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Leisnoi, Inc. v. Merdes & Merdes, P.C.

Supreme Court of Alaska

February 1, 2013

LEISNOI, INC., Appellant,
v.
MERDES & MERDES, P.C., Appellee.

Rehearing Denied April 26, 2013.

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[Copyrighted Material Omitted]

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Robert K. Reiman, Law Offices of Robert K. Reiman, Anchorage, for Appellant.

Ward M. Merdes, Merdes & Merdes, P.C., Fairbanks, Appellee.

Before: FABE, Chief Justice, CARPENETI and STOWERS, Justices.

OPINION

STOWERS, Justice.

I. INTRODUCTION

Leisnoi, Inc., an Alaska Native corporation, retained the law firm of Merdes & Merdes to represent it in litigation against Omar Stratman over its certification of and title to certain lands Leisnoi claimed under the Alaska Native Claims Settlement Act. Leisnoi and Merdes entered a contingency fee agreement under which, if Leisnoi was successful in the litigation, Merdes would receive an interest in the lands Leisnoi obtained or retained. The Stratman case was resolved in 1992 in favor of Leisnoi, although Stratman appealed and the related litigation continued for another decade. Leisnoi challenged the validity of the fee agreement with Merdes. A bar-appointed Arbitration Panel determined that Merdes was not entitled to an interest in the land itself, but was entitled to payment equal to a percentage of the adjusted value of Leisnoi's property, plus interest. In 1995, upon Merdes's motion, Superior Court Judge Brian C. Shortell confirmed the fee award and entered judgment

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against Leisnoi. For several years, Leisnoi made payments pursuant to the schedule laid out by the Arbitration Panel. In September 2002, Leisnoi ceased making payments and the judgment went into default. Leisnoi and Merdes subsequently attempted to negotiate a settlement; Merdes did not pursue execution during this period.

In October 2008, the Stratman litigation finally concluded in Leisnoi's favor. The following year, Merdes moved the superior court to issue a writ of execution. Leisnoi opposed the motion on the grounds that Merdes had not shown just and sufficient cause for failing to seek a writ of execution within five years of entry of the 1995 judgment. Leisnoi subsequently moved for relief from the 1995 judgment under Alaska Civil Rule 60(b), arguing among other things that the judgment was void under 43 U.S.C. § 1621(a)'s restrictions on contingency fee contracts involving Alaska Native Claims Settlement Act lands. In January 2010, Superior Court Judge Sen K. Tan issued an order denying Leisnoi's Rule 60(b) motion and granting Merdes's motion to execute. Six months later, Leisnoi paid Merdes the remaining balance. Leisnoi now appeals the superior court's ruling.

This case presents a number of complex issues involving questions of waiver and whether the superior court's 1995 judgment was void or voidable. We conclude that Leisnoi did not waive its right to appeal by paying Merdes the balance due on the judgment. We conclude that the Arbitration Panel's fee award and the superior court's 1995 entry of judgment violated 43 U.S.C. § 1621(a)'s prohibition against attorney contingency fee contracts based on the value of Native lands that were subject to the Act. We conclude that the superior court's 2010 order granting Merdes's motion to execute on the 1995 judgment separately violated the Act's prohibition against executing on judgments arising from prohibited attorney contingency fee contracts, and that order is reversed. We conclude that, notwithstanding the illegality of the Arbitration Panel fee award and the 1995 judgment, Leisnoi is not entitled to relief pursuant to Civil Rule 60(b): We conclude that the 1995 order was voidable rather than void for purposes of Civil Rule 60(b), and therefore not subject to attack under Civil Rule 60(b)(4); we also conclude that Leisnoi is not entitled to relief under Civil Rule 60(b)(5) or 60(b)(6). Accordingly, Merdes must return Leisnoi's payment of the $643,760 balance on the judgment, with interest, but Leisnoi is not entitled to recover payments made prior to the issuance of the writ of execution. Merdes may file an action for any fees it believes it is entitled to under a theory of quantum meruit.

II. FACTS AND PROCEEDINGS

Leisnoi, Inc. is a Native corporation certified under the Alaska Native Claims Settlement Act (ANCSA).[1] In January 1988, Leisnoi retained attorney Ed Merdes to represent it in litigation against Omar Stratman. Stratman sought to compel Leisnoi to comply with the terms of a prior settlement with Koniag, Inc., another Native corporation from which Leisnoi had been demerged in 1983, under which Koniag had agreed to sell certain lands on Kodiak Island to Stratman.[2] Leisnoi, which had received a 1985 patent to the surface rights of the land at issue, refused to honor the settlement. [3]

Merdes and Leisnoi entered into a contingency fee agreement providing that if the litigation proved successful, Merdes would be " remunerated by the Client conveying to him an undivided thirty percent ... interest in all lands and/or settlement the Client succeeds in obtaining and/or retaining by virtue of said litigation," along with any attorney's fees awarded by the court. In 1992, the case was resolved in favor of Leisnoi, which kept title to its lands. [4] (Stratman appealed, and the

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litigation continued until its final resolution in 2008.[5]) Merdes filed a Notice of Attorney's Lien in the Alaska Supreme Court on July 20, 1992, purporting to place a lien on the approximately 19,000 acres of real property that was the subject of the litigation. Leisnoi challenged the validity of the fee agreement and requested arbitration with the Alaska Bar Association's Fee Review Committee (" Arbitration Panel" ).

