Opinion
No. A03-88.
Filed December 9, 2003.
Appeal from the District Court, Hennepin County, File No. Ct 96-10411.
Lawrence P. Marofsky, (attorney pro se).
Susan F.K. Bieniek, (for appellants, Frank and Ann Dropps).
Robb Gass Construction, Inc., Robb Gass, (respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
In this second appeal in a residential construction dispute, the homeowners challenge the district court's order on prejudgment interest, costs and disbursements, attorneys' fees, and the enforcement of an attorneys' lien. We conclude that the homeowners are entitled to prejudgment interest against the construction company, costs and disbursements against a principal of the construction company, and a recalculation of attorneys' fees. We also reverse and remand the unqualified personal judgment enforcing the attorneys' lien but affirm the reasonable value of the properly attributed attorneys' fees.
FACTS
Frank and Ann Dropps contracted with Robb Gass Construction Company (RGC) to build a house on their property in Maple Grove. Robb Gass is a principal of RGC. The construction was completed in February 1996, but not by the December 1995 contract deadline. The Dropps asserted defects in construction, and each party claimed breach of contract. The Dropps filed complaints with the Minnesota Department of Commerce (DOC), and the DOC held an investigative/settlement meeting that resolved some, but not all, of the outstanding claims from subcontractors.
RGC sued the Dropps for breach of contract, fraud, and slander; Robb Gass individually asserted a claim of slander for allegedly defamatory statements made by Ann Dropps. The Dropps answered and counterclaimed for breach of contract. The remaining lien claims were consolidated with this action. The district court conducted a twenty-four-day trial over a two-year period. The findings of fact, conclusions of law, and order for judgment, were twice amended. After the denial of posttrial motions the Dropps appealed, challenging the defamation damages, attorneys' fees and costs, out-of-pocket disbursements to RGC, the construction defect damages, RGC's costs and disbursements, and the subcontractors' liens.
On appeal, this court reversed the judgment for RGC on the defamation claim, affirmed the damages awarded the Dropps for construction defects, and reversed RGC's costs and disbursements because it was no longer the prevailing party. Robb Gass Constr., Inc. v. Dropps, No. C5-00-1570, 2001 WL 436182 (Minn. App. 2001). The appeal also decided most of the mechanic's lien claims, none of which are at issue in the current appeal.
On remand the district court ordered, relevant to this appeal, judgment for $18,756.93 against RGC for the construction defects "with interest to date hereof with costs." The Dropps were unable to collect on that judgment, but in accordance with a court order, recovered $19,156.93 from the Minnesota Contractor's Recovery Fund. As part of the recovery, the Dropps agreed that the Commissioner of Commerce was subrogated to their rights as judgment creditors to the extent of the amounts paid.
The Dropps requested review of the court administrator's allowance of costs and disbursements and moved for $5,220.69 in prejudgment interest. Following a hearing, the district court allowed an additional $7,778.35 in costs and disbursements against RGC, but denied the Dropps' request for prejudgment interest against both RGC and Robb Gass individually.
Attorney Lawrence Marofsky, who had represented the Dropps at trial but not on the first appeal or on remand, asserted an attorneys' lien in the amount of $25,052.25. The district court, after considering the Dropps' objections to the nature and amount of the lien, allowed the full amount and ordered personal judgment for the attorney against the Dropps for $25,052.25 plus interest.
The Dropps appeal (1) the denial of prejudgment interest, (2) the denial of costs and disbursements against Robb Gass, personally, (3) the amount of the attorneys' lien, and (4) the personal judgment entered against them on that lien.
DECISION I
The district court denied the Dropps' motion for prejudgment interest against RGC. Under Minn. Stat. § 549.09, subd. 1 (2002), the district court is directed to allow prejudgment interest to a prevailing party. See id., subd. 1(b) (providing that "the prevailing party shall receive interest on any judgment or award"); see also Minn. Stat. § 645.44, subd. 16 (2002) (stating that "shall" in a statute means that an action is mandatory).
