Opinion
No. C0-02-1304.
Filed March 4, 2003.
Appeal from the Hennepin County District Court, File No. 00-15463.
Russell M. Spence, Jr., The Spence Law Firm, (for appellants)
Kurtis L. Berg, (for respondent Douglas Bell, Inc.)
S. Warren Gale, S. Warren Gale Law Office, P.A., (for respondent S. Warren Gale Law Office)
William R. Skolnick, Sean A. Shiff, (for respondent Champps Operating Corp.)
Steven H. Silton, Charles A. Horowitz, Mansfield, Tanick Cohen, (for Steven Silton and Mansfield, Tanick Cohen)
Considered and decided by Peterson, Presiding Judge, Harten, Judge, and Halbrooks, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellants, attorneys who agreed to the disposition of the proceeds of a case they had settled, argue that the district court erred in concluding that (1) the attorney's liens they filed after approving the disposition do not attach to an insurance policy awarded to a third party; (2) their client's judgment creditor's lien was superior to theirs; and, (3) the district court abused its discretion in refusing to consider an affidavit submitted after circulation of a draft order. Because we see no error of law and no abuse of discretion, we affirm.
FACTS
The facts that we relate are but a summary of the intricate and confusing interrelationships among the parties over the period 1999 to 2002, which can only be characterized as bewildering.
Appellants, the Spence Law Firm (SLF) and a contract attorney, Dennis Pelowski, and respondents, the Stuart Gale Law Office (Gale) and Champps Operating Corp., (Champps), are all creditors of Douglas Bell and/or his corporation, Douglas Bell, Inc., (DBI). Champps is a judgment creditor of DBI; Gale, SLF, and Pelowski are all attorneys who represented DBI under retainer agreements providing that Bell personally guaranteed payment of their fees.
Bell, DBI, another of DBI's former attorneys, Steve Silton, and his current law firm, Mansfield, Tanick Cohen, are also listed as respondents, but take no part in this appeal.
Gale agreed to represent DBI in an action that DBI brought on behalf of Daryl Shiber against a defendant who had acquired beneficiary rights under a $1 million insurance policy and a $500,000 insurance policy, both on Daryl Shiber's life. Through Gale's efforts, the DBI action was settled with an agreement whereby the defendant paid DBI $50,000 and assigned DBI its rights under the $500,000 insurance policy and DBI and Shiber renounced their rights under the $1 million policy. Gale then discovered that neither DBI nor Bell would pay Gale's fees. Gale terminated his representation of DBI, filed an attorney lien on the settlement proceeds, and advised Bell to get other counsel.
Bell then retained SLF and, through SLF, Pelowski; they negotiated an ancillary settlement to dispose of the proceeds of the first settlement. Before the district court approved the ancillary settlement, Pelowski deposited with the court an amount sufficient to pay Champps' lien. Bell and DBI also had other creditors; therefore, as Pelowski testified, their objective in the ancillary settlement was "Let's net [the settlement proceeds] before other creditors increase or pursue the same sum we're now all fighting over."
The ancillary settlement provided that Gale would receive $5,000 of the $50,000 the defendant in the underlying action paid to DBI and that SLF and Pelowski would be paid from the remaining $45,000. Pelowski had Bell sign a statement that he would not transfer or encumber the settlement proceeds before paying Pelowski and SLF. The ancillary settlement also provided that Kimberly Shiber would receive all interest in the $500,000 policy.
Pelowski, as counsel for DBI and Bell, was given the $50,000 check from them. He did not deposit it into a trust account; instead, he, Bell, and Gale immediately went to a bank and converted it into a $5,000 check for Gale, a $15,000 check for Pelowski, and a $30,000 check for Bell. Bell was expected to take his check to SLF and pay the remaining attorney fees and the $6,745.68 Pelowski had deposited with the court to pay Champps' judgment against Bell. Bell, however, did not go to SLF and did not respond to Pelowski's efforts to contact him. SLF and Pelowski terminated their representation and filed attorney's liens. Bell later testified that, despite having signed a statement that he would not transfer or encumber the settlement proceeds until he paid SLF and Pelowski, he nonetheless had spent the $30,000 primarily on gambling and that DBI had no funds remaining.
The district court entered judgment providing, in relevant part, that (1) Gale had a $25,000 lien against the policy, to be paid by funds deposited with the court by Kimberly Shiber, the policy's beneficiary; (2) SLF had a $5,120.05 lien and Pelowski a $5,545.19 lien against any other funds Bell received from the settlement, but not against the insurance policy, and (3) Champps' lien would be paid from the funds Pelowski had deposited with the court for that purpose.
SLF and Pelowski appeal, contending that (1) they have a right to liens against the insurance policy; (2) their claim to the funds used to pay Champps was superior to Champps' claim; and (3) the district court abused its discretion in refusing to consider a postjudgment affidavit submitted by SLF.
DECISION
Questions as to the validity of an attorney's lien involve factfinding, which this court does not set aside unless it is clearly erroneous. Ashford v. Interstate Trucking Corp. of Am., Inc., 524 N.W.2d 500, 502 (Minn.App. 1994).
Appellants argue that the standard of review is de novo because the issue is one of statutory interpretation, but appellants are actually challenging the district court's determination that the purported attorney lien on the insurance policy is invalid.
1. The SLF and Pelowski Liens
SLF and Pelowski rely first on the language of Minn. Stat. § 481.13, subd. 1 (2002), providing that an attorney has a lien for compensation
upon the interest of the attorney's client in any money or property involved in or affected by any action or proceeding in which the attorney may have been employed * * * .
