Rangel v. Save Mart, Inc.

• Decision Date: 11 August 2006
• Docket Number: No. 24,769.,24,769.
• Citation: 2006 NMCA 120,142 P.3d 983
• Parties: Otilia RANGEL, Plaintiff-Appellee, v. SAVE MART, INC., Defendant, and The Lovett Law Firm, Appellant.
• Court: Court of Appeals of New Mexico

142 P.3d 983

2006 NMCA 120

Otilia RANGEL, Plaintiff-Appellee, v. SAVE MART, INC., Defendant, and The Lovett Law Firm, Appellant.

No. 24,769.

Court of Appeals of New Mexico.

August 11, 2006.

As Revised September 25, 2006.

COPYRIGHT MATERIAL OMITTED

Kyle W. Gesswein, Las Cruces, NM, for Appellee.

Bowles & Crow, Jason Bowles, B.J. Crow, Albuquerque, NM, for Appellant.

OPINION

PICKARD, Judge.

{1} In this case, we determine whether the district court abused its discretion in awarding sanctions under Rule 1-011 NMRA, based on the filing of an attorney charging lien. Because we determine that the appellant's assertion of the charging lien was colorable as a matter of law, we hold that the district court abused its discretion in imposing sanctions, and we reverse the order imposing sanctions.

BACKGROUND

{2} This dispute originated as a slip-and-fall case brought by Plaintiff, Otilia Rangel, against Save Mart. Appellant, the Lovett Law Firm (Lovett), represented Plaintiff. On the day after she sustained her injuries, Plaintiff met with staff at Lovett and signed a contingency fee contract, which stated that Lovett would be entitled to one-third of any monies recovered before the filing of a lawsuit and 40% of any monies recovered after the filing of a lawsuit. About a week later, Lovett sent a letter of representation to Save Mart's insurance company. The insurance company responded with a letter denying fault, but stating as follows: "However, there is $5,000 in medical payment coverage that can be applied to this incident. The coverage will provide payment for any out of pocket expense related to this incident.... Please submit documentation for any medical expense that you wish us to consider." Lovett sent Plaintiff's medical bills, totaling $5,657, to the insurance company, which sent Lovett a check for $5,000, payable to Lovett and Plaintiff. Lovett used some of this money to pay Plaintiff's outstanding medical bills, and he apparently retained approximately one-third of this $5,000 pursuant to the contingency fee agreement with Plaintiff.

{3} Approximately a month later, in March of 2002, Lovett filed suit on behalf of Plaintiff. It appears from the record that some discovery took place after the filing of the complaint. Lovett answered interrogatories and participated in a deposition of Plaintiff. Lovett also participated in a formal mediation. In September and October of 2002, Lovett filed motions to withdraw as counsel for Plaintiff. The motions were granted on October 2, 2002.

{4} The district court found that (1) while Lovett was representing Plaintiff, Save Mart made a settlement offer of $15,000 and (2) subsequent to Lovett's representation, Save Mart made a settlement offer of $18,000. It appears that Plaintiff rejected the $15,000 offer obtained by Lovett, discharged Lovett, and then a short time later accepted the $18,000 settlement offer. There is no indication in the district court's findings or in the record that Lovett was discharged for cause.

{5} Two days after withdrawing as Plaintiff's counsel, Lovett filed a notice of charging lien. That document states in full as follows: "COMES NOW Lovett Law Firm and respectfully notifies the Court and counsel that it is asserting an attorney charging lien in the above captioned matter. Lovett Law Firm requests that no funds be disbursed until [a] hearing is held on recovery of monies owed to the firm." Lovett later argued that it was entitled to a charging lien for its full contingency fee.

{6} Plaintiff retained new counsel and filed a motion to strike the lien and to recover the portion of the $5,000 obtained for medical bills that Lovett had retained. The district court eventually granted the motion and struck the lien. In striking the lien, the district court made the following findings, which are substantially unchallenged on appeal:

13. Other than the $5,000.00 med pay payment made by the insurance company representing Save Mart, Attorney Lovett did not collect any funds during his representation of [Plaintiff].

....

15. Regarding the claim of lien, Attorney Lovett is relying on the [contingency fee] contract for his claim.

16. Attorney Lovett bases his claim upon the contract[,] not on time/work.

....

29. Under Save Mart's insurance policy, they would not and did not contest medical payments.

30. Save Mart's requirements to pay medical insurance payments were solely based on presentation of medical bills and was done without regard to fault.