Prejudgment interest has been characterized as "an element of damages" that will "provide full compensation by converting time-of-demand (either by written settlement offer or commencement of action) damages into time-of-verdict damages." Lienhard v. State, 431 N.W.2d 861, 865 (Minn. 1988) (citation omitted). Prejudgment interest compensates the prevailing party for the true cost of money damages that are incurred; it also promotes settlements when the amounts of damages and liability are fairly certain. Casey v. State Farm Mut. Auto. Ins. Co., 464 N.W.2d 736, 739 (Minn. App. 1991), review denied (Minn. Apr. 5, 1991).
The district court initially ordered $18,756.93 in damages for the Dropps, with prejudgment interest. More than a year later the court issued another order that denied prejudgment interest. Because the statute contains the word "shall" and because the damages were certain, we conclude that the district court was correct in its initial order that determined that the Dropps were entitled to prejudgment interest. A party is generally entitled to interest from the time the lawsuit was commenced until the time of judgment. Minn. Stat. § 549.09, subd. 1(b). Therefore, the Dropps are entitled to prejudgment interest from the time the complaint was filed in 1996 to the judgment in 2001. Their counsel calculated the sum of interest due under the statute, using the interest rates listed in Minn. Stat. § 549.09 for the years 1996-2001. This calculation results in a proposed amount of $5,220.69, which should be reduced only by an amount, if any, properly attributable to prejudgment interest included in the Dropps' award from the contractors' recovery fund. We remand to the district court for final determination and entry of prejudgment interest.
II
Minnesota statutory law provides that the prevailing party in a district court action shall be allowed costs and reasonable disbursements. Minn. Stat. §§ 549.02, .04 (2002). The district court is required to order costs for a prevailing party and has discretion to determine which party, if any, qualifies as a prevailing party. Benigni v. County of St. Louis, 585 N.W.2d 51, 54-55 (Minn. 1998) (citation omitted). "The prevailing party in any action is one in whose favor the decision or verdict is rendered and judgment entered." Borchert v. Maloney, 581 N.W.2d 838, 840 (Minn. 1998). The prevailing party may, under the statute, proceed for its costs and disbursements against any or all of the opposing parties. Vill. of Edina v. Joseph, 264 Minn. 84, 103, 119 N.W.2d 809, 821 (1962).
In the first appeal this court reversed the district court's defamation judgment against the Dropps and concluded that because RGC was no longer the prevailing party, it was not entitled to costs and disbursements. See Robb Gass Constr., Inc. v. Dropps, No. C5-00-1570, 2001 WL 436182 (Minn. App. 2001), at *7-*8. On remand, the district court ordered judgment, costs, and interest against RGC but not against Robb Gass individually. The Dropps requested costs and disbursements against both. At the hearing, Robb Gass disclaimed any personal responsibility for costs. The district court then ordered more than $7,000 in additional costs against RGC but declined to order costs against Robb Gass, noting that judgment had been entered against RGC and not Robb Gass individually.
Minnesota law does not require that a judgment be docketed against a losing party for the district court to order costs and disbursements for the prevailing party. See, e.g., Nieszner v. St. Paul Sch. Dist. No. 625, 643 N.W.2d 645, 650 (Minn. App. 2002) (holding that plain language of Minn. Stat. § 549.02 allows taxation of costs to prevailing defendant even if court dismissed action for lack of personal jurisdiction). As the prevailing parties, the Dropps were entitled to recover their costs and disbursements against any or all of the opposing parties. Robb Gass individually as well as RGC brought the initial defamation claim against the Dropps; he was not dismissed from the lawsuit and thus became a losing party when the defamation judgment was overturned. As a losing party, Robb Gass individually must be included in the order for costs and disbursements, and we remand to the district court for the appropriate order.
