UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 96-60497
_______________________
IN THE MATTER OF: WENDELL GLENN BLOUNT,
Debtor.
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QUEEN CITY HOME HEALTH CARE COMPANY; AMERICAN MOBILITY, INC.,
Appellants,
versus
FREELAND & FREELAND,
Appellee-Cross-Appellant,
verses
SAUL J. FESSMAN; PAUL BOUSQUET,
Appellants-Cross-Appellees
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Mississippi
(3:95-CV-131-B)
_________________________________________________________________
August 25, 1997
Before REYNALDO G. GARZA, HIGGINBOTHAM, and JONES, Circuit
Judges.
EDITH H. JONES, Circuit Judge:*
A law firm sued its former clients and the client’s
former adversaries in litigation to recover attorneys’ fees. The
district court applied a charging lien under Mississippi law to the
adversaries. Finding no legal support for this decision we reverse
on this issue. We also remand to the district court concerning
whether a valid assignment enforceable against Queen City had been
made between Blount and the Freelands.
FACTUAL BACKGROUND
This appeal concerns two separate but related lawsuits
brought by Freeland & Freeland2 (the “Freelands”) in the bankruptcy
court. In the first suit (the “first suit”), the Freelands sued
their former client Wendell Blount seeking to have a debt of
$120,000 for legal fees declared nondischargeable in Blount’s
bankruptcy proceeding. At trial, Blount appeared but chose not to
put on any evidence in his behalf. The Freelands’ evidence
established that the firm represented Blount and a corporation he
controlled, Mississippi Durable Medical Equipment (“MDME”),3 in
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
2
This law firm was formerly known as Freeland, Freeland &
Wilson.
3
At the beginning of the Queen City litigation, Blount also
owned another party to the litigation, Medical Concepts. However,
during the course of the Queen City litigation, Blount sold Medical
Concepts to another entity.
2
various legal matters, including litigation against the Queen City
Home Health Care Corp. and American Mobility, Inc. (hereinafter
collectively referred to as “Queen City”). In the Queen City
litigation, the Freelands had been negotiating a settlement on
behalf of Blount. However, because Blount owed the Freelands past
due legal fees stemming from the Queen City litigation and other
matters, the Freelands informed Blount that they would cease
representing him -- including their current representation in the
Queen City litigation -- if Blount did not pay or make appropriate
arrangements for the fees. According to the Freelands, Blount
orally promised that $120,000 of any settlement agreement in the
Queen City litigation would go to the Freelands in satisfaction of
his debt to them.
Shortly thereafter, the Freelands claimed that they
settled the Queen City litigation for, inter alia, $120,000.
Blount rejected the settlement offer and discharged the Freelands.
Blount resumed settlement talks with Queen City pro se. The
Freelands filed a notice of assignment and motion to intervene in
the Queen City litigation. After being notified of the Freelands’
intervention, the parties to the Queen City litigation reached a
settlement similar -- but not identical -- to the settlement that
the Freelands had negotiated for Blount, in which Blount was to be
paid, inter alia, $120,000. Blount collected the settlement money
3
from the Queen City litigation, refused to pay the Freelands, and
sought bankruptcy protection.
The Freelands’ position was that Blount had defrauded
them by planning to discharge the Freelands after they had
negotiated a settlement and cutting them out of the proceeds.
After considering the evidence presented by the Freelands, the
bankruptcy court held that the debt for $120,000 was
nondischargeable.
The Freelands filed a second suit (the “Queen City suit”)
in the bankruptcy court,4 this time against Queen City, AMI, Saul
Fesman5 (president of Queen City), and Paul Bousquet (Queen City’s
counsel throughout the Queen City litigation). The Freelands
sought to hold these defendants liable for the $120,000 settlement
payment on the theory that they were aware of and disregarded the
$120,000 agreement between the Freelands and Blount.
Because Blount had not offered any evidence at the first
suit, the bankruptcy court ruled in the Queen City suit that it
would not be bound by the facts developed in the first suit
“insofar as they might affect the relative legal positions of the
parties hereto.”
4
The bankruptcy court heard this dispute by agreement of the
parties.
5
Although spelled “Fesman,” the appellant’s name apparently
was misspelled when this appeal was filed in this court; this error
is reflected in the caption to this case. However, throughout this
opinion, we will use the apparent correct spelling of the
appellant’s name.
4
In the Queen City suit -- and in opposition to its ruling
in the first suit -- the court rejected the Freelands’ assignment
claim. However, even in so doing, the court did determine that the
Freelands possessed a charging lien against Blount for past due
attorneys’ fees. Determining that the amount of the lien was
limited by the value of the legal services provided to Blount in
the Queen City litigation, the court ruled in favor of the
Freelands for $29,090.25. The court further ruled that by paying
the settlement proceeds to Blount, Queen City had interfered with
the Freelands’ charging lien rights. Having so ruled, the court
held that Queen City was indebted to the Freelands for the amount
of the lien. The court did not address the Freelands’ additional
theory of tortious interference with contractual relations and
found no liability against Fesman and Bousquet, but refused to
order sanctions against the Freelands for improperly joining Fesman
and Bousquet.