The Arbitration Panel held a hearing in May 1994 at which both parties presented evidence and argument. The Arbitration Panel found that Merdes did not adequately explain the contingency fee agreement to Leisnoi's Board of Directors and failed to " make sure that the board ... understood that [Merdes] would end up being a co-owner of an undivided 30% interest in the land" — a situation that could cause Leisnoi to lose its tax exemption on the land. The Arbitration Panel also found that Merdes had, without Leisnoi's knowledge or consent, improperly agreed to divide his fees with other attorneys he hired to help with the case. The Arbitration Panel noted, however, that " Ed Merdes ... did fight an uphill battle and achieved the best possible outcome on behalf of the client" and " took a considerable risk that his time would be completely uncompensated."

The Panel declined to award Merdes a 30% interest in the land itself. But it found that 30% was a " reasonable percentage" and awarded $721,000 in attorney's fees, plus interest, payable in $100,000 yearly installments. It appears to have calculated this amount by taking 30% of the value of the land after substantially discounting that value to reflect clouds on Leisnoi's title, the portion of the land subject to pre-existing low-rent grazing leases, and payments made by Leisnoi to Merdes pursuant to a modification not clearly agreed to by the Leisnoi board. Interest was to accrue at 8% per annum, except that any payments in default would accumulate interest at 10.5% per annum. The Panel also ordered Leisnoi to pay Merdes $55,000 in court-awarded attorney's fees. Both parties subsequently filed applications for modification with the Arbitration Panel; in an August 1994 decision, the Arbitration Panel clarified the applicable interest rates and declined to modify the panel-awarded attorney's fee amount. It noted:

The panel does not agree with Leisnoi's characterization that the arbitration award in this matter set aside or voided the contingent fee contract between Merdes and Leisnoi. The panel specifically refused to void the contract or award fees based on hourly rates.... Rather ... the arbitration award interpreted the contingent fee contract to not be a 30% ownership interest in land, but a security interest or lien against the land.... The arbitration award is an attempt to allow Leisnoi to preserve its lands by buying out Merdes from the attorney's lien.

In January 1995, in response to a motion by Merdes, the superior court issued an order confirming the Arbitration Panel's award of fees and entered judgment for attorney's fees to Merdes against Leisnoi. That same year, Leisnoi made payments totaling $100,000. It continued to make annual $100,000 payments for the next five years, followed by two $50,000 payments in October 2001 and April 2002. (These $50,000 payments covered the installment due September 1, 2001, which Leisnoi had not paid when it was due.) At that point, Leisnoi, which still had payments outstanding to cover the substantial interest accrued on the judgment, ceased making payments. Leisnoi later explained that " the continued expense of litigation in defense of its property ... prevented it from making further payment." The obligation under judgment went into default as of September 1, 2002.

Over the next several years, Merdes attempted to negotiate with Leisnoi regarding its unpaid fees. Leisnoi appears to have been open to negotiation, and it repeatedly thanked Merdes for being patient and indicated that payments would be forthcoming when funds were available. For example, in

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April 2002, an attorney representing Leisnoi wrote to Merdes,

I want to thank you in advance for your patience. As you know, [Leisnoi is] still in difficult financial circumstances, but there is hope that this picture may change. If so, I will be recommending to the Board that the remaining amount outstanding be paid in full [if] and when funds are available to do so.

Leisnoi generally did not dispute the validity of the judgment awarded to Merdes and actively proposed settlement arrangements.[6] Merdes did not pursue execution during this period; Ward Merdes explained in an affidavit, " I have held-off execution largely because of negotiations with Leisnoi, Inc., and because it was unclear that Leisnoi, Inc. would even continue to exist— until its recent success in the Stratman decertification litigation. Prudence has dictated that Merdes, by necessity, seek to avoid ... direct involvement in Stratman's protracted litigation with Leisnoi, Inc."

Merdes recorded the 1995 superior court judgment against Leisnoi in the Kodiak Recording District in May 2007. On October 6, 2008, the Ninth Circuit ruled in favor of Leisnoi in its litigation against Stratman.[7] Merdes moved for the superior court to issue a writ of execution on January 27, 2009. Leisnoi opposed the motion, arguing that Merdes had not shown just and sufficient cause for failing to seek a writ of execution within five years of entry of judgment. Leisnoi also moved to expunge the notice of attorney lien and judgment lien filed by Merdes. Leisnoi subsequently moved for relief from the 1995 judgment under Civil Rule 60(b), arguing that the judgment was void under 43 U.S.C. § 1621(a), that enforcement of the judgment was no longer just or equitable, and that Leisnoi's prior board of directors failed to properly protect the interests of the Native corporation. Merdes replied to Leisnoi's opposition and opposed the Rule 60(b) motion.

On January 13, 2010, the superior court issued an order denying Leisnoi's Rule 60(b) motion, granting Merdes's motion to execute, and granting Leisnoi's motion to expunge the judgment lien and attorney lien. Leisnoi subsequently settled the claims of the other attorneys hired by Merdes. In July 2010, Leisnoi paid Merdes $643,760, the remaining balance owed. Leisnoi claims that it " was forced to borrow the funds" to pay and did so to remove clouds from its land ...


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