The district court ruled that a charging lien can be asserted only where there is a "fund recovered by the attorney." The court determined that the only money recovered by Lovett was the $5,000 obtained to pay medical bills and that such money did not qualify as "recovery" for purposes of a charging lien. The court also entered findings indicating that a contingency fee on medical payments is not a reasonable fee.

{7} Prior to the district court's striking the lien, Plaintiff filed a motion for sanctions under Rule 1-011. Plaintiff argued that sanctions were appropriate because (1) the claim of lien was unfounded, since Lovett never recovered any money on behalf of Plaintiff, and (2) Lovett knowingly took an inconsistent position in a similar case. Plaintiff requested that the court impose sanctions in the form of the attorney fees incurred in opposing the lien. The court entered an order granting the motion and awarding Plaintiff the requested fees. The court did not enter findings of fact or conclusions of law with regard to the sanctions.

{8} On appeal, Lovett contends that there was no sanctionable conduct in this case. Lovett does not contest the propriety of the district court's order striking the lien. Accordingly, we examine only whether Lovett's conduct constituted a violation of Rule 1-011, and we do not decide whether the district court properly denied the lien.

DISCUSSION

{9} We begin by setting forth the requirements for a Rule 1-011 violation and the appropriate standard of review. We then examine the substantive requirements for an attorney charging lien, and we address whether Lovett's filing of the charging lien in this case violated Rule 1-011. Finally, we address several additional arguments made by Plaintiff.

1. The Rule 1-011 Standard

{10} The pertinent provision of Rule 1-011 states the following: "The signature of an attorney ... constitutes a certificate by the signer that the signer has read the pleading, motion or other paper; that to the best of the signer's knowledge, information and belief there is good ground to support it; and that it is not interposed for delay." In this case, there is no allegation that Lovett failed to read any pleadings or that the charging lien was filed in order to cause delay or for some other improper purpose. Plaintiff did argue that courts need to control attorneys who prejudice their clients by filing unfounded liens in order to tie up the clients' files. However, (1) the district court did not make any findings or comments along those lines, and (2) there is no evidence that such occurred in this case. Accordingly, the only question is whether "to the best of [Lovett's] knowledge, information and belief, there [was] good ground to support" the charging lien. See Rule 1-011.

{11} New Mexico courts have interpreted the "good ground" provision of Rule 1-011 to allow for sanctions where a pleading does not assert a colorable claim or, in other words, "is not warranted by existing law or a reasonable argument for its extension." Rivera v. Brazos Lodge Corp., 111 N.M. 670, 674, 808 P.2d 955, 959 (1991). The "good ground" provision is measured by a subjective standard and is appropriate "only in those rare cases in which an attorney deliberately presses an unfounded claim or defense." Id. (internal quotation marks and citations omitted). "Any violation depends on what the attorney ... knew and believed at the relevant time and involves the question of whether the ... attorney was aware that a particular pleading should not have been brought." Id. at 675, 808 P.2d at 960. For Rule 1-011 sanctions to be appropriate, there must be "subjective evidence that a willful violation has occurred." Lowe v. Bloom, 112 N.M. 203, 204, 813 P.2d 480, 481 (1991).

{12} Generally, appellate courts review a district court's imposition of Rule 1-011 sanctions for an abuse of discretion. Rivera, 111 N.M. at 674-75, 808 P.2d at 959-60. "However, a district court necessarily would abuse its discretion if it based its ruling on an erroneous view of the law[.]" Id. at 675, 808 P.2d at 960. We have reviewed Hughes v. City of Fort Collins, 926 F.2d 986 (10th Cir.1991), cited by Plaintiff, but we note that even that case holds that a district court's Rule 1-011 decision is an abuse of discretion where the court "base[s] its ruling on an erroneous view of the law." Id. at 988 (internal quotation marks and citation omitted).

2. The Substantive Standards Governing an Attorney Charging Lien and Whether the Charging Lien Violated Rule 1-011

{13} There are four elements to an attorney charging lien in New Mexico: (1) there must be a valid express or implied contract between the attorney and the client, (2) there must be "a fund recovered by the attorney," (3) notice of intent to assert a lien must be given, and (4) there must be a timely assertion of the lien. Sowder v. Sowder, 1999-NMCA-058, ¶¶ 10-14, 127 N.M. 114, 977 P.2d 1034 (internal quotation marks and citations omitted). The charging lien is a common-law right that is equitable in nature. N. Pueblos Enters. v. Montgomery, 98 N.M. 47, 49, 644 P.2d 1036, 1038 (1982). We have 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.

Sowder, 1999-NMCA-058, ¶...