The Queen City defendants appealed the bankruptcy court’s
decision to the district court, complaining of the bankruptcy
court’s finding of liability against Queen City, its award of the
Freelands’ past due attorneys’ fees, and its refusal to sanction
the Freelands for improper joinder of Fesman and Bousquet. The
Freelands appealed the amount for which Queen City was found
liable, the bankruptcy court’s refusal to address its tortious
interference claim, and its refusal to hold Fesman and Bousquet
liable. The district court affirmed, adopting the reasoning of the
5
bankruptcy court. The parties appeal, asserting the same grounds
of error as they did below.
DISCUSSION
We review a district court’s findings of fact for clear
error and its conclusions of law de novo. See Heartland Fed. Sav.
& Loan Ass’n v. Briscoe Enters., Ltd., II (In Re Briscoe Enters.,
Ltd., II), 994 F.2d 1160, 1163 (5th Cir.) (relying on Matter of
Bennett, 970 F.2d 138, 139 (5th Cir. 1992)), cert. denied, 510 U.S.
992 (1993). “Where the district court has affirmed the bankruptcy
court’s factual findings, we will reverse [factual determinations]
only if left with a firm conviction that an error has been
committed.” Placid Ref. Co. v. Terrebonne Fuel and Lube, Inc. (In
Re Terrebonne Fuel and Lube), 108 F.3d 609, 613 (5th Cir. 1997).
A. CHARGING LIEN
The primary issue in this appeal is whether the district
court correctly concluded pursuant to Mississippi law that the
Freelands possessed a charging lien against Blount for services
rendered.
An attorney’s special or charging lien is a creation of
state common law. See Webster v. Sweat, 65 F.2d 109, 109-10 (5th
Cir. 1933) (“Federal courts, although they recognize no common-law
lien in favor of attorneys, give effect to the laws of the states
in which they are held.”). In states that recognize a special or
6
charging lien, such a lien permits an attorney to recover his fee
from the proceeds of the judgment in a case. See id. at 110. “The
rule of [Mississippi] has always been that an attorney has a lien
on the funds of his client for the services rendered in the
proceeding by which the money was collected.” Halsell v. Turner,
34 Miss. 432, 36 So. 531, 531 (1904). Such a lien may attach only
after a judgment is handed down, and it “only applies to funds
already in the attorney’s possession.”6 Tyson v. Moore, 613 So.2d
817, 826 (Miss. 1992); see Halsell, 36 So. at 531 (“His claim is
limited to the contract price agreed upon, or the reasonable value
of services rendered, in the special case.”). A special or
charging lien is available without regard to whether the attorney
is employed for an hourly fee or on a contingent basis: “The rule
is the same whether there exists an express contract between
attorney and client for a stated fee, or whether there is only an
implied contract to pay the reasonable value of services rendered.”
Halsell, 36 So. at 531.
In this case, the district court erred as a matter of law
in concluding that the Freelands had a charging lien against
Blount. To be eligible for a charging lien, the Freelands would
have had to have reached a settlement in the Queen City litigation
6
The requirement that the fees be in the attorney’s possession
is inconsistent with the Freelands’ assertion that they could
pursue property in the hands of Queen City after they were
discharged.
7
before they were discharged by Blount. According to the factual
findings made by the bankruptcy court, they did not do so; that
court found that “no binding settlement agreement had been reached
before the [Freelands] were terminated,” Order at 13, and that the
Freelands “had obviously been discharged by Blount prior to the
finalization of the settlement agreement.” Order at 14. This is
a factual finding that, based on a review of the record, is not
clearly erroneous, and accordingly, we are not at liberty to
disturb. Because there was no settlement prior to the Freelands’
discharge, the Mississippi requirement that there be a judgment or
decree has not been met.
Second, the attorneys did not have actual or constructive
possession of the funds as also required by Mississippi law.
Clearly, the Freelands could not have had possession -- either
actual or constructive -- of the “settlement” funds when no
settlement had occurred. The bankruptcy court correctly found as
much: “the plaintiffs never had actual possession of the settlement
proceeds.” Order at 16.
The lower courts thus erred as a matter law in concluding
that the Freelands possessed a charging lien against Blount.7
7
The Freelands also appeal to this court complaining that the
lower court erred in not finding Fesman and Bousquet liable on the
charging lien claim. Because we conclude that there is no charging
lien under Mississippi law, there can be no liability against
Fesman or Bousquet on this claim.
8
B. ASSIGNMENT FROM BLOUNT TO THE FREELAND FIRM
The Freelands appeal the lower court’s finding that
Blount did not make a valid assignment to the Freelands for
$120,000. The crux of their argument is that the bankruptcy court
erred because in the first suit, the court had concluded that
Blount had made a valid and enforceable assignment. The Freelands
first contend that because of this finding in the first suit, the
court was not at liberty to revisit the issue.
