Court Opinion

ID: 4583254
Source: CourtListenerOpinion
Date Created: 2020-11-03 18:02:15.629985+00
Date Added: 2024-06-11T13:42:39.899334
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                  AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                     IN THE
              ARIZONA COURT OF APPEALS
                                 DIVISION ONE

       THE CALHOUN LAW FIRM, PLC, et al., Plaintiffs/Appellants,

                                         v.

                MIDFIRST BANK, et al., Defendants/Appellees.

                              No. 1 CA-CV 19-0832
                                 FILED 11-3-2020

            Appeal from the Superior Court in Maricopa County
                 No. CV2018-002638 and CV2018-012139
                            CONSOLIDATED
                The Honorable Roger E. Brodman, Judge

                                   AFFIRMED

                                    COUNSEL

The Calhoun Law Firm PLC, Tempe
By S. Jay Calhoun
Counsel for Plaintiffs/Appellants

Sherman & Howard LLC, Phoenix
By Craig A. Morgan, Sean M. Moore
Counsel for Defendant/Appellee Midfirst Bank

Luzader Law PLLC, Phoenix
By William T. Luzader, III
Counsel for Defendants/Appellees Harnisch
                   CALHOUN, et al. v. MIDFIRST, et al.
                        Decision of the Court

                      MEMORANDUM DECISION

Judge Kent E. Cattani delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge Cynthia J. Bailey joined.

C A T T A N I, Judge:

¶1           The Calhoun Law Firm PLC (“Calhoun Law”) appeals from
the summary judgment and associated award of attorney’s fees entered in
favor of MidFirst Bank. Jay Calhoun (“Calhoun”) in her personal capacity
ostensibly appeals from the same judgment—in her case, a judgment and
award of attorney’s fees in her favor against MidFirst. For reasons that
follow, we dismiss the appeal as to Calhoun in her personal capacity, and
we affirm the judgment against Calhoun Law.

             FACTS AND PROCEDURAL BACKGROUND

¶2            This case revolves around creditors’ competing claims to
settlement proceeds (the “Disputed Funds”) obtained by Fast Track
Distributing, LLC in a separate lawsuit, Fast Track Distributing, LLC v. Galco
Manufacturing, LLC, No. CV2014-093376 (Maricopa Cnty. Super. Ct. July 3,
2017) (final dismissal order after notice of settlement and stipulation for
dismissal).

¶3             In January 2014, MidFirst loaned Fast Track $249,000, subject
to a promissory note and security agreement granting MidFirst a lien on
collateral including Fast Track’s then-existing and after-acquired inventory,
equipment, rights to payment, and general intangibles, as well as any
proceeds from that collateral. MidFirst perfected its security interest by
filing a UCC financing statement that same month. Fast Track later
defaulted on the note, and although MidFirst recovered over $100,000
through the sale of other collateral, over $140,000 remained owing as of
November 2017.

¶4             Meanwhile, in April 2014, Fast Track hired Calhoun Law to
represent it in litigation against Galco, and Calhoun Law filed suit on Fast
Track’s behalf the next month. Fast Track asserted claims against Galco
(and related individuals) that included conversion and unjust enrichment
related to Galco’s failure to pay for or return raw materials (and perhaps
other property) provided by Fast Track, along with other claims for

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                   CALHOUN, et al. v. MIDFIRST, et al.
                        Decision of the Court

misappropriation of confidential information, unjust enrichment,
intentional interference with contractual relationship and business
expectancy, aiding and abetting, trade dress infringement, fraud and
negligent misrepresentation, commercial disparagement/injurious
falsehood, and breach of the implied covenant of good faith and fair
dealing.

¶5            After almost three years of litigation, Calhoun negotiated a
$55,000 settlement for Fast Track. A few weeks later, however, Fast Track
fired Calhoun Law and hired new counsel, who received the settlement
payment from Galco. Calhoun immediately told new counsel that Calhoun
Law had a charging lien against the settlement funds for what Calhoun
claimed was over $95,000 in unpaid attorney’s fees. New counsel paid
himself out of the settlement funds, leaving a remaining balance of
$46,932.50 in Disputed Funds, which were later deposited with the superior
court.

¶6            Calhoun Law then sued Fast Track and its two subsequently
hired attorneys and their firms, asserting (1) entitlement to a charging lien
on the Disputed Funds for unpaid fees, (2) contract claims against Fast
Track related to unpaid fees, and (3) misrepresentation, tortious
interference with contract, and unjust enrichment against various
combinations of defendants generally involving interference with Calhoun
Law’s representation of Fast Track and the disposition of the Disputed
Funds.     One month later, MidFirst sued Calhoun Law, Calhoun
individually, and other potential claimants asserting entitlement to the
Disputed Funds, and the two cases were consolidated.