III
Minn. Stat. § 481.13 (2000), the version of the attorneys' lien statute in effect at the time attorney Marofsky filed his lien, authorizes the establishment of an attorneys' lien for compensation on the cause of action, on the client's interest in property relating to any action in which the attorney may have been employed, and on the judgment. The lien "may be established, and the amount thereof determined, by the court, summarily, in the action or proceeding, on the application of the lien claimant or of any such person or party interested in the property subject to such lien . . . or . . . may be enforced, and the amount thereof determined, . . . in an action for equitable relief brought for that purpose." Id.
"The theory behind [an attorneys'] lien is that a successful party should not be permitted the fruits of the judgment secured by the attorney's services without paying for those services." Boline v. Doty, 345 N.W.2d 285, 289 (Minn. App. 1984) (citing Schroeder, Siegfried, Ryan, Vidas v. Modern Elec. Prods., Inc., 295 N.W.2d 514, 516 (Minn. 1980)). By imposing a lien, the statute protects attorneys whose clients have agreed to pay fees; it does not create an agreement to pay attorneys' fees. Johnson v. Blue Cross Blue Shield of Minn., 329 N.W.2d 49, 53 (Minn. 1983).
The Dropps challenge the amount of the attorneys' lien, contending that the district court erred by including fees attributable to another action, that the amount of the lien was unreasonable, and that the district court erred by ordering a personal judgment against the Dropps to enforce the lien.
The Dropps first argue that the district court erred by allowing the full amount requested because some of the fees were related not to this case, but rather to a separate action, referred to as the Monette case, which involved a claim of defective brickwork performed on the Dropps' home. An attorneys' lien "only applies to charges by the attorney for services in connection with the particular action or proceeding involved and not to a client's general account." Schroeder, 295 N.W.2d at 516 (citation omitted).
The attorney, in his supporting affidavit, stated that he applied a $4,000 payment made by the Dropps in November 2000 to his account for services performed on the Monette case, so that the Monette matter was then paid in full. Consequently, the attorney asserts that because the $4,000 payment did not reduce the amount owing on the RGC case, he may pursue an attorney's lien for the full amount of fees still owed in this matter. But the Dropps contend that the attorney in fact applied the $4,000 payment partially to the RGC case and only later claimed that he credited the entire $4,000 to the Monette account.
Generally, if a debtor makes a payment on an "account without instructions on how to apply the payment, the payment is applied to the oldest item on the account." W. Insulation Servs., Inc., v. Cent. Nat'l Ins. Co. of Omaha, 460 N.W.2d 355, 357 (Minn. App. 1990) (citation omitted). Under some circumstances, if the debtor does not direct the application of payments, the creditor may apply the payment as it sees fit, including its application to a later item on the account. Gen. Elec. Co. v. Anchor Cas. Co., 251 Minn. 305, 309, 87 N.W.2d 639, 642-43 (1958). But once a dispute has arisen between the debtor and the creditor, the creditor may no longer claim assent for applying payments in a way that would prejudice the rights of the debtor. Cf. id. at 311-312, 87 N.W.2d at 644-45 (noting that since no dispute had yet arisen creditor could still indicate to debtor specific application of payments).
On the billing statement of December 2000 the Dropps were credited $4,000. The statement lists $1,144 in still-unpaid charges previously incurred and billed for the Monette case. This would mean that the payments were initially applied to the oldest charges first, mostly those on the RGC case, rather than those on the Monette case. After the dispute arose, according to the attorney's affidavit, the payments were not allocated to the oldest charges first; instead, the full $4,000 was applied to the Monette case. This allocation prejudiced the rights of the Dropps as debtors and increased the amount that could be claimed under the attorneys' lien. We therefore conclude that the district court erred in failing to reduce the amount of the attorneys' lien by $1,144, the amount that was initially applied to reduce the balance on the Dropps' account. We remand for the appropriate amendment to the district court's order.