It is well settled that “[i]t is a violation of due
process for a judgment to be binding on a litigant who was not a
party or a privy and therefore has never had an opportunity to be
heard.” See Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 327
n.7, 99 S.Ct. 645, 649 n.7 (1979) (relying on Blonder-Tongue Lab.,
Inc. v. Univ. of Ill. Found., 402 U.S. 313, 329 (1971)). Queen
City was neither a party nor a privy in the first suit between the
Freelands and Blount. It is also significant that although Blount
appeared in the first suit, he chose not to put on any evidence,
and the court necessarily took all of the Freelands’ contentions
presented as true. It cannot be said that Queen City’s interest
concerning whether there was a valid assignment was fully or fairly
litigated at that time.
Because Queen City was neither a party nor a privy to the
first suit, Queen City was not afforded a full and fair opportunity
to contest the assignment, an issue for which the Freelands sought
9
to hold them liable in the second suit. The lower court acted
properly in “not consider[ing] itself bound by any of the findings
or determinations of the [first suit] insofar as they might affect
the relative legal positions of the parties hereto.” Order at 2-3.
In the Queen City suit, the lower court found that the
assignment failed for either of two reasons: (1) the alleged
assignment was not irrevocable and/or (2) any attempted assignment
failed for lack of consideration. Just how the court arrived at
its first finding is not apparent from the record, and Queen City
does not attempt to defend it. Over strenuous objection by the
Freelands, however, Queen City supports the district court’s
finding that the assignment of a portion of the settlement was
contingent on the law firm’s continuing to represent Blount, and
when Blount discharged the firm for good reason, there was no
longer consideration. The Freelands counter that Queen City, as
debtor for the judgment, lacked standing to attack the assignment
for lack of consideration.
It is not fully clear, as Queen City argues, that under
Mississippi law a debtor such as Queen City has standing to raise
the issue that an assignment fails for lack of consideration. Great
S. Nat’l Bank v. McCullough Envtl. Servs., Inc., 595 So.2d 1282,
1288 (Miss. 1992). While Great Southern states. “. . . an account-
debtor has available to him or her various defenses against an
assignee,” id., it deals only with the issue of fraud underlying
10
the assignment. According to Great Southern, Queen City does have
available to it defenses against the Freelands including at least
fraud in the creation of the assignment and failure to provide
adequate notice to the debtor of the assignment.8 See id. We are
uncertain of the extent of defenses afforded by Mississippi law,
and neither the parties nor the courts have furnished reliable
assistance.
Queen City also argues that it was not afforded adequate
notice of the assignment. Generally, a debtor who has not received
notice of an assignment or who has not been put on sufficient
inquiry of such an assignment may deal with the subject of the
assignment as if no assignment had in fact been made. See 6A
C.J.S. Assignments § 98 (1975); 6 AM.JUR.2D Assignments § 96 (1963).
After reviewing Mississippi law, we are not persuaded
that the district court properly based its decision on whether, as
to Queen City, the alleged assignment between Blount and the
8
Concerning the fraud issue, it is interesting to note that
Rule 1.8 of the Mississippi Rules of Professional Conduct provides:
A lawyer shall not acquire a proprietary
interest in the cause of action or subject
matter of litigation the lawyer is conducting
for a client, except that the lawyer may:
(1) acquire a lien granted by law to secure
the lawyer’s fee or expenses; and
(2) contract with a client for a reasonable
contingent fee in a civil case.
See Tyson, 613 So.2d at 826.
11
Freelands failed for a lack of consideration. This is not to say
that the assignment is enforceable; the parties’ briefing simply
does not plumb the issues surrounding the Freelands’ assignment
sufficiently to assist us to rule on any alternative basis.
Accordingly, we must reverse and remand to the district court for
further consideration of the enforceability against Queen City of
the assignment.9
C. SANCTIONS
Fesman and Bousquet both complain of the lower court’s
decision not to sanction the Freelands for naming them as
defendants. They claim that because the lower court had found that
there was virtually no evidence to support the Freelands’ claims
against them, the court abused its discretion in declining to
sanction them for their joinder.
We review a lower court’s decision whether to impose
sanctions for an abuse of discretion. See Terrebonne Fuel and
Lube, Inc., 108 F.3d at 613 (citing Shipes v. Trinity Indus., 987
9
Because the issue whether an assignment enforceable as to
Queen City has been made must be reconsidered by the lower court,
we do not reach whether, as the Freelands claim, Queen City
tortiously interfered with this alleged assignment. Cf. Merchants
& Planters Bank of Richmond v. Williamson, 691 So.2d 398, 407
(Miss. 1997) (Under Mississippi law, to prevail on a claim for
intentional interference with contractual relations, the plaintiff
must demonstrate that an “enforceable obligation existed between
the plaintiff and another party.”). The lower courts may have to
deal with this claim again.
12
F.2d 311, 323 (5th Cir. 1993)). Here, we find none, but we also
find no ground for personal liability of these individuals.
CONCLUSION
For the foregoing reasons, the judgment of the district
court is affirmed in part and reversed and remanded in part.
13