¶7            The consolidated case eventually focused on a single, albeit
multifaceted, issue: whether MidFirst or Calhoun Law was entitled to the
Disputed Funds.1 Calhoun Law moved for summary judgment based on
its asserted attorney charging lien, and MidFirst filed a cross-motion for
summary judgment based on its asserted security interest in the Disputed
Funds as proceeds of its collateral.

¶8           The superior court granted summary judgment in favor of
MidFirst and against Calhoun Law. First, the court concluded that Calhoun

1      The superior court dismissed MidFirst’s claim against Calhoun as an
individual as well as Calhoun Law’s claims against one of Fast Track’s later-
retained attorneys and firms. Calhoun Law later settled with Fast Track
and the other later-retained attorney and firm. All other potentially
interested parties waived any interest in the Disputed Funds.

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                  CALHOUN, et al. v. MIDFIRST, et al.
                       Decision of the Court

Law had no charging lien at all because Calhoun Law’s hourly (not
contingency) fee agreement with Fast Track did not show that the parties
looked to the settlement funds for payment of attorney’s fees as required
for imposition of a charging lien. Second, the court concluded that MidFirst
had a security interest in the Disputed Funds because the subject matter of
the Galco litigation involved MidFirst’s collateral, meaning the Disputed
Funds were proceeds of that collateral (and thus also collateral subject to
MidFirst’s lien). Finally, the court reasoned that, even assuming a valid
charging lien, MidFirst’s lien would be senior to Calhoun Law’s because
MidFirst’s security interest was first in time.

¶9            Over Calhoun Law’s opposition, the superior court granted
MidFirst a reduced award of $27,500 in attorney’s fees under A.R.S. § 12-
341.01(A). The court concurrently reconsidered a prior denial (without
prejudice) of Calhoun’s request for fees against MidFirst on the same
statutory basis, awarding Calhoun individually $2,112.50 as requested in
attorney’s fees.

¶10           The superior court entered final judgment in favor of Calhoun
against MidFirst (plus fees) and in favor of MidFirst against Calhoun Law
(plus fees) as regards the Disputed Funds. Calhoun Law (and ostensibly
Calhoun individually) timely appealed.2 We have jurisdiction under A.R.S.
§ 12-2101(A)(1).

                              DISCUSSION

I.    Summary Judgment.

¶11           Calhoun Law argues the superior court erred by denying
summary judgment in its favor and granting summary judgment in favor
of MidFirst, by (1) determining that Calhoun Law did not have an attorney
charging lien against the Disputed Funds and (2) ruling that, even assuming
Calhoun Law had a charging lien, MidFirst nevertheless held a perfected

2      Although Calhoun joined the notice of appeal, the final judgment
was entirely in her favor: MidFirst’s claim against her was dismissed
outright, and she was awarded the full amount of attorney’s fees (and costs)
she requested. Calhoun thus was not aggrieved by the judgment. See Gries
v. Plaza Del Rio Mgmt. Corp., 236 Ariz. 8, 12, ¶ 14 (App. 2014). And as our
jurisdiction is limited to appeals by a “party aggrieved by a judgment,”
ARCAP 1(d); Kondaur Capital Corp. v. Pinal County, 235 Ariz. 189, 192, ¶ 6
(App. 2014), we dismiss the appeal as to Calhoun only.

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                   CALHOUN, et al. v. MIDFIRST, et al.
                        Decision of the Court

security interest in the Disputed Funds senior to any interest held by
Calhoun Law. The first issue is dispositive.

¶12             Summary judgment is proper if there are no genuine issues of
material fact and, based on those undisputed facts, the moving party is
entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a); Orme Sch. v.
Reeves, 166 Ariz. 301, 305 (1990). A plaintiff seeking summary judgment
thus must “submit[] undisputed admissible evidence that would compel
any reasonable juror to find in its favor on every element of its claim.”
Comerica Bank v. Mahmoodi, 224 Ariz. 289, 293, ¶ 20 (App. 2010). A
defendant moving for summary judgment, in contrast, may simply “point
out by specific reference to the relevant discovery that no evidence exist[s]
to support an essential element of the claim.” Orme Sch., 166 Ariz. at 310.
The opposing plaintiff “may not rely merely on allegations . . . of its own
pleading” and instead “must, by affidavits or as otherwise provided in this
rule, set forth specific facts showing a genuine issue for trial.” Ariz. R. Civ.
P. 56(e); see also Orme Sch., 166 Ariz. at 310.

