tax debt purportedly owed by ERI7. Plaintiffs' ...

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3 cases
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