The reasonable value of an attorney's services has been characterized as a question of fact. Meagher v. Kavli, 251 Minn. 477, 494, 88 N.W.2d 871, 883 (1958). This court reviews the district court's findings on this issue for clear error. Amerman v. Lakeland Dev. Corp., 295 Minn. 536, 537, 203 N.W.2d 400, 400-01 (1973). The Dropps maintain that the district court erred in determining the reasonable value of the attorneys' fees by allowing the full amount of the requested $25,052.25 lien.
The Dropps submitted an expert affidavit supporting three grounds for the alleged unreasonableness of the attorneys' fees: first, that the attorney failed to timely tender a formal defense of the defamation claim to their liability insurance company, resulting in a loss of the cost of defense; second, that the attorney inadequately defended the defamation claim at trial; and finally, that he failed to prepare adequately for trial by using an expert who was unprepared.
The claim against Farmers Insurance Company was ultimately compromised and settled at mediation for $48,000. The Dropps claim that thirty-three percent of their total fees and expert costs incurred before tendering the defense in July 1998 would have been recoverable from Farmers if the defense had been tendered when the lawsuit was commenced in 1996. But this claim is essentially speculative and is unsupported in the record. Farmers denied coverage when the claim was first submitted to the company, and no evidence suggests that an earlier submission would have changed the response. The district court did not err in declining to adjust the amount of the attorneys' lien for untimely submission.
Similarly, the record does not support the claim that the attorney inadequately defended the defamation claim at trial. When successor counsel for the Dropps brought posttrial motions requesting a new trial, the district court declined to grant the motion. This court's subsequent reversal on the defamation issue is insufficient to support an inference that the defense was inadequately prepared. In addition, the district court specifically found that fees attributable to the defamation defense constituted only a small portion of the fees incurred, a finding unrefuted in the record.
Finally, the Dropps challenge the fees for a trial expert, who testified on the costs of repairing defective construction at the Dropps home. When the expert testified, he neglected to refer to a written estimate that he had previously prepared and furnished to their attorney. On the district court's recommendation, the attorney moved to strike the expert's testimony, and the court granted a continuance for the Dropps to obtain a new expert. Although the attorney adjusted the fees charged in connection with the expert's testimony downward by $1,000, the Dropps reasonably maintain that it is unfair and unreasonable for the attorney to charge any fees attributable to the expert's appearance. The district court, in its reconsideration of the fee issue, made no findings on the reasonableness of the fees relating to the expert, and we therefore reverse and remand for the district court to strike the entire amount of these fees from the attorneys' lien.
IV
The district court entered an order enforcing the attorneys' lien by allowing the attorney a personal judgment against the Dropps. In an action to enforce an attorneys' lien, the district court determines the method of enforcement. Boline, 345 N.W.2d at 290. "The court must determine which property is subject to the lien and how the lien is to be enforced. For example, a court could order a sale of certain property and put a mortgage on other property." Id. The filing of notice of intent to claim a lien gives constructive notice to all subsequent purchasers or encumbrances. See Minn. Stat. § 481.13, subd. 4 (2000) (stating notice of intent to claim lien on real property shall be filed in the office of the county recorder or register of titles). "No alternative method is provided, and the method prescribed must be taken as exclusive." Axel Newman Heating Plumbing Co. v. Sauers, 234 Minn. 140, 144, 47 N.W.2d 769, 771 (1951). A party who proceeds voluntarily under Minn. Stat. § 481.13 must be deemed to have accepted its procedures. Roehrdanz v. Schlink, 368 N.W.2d 409, 412 (Minn. App. 1985).
The record fails to demonstrate that the district court determined which property was subject to the lien or how it was to be enforced against that property; instead, the court issued an unqualified personal judgment against the Dropps. An unqualified personal judgment is ineffective to enforce an attorneys' lien. We therefore reverse and remand to the district court for an order canceling the attorneys' lien and substituting a money judgment on the claim for attorneys' fees, or, in the alternative, enforcing the attorneys' lien in the manner prescribed by law.