¶13           We review de novo the superior court’s summary judgment
ruling, viewing the facts and all reasonable inferences in the light most
favorable to the party against whom judgment was entered. Wells Fargo
Bank, N.A. v. Allen, 231 Ariz. 209, 213, ¶ 14 (App. 2012). We independently
consider whether the material facts are undisputed and whether the court
properly applied the law to those facts. Dreamland Villa Cmty. Club, Inc. v.
Raimey, 224 Ariz. 42, 46, ¶ 16 (App. 2010). We similarly review de novo
issues of contract interpretation. Ahwatukee Custom Estates Mgmt. Ass’n, Inc.
v. Turner, 196 Ariz. 631, 634, ¶ 5 (App. 2000).

¶14            An attorney charging lien is an equitable lien that may attach
to funds or property “created or obtained by the attorney’s efforts,”
providing security for payment of the attorney’s fees. Nat’l Sales & Serv.
Co., Inc. v. Superior Court, 136 Ariz. 544, 545 (1983). The right to the fees is
contractual, governed by the terms of the fee agreement between attorney
and client; the charging lien provides security for that contractual right
should the attorney successfully secure an award for the client. Langerman
Law Offices, P.A. v. Glen Eagles at Princess Resort, LLC, 220 Ariz. 252, 254, ¶¶
6, 9 (App. 2009).

¶15           A charging lien is not, however, inevitable: Its existence
depends on the attorney and client’s intent to create such a lien, which
further requires “that the parties looked to the fund itself for the payment
of the attorney.” Linder v. Lewis, Roca, Scoville & Beauchamp, 85 Ariz. 118,
123 (1958); Nat’l Sales & Serv. Co., 136 Ariz. at 545.

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                   CALHOUN, et al. v. MIDFIRST, et al.
                        Decision of the Court

¶16            Here, Calhoun Law’s assertion of a charging lien fails because
no evidence showed that Calhoun Law and Fast Track “looked to the
[Disputed Funds] for payment.” Calhoun Law’s contract with Fast Track
was for fees billed by the hour and invoiced monthly, with payment due on
receipt of the monthly statement. Failure to promptly pay the monthly bill
was grounds for Calhoun Law to withdraw from representation. Not only
does this fees provision fail to specify settlement funds or other recovery as
the source of payment, but the immediate payment requirement is entirely
inconsistent with an intent for payment to await funds received, if at all,
only at the end of the case.

¶17            The only arguable basis for Calhoun Law’s contrary position
is a sentence not in the fees provision, but in the provision on terminating
representation. That clause states that although either side may terminate
representation at any time, Fast Track remains obligated to pay for any
advanced costs and Calhoun Law’s fees “from any recovery.” While
Calhoun Law and Fast Track could have (but did not) reach an express
agreement granting Calhoun Law a lien against the recovery, see Skarecky &
Horenstein, P.A. v. 3605 N. 36th St. Co., 170 Ariz. 424, 427 (App. 1991), simply
referring to “recovery” is insufficient to support an inference that Fast Track
and Calhoun Law intended to grant a lien against the recovery. The clause
does not limit Calhoun Law’s right to payment to a single source so as to
justify an equitable lien against that source to secure payment or to support
the requisite inference that the parties understood and intended to create
such a lien against that source of funds. Cf. Linder, 85 Ariz. at 123; Barnes v.
Shattuck, 13 Ariz. 338, 343 (1911). Instead, the agreement still left Fast
Track—as stated in the contract term expressly governing fees—obligated
to pay its monthly bill from any available source of funds and regardless of
any recovery. In the context of this agreement, more is required to show an
intent to create a charging lien.

¶18            Although we need not determine whether an hourly fee
agreement could ever support an (implied) equitable attorney charging
lien, we note that the Arizona cases recognizing charging liens are
contingency fee cases. See, e.g., Linder, 85 Ariz. at 123 (one-third contingency
fee); Barnes, 13 Ariz. at 341, 343 (one-fourth contingency fee); Holly v. State,
199 Ariz. 358, 360, ¶ 12 (App. 2001) (one-third contingency fee); State ex rel.
Raber v. Wang, 230 Ariz. 476, 477–78, ¶¶ 2, 9–12 (App. 2012) (contingency
fee for an unspecified amount); cf. State Farm Mut. Ins. Co. v. St. Joseph’s
Hosp., 107 Ariz. 498, 502 (1971). This makes sense insofar as an agreement
to pay a percentage of any judgment or settlement inherently “look[s] to the
[judgment or settlement] for payment” whereas an hourly arrangement
need not. See, e.g., Linder, 85 Ariz. at 123 (inferring an intent to create a