They argue that the insurance policy is "property involved in or affected by [a] * * * proceeding in which [they] were employed." But the statutory language limits an attorney's lien to be "upon the interest of [the] client" in such property. The client here was DBI, and the terms of the ancillary settlement gave all interest in the $500,000 policy to Kimberly Shiber, a client of neither SLF nor Pelowski. Moreover, as the district court found,
it would be inequitable to permit [SLF and Pelowski] to lien against the insurance policy, because they negotiated the division of the assets * * * and the insurance policy was to go to [Kimberly] Shiber.
The district court also found that "Pelowski had control of $45,000 of that $50,000 [of the assets] and facilitated its distribution to his client." Pelowski was aware that Bell owed both SLF and him attorney fees and owed him a further $6,745.68 because Pelowski had deposited that amount with the court to pay Champps' lien. Moreover, Pelowski required Bell to promise, in writing, that he would not disperse or encumber the settlement proceeds until he had paid his debts to SLF and Pelowski. But the fact that Bell broke his promise and did not pay those debts does not give SLF and Pelowski the right to an attorney's lien on property that is not Bell's.
Minn. R. Prof. C. 1.15(a)(2) states that "funds belonging in part to a client or third person and in part presently or potentially to a lawyer or law firm must be deposited" in a trust account.
SLF and Pelowski next argue that they are entitled to the same treatment as respondent Gale, whose attorney's liens initially attached to the insurance policy. But the district court explained the difference:
They also make this argument with reference to attorney Steve Silton and his current law firm, Mansfield, Tanick Cohen, who take no part in this appeal.
Gale * * * agreed to take $5,000 from Bell's $50,000 distribution and the balance of his fees from Shiber. Thus, Gale's lien claim should be limited to a $25,000 lien against the insurance policy.
SLF and Pelowski negotiated and approved the ancillary settlement providing that Gale would receive $5,000 from Bell's distribution and a $25,000 lien against the insurance policy and that Kimberly Shiber, who received the policy, would deposit with the court funds to satisfy Gale's lien. The ancillary settlement also provided that SLF and Pelowski were to be compensated by Bell out of the $45,000 remaining after Gale's $5,000 was paid. The district court's order does not reflect arbitrary disparate treatment of the various attorney's liens: it rather reflects the ancillary settlement to which all the attorneys had agreed.
2. The Champps Levy
As a threshold matter, Champps claims that this issue is not before the court because appellants never raised it prior to this appeal. But, in its motion for reconsideration, SLF asserted that "Spence and Pelowski's lien rights are superior to Champps third-party creditor claims."
SLF and Pelowski argue that Champps does not have priority claim to the $6,745.68 Pelowski deposited with the court to prevent Champps from restraining all distribution of the settlement proceeds. The district court found that
Pelowski purportedly made this deposit from Bell's client trust account, but the record indicates that this account did not have $6,745.68 in it; the SLF/Pelowski retainer agreement provided for a retainer of only $1,500, and it is annotated to reflect only that a non-refundable $500 was received.
it seems * * * inequitable to permit [SLF and Pelowski] * * * to lien against the funds that they specifically agreed with the Court to deposit to accommodate Champps' claim, in consideration of the order for early distribution. It would appear that [they] waived their right to lien against these funds.
SLF and Pelowski rely on St. Cloud Nat. Bank Trust v. Brutger, 488 N.W.2d 852, 855 (Minn.App. 1992) (holding that "client funds deposited in a law firm's trust account are subject to levy by the client's creditors" and that "a charging lien does not secure an attorney's interest in a retainer fee"), review denied (Minn. 17 Nov. 1992), to support their claim to the $6,745. But their reliance is misplaced: Brutger found the client's creditor's claim superior to the attorneys' claim. Id. Champps filed its third-party levy on the settlement proceeds at least a week before SLF and Pelowski filed their attorney's liens; consequently, Champps' claim is superior.
3. Evidentiary Issue
Neither respondents' briefs nor appellants' reply brief addresses this issue.
Absent erroneous interpretation of the law, the question of whether to admit or exclude evidence is within the district court's discretion. Kroning v. State Farm Auto Ins. Co., 567 N.W.2d 42, 45-46 (Minn. 1997). The district court circulated a draft order on which it invited feedback. The draft order found that SLF had a lien of $5,120.05; SLF submitted an affidavit stating that its lien was actually $13,067.36. The district court, noting that its draft order followed two hearings and the submission of affidavits and exhibits, refused to consider the post-order affidavit because the other parties had no opportunity to respond to it.
SLF does not refute this argument, but argues that the district court abused its discretion in not considering the SLF affidavit because it did consider post-order submissions from Gale and Pelowski. The record does not support this argument. The draft order did not refer to Gale. It found that Pelowski had a $4,585.54 lien; the district court noted that Pelowski's claimed $5,545.19 lien was reduced because $959.65 of that lien was actually owed to SLF, which had filed its own lien. After reviewing the draft order, Pelowski wrote a letter stating that his lien did not include the $959.65 and requested an additional $2,537.50 incurred as collection costs. The district court's final order added only the $959.65 that had been erroneously deleted. The district court did not permit Pelowski to increase his lien by presenting information to which the other parties could not respond; neither did it permit SLF to do so. The district court's rejection of SLF's post-order affidavit was not an abuse of discretion.