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                   CALHOUN, et al. v. MIDFIRST, et al.
                        Decision of the Court

charging lien based on a contingency fee “to be paid from ‘any monies
recovered’”); Barnes, 13 Ariz. at 341, 343 (describing as “apparent” the intent
of parties to a contingency fee to create a lien on money and property
received as a result of the litigation); see also Holly, 199 Ariz. at 360, ¶ 12
(recognizing a charging lien (and its priority over a statutory setoff) arising
from a contingency fee); State ex rel. Raber, 230 Ariz. at 477–78, ¶¶ 2, 9–12
(relying on priority of charging lien for contingency fees to undermine
argument for apportionment under common fund doctrine); cf. Nat’l Sales
& Serv. Co., 136 Ariz. at 545 (discerning no evidence of an intent to create a
charging lien based on an hourly fee agreement). Similarly, a contingency
fee arrangement looks only to the judgment or settlement for payment,
making clear to both attorney and client the sole source of funds for
payment and the attorney’s entitlement to payment from that fund. And it
reaches only a portion of any judgment or settlement that results, meaning
equity can imply a charging lien for the attorney with assurance that the
client will retain a portion of the recovery. An hourly agreement offers no
such assurances—as this case makes clear, given that Calhoun Law’s
proposed charging lien would swallow the Disputed Funds twice over.

¶19          Accordingly, we affirm the superior court’s determination
that Calhoun Law did not have a charging lien against the Disputed Funds.
And because a charging lien was Calhoun Law’s only asserted basis for
challenging MidFirst’s right to the Disputed Funds, we need not address
the remainder of the summary judgment ruling, and we thus affirm.

II.    Attorney’s Fees Under § 12-341.01.

¶20           Calhoun Law next challenges the superior court’s award of
attorney’s fees in favor of MidFirst under A.R.S. § 12-341.01(A). Calhoun
Law argues the superior court erred by characterizing the case as one
arising out of contract, specifically contending that the case was not, as the
superior court stated, “a contest between competing security interests in the
same collateral.” We consider the application of § 12-341.01 to the claims at
issue de novo as a matter of statutory interpretation. US Bank, N.A. v.
JPMorgan Chase Bank, N.A., 242 Ariz. 502, 507, ¶ 22 (App. 2017).

¶21             Section 12-341.01 allows a discretionary award of attorney’s
fees to the successful party in an action “arising out of a contract.” A claim
arises out of contract if, considering “the nature of the action and the
surrounding circumstances,” the claim could not exist but for the contract.
Marcus v. Fox, 150 Ariz. 333, 335 (1986); Ramsey Air Meds, L.L.C. v. Cutter
Aviation, Inc., 198 Ariz. 10, 15–16, ¶ 27 (App. 2000). Similarly, this court has
recognized that “a contest between competing security interests in the same

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                   CALHOUN, et al. v. MIDFIRST, et al.
                        Decision of the Court

collateral” may support a fee award under § 12-341.01 because the
competing claims stem from “the rights, obligations, validity, enforceability
and priority of rights arising out of contract”—that is, the contest could not
exist but for the parties’ underlying contracts giving rise to those security
interests. Wollenberg v. Phx. Leasing Inc., 182 Ariz. 4, 11 (App. 1994); Ariz.
Farmers Prod. Credit Ass’n v. Northside Hay Mill & Trading Co., 153 Ariz. 333,
336 (App. 1987); Ariz. Ammonia of Tucson, Inc. v. Mission Bank, 152 Ariz. 361,
364 (App. 1986).

¶22            Here, the superior court reasoned that § 12-341.01 applied
because the dispute between MidFirst and Calhoun Law was a fight over
which entity held the priority security interest in the Disputed Funds.
Calhoun Law’s focus on the court’s use of the term “collateral” misses the
point. MidFirst’s claim to a priority interest in the Disputed Funds is based
on and could not exist but for the rights and obligations set forth in its
promissory note and security agreement with Fast Track. Calhoun Law’s
claim to a priority interest in the Disputed Funds is based on a charging
lien, which although in itself an equitable claim, see Millsap v. Sparks, 21
Ariz. 317, 320 (1920), is based on and could not exist but for the contractual
fee agreement purportedly giving rise to the lien. See Langerman, 220 Ariz.
at 254, ¶ 6. Because MidFirst’s and Calhoun Law’s competing claims both
arise out of contract, the superior court did not err by awarding fees under
§ 12-341.01.

III.   Attorney’s Fees and Costs on Appeal.

¶23           MidFirst seeks an award of attorney’s fees on appeal under
§ 12-341.01. In an exercise of our discretion, we deny its request. As the
prevailing party, however, MidFirst is entitled to its costs on appeal upon
compliance with ARCAP 21. See A.R.S. § 12-342.

                              CONCLUSION

¶24           For the foregoing reasons, we affirm.

                          AMY M. WOOD • Clerk of the Court
                          FILED: AA

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