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Negligence of Lawyer in Legal Malpractice Action Arising Out of Mechanics Lien; Summary Dismissal Reversed

Ryan v. O’Neill, A14-1472, July 27, 2015, presents a legal malpractice claim arising out of an underlying legal malpractice action.  Plaintiff Ryan is a contractor that was hired by developer Farr to improve undeveloped “raw” land.  No pre-lien notice had been given by Ryan prior to performing substantial work.  Due to non-payment by Farr, Ryan terminated its work and hired the Meagher & Geer law firm to file a mechanics lien in order to recover the value of its unpaid services.

Meagher & Geer filed a blanket mechanics lien seeking more than $356,000 for services rendered to improve a number of lots, some of which had been sold by Farr before the lien was filed.  The mechanics lien  trial court granted Farr summary dismissal of the mechanics lien filed against the properties it had sold because the blanket amount Ryan claimed was a demand for more than “was justly due,” in violation of the mechanics lien statute.  In response to Ryan’s argument that it could not apportion the value of its work performed on each lot, the trial court held that Ryan could have filed one lien for the entire amount claimed and listed all involved properties, reserving decisions about apportionment of liens until a later date.

Ryan settled its remaining claims against Farr for $280,000.  The settlement agreement released the mechanics lien claims against Farr, but reserved Ryan’s claims against its counsel Meagher & Geer.  Ryan then hired Defendant O’Neill to pursue a legal malpractice claim against Meagher & Geer.  The trial court in the legal malpractice case granted summary dismissal to Meagher & Geer, holding that O’Neill failed to comply with the Minn. Stat § 544.42 affidavit of expert disclosure.

Ryan then filed the current action, seeking recovery for O’Neill’s negligence in the underlying legal malpractice suit.  The trial court granted summary dismissal in favor of Defendant O’Neill, holding that Ryan could not have prevailed in the underlying malpractice claim because Meagher & Geer were not responsible for any loss Ryan had sustained in the mechanics lien matter.  The trial court found that Ryan’s inability to apportion the value of its services was due to Ryan’s decision as to when to file, not any conduct by Meagher & Geer.  The trial court specifically found that Ryan needed to have filed a pre-lien notice in order to have perfected the lien, thereby removing Meagher & Geer’s conduct as the cause of Ryan’s loss of its mechanics lien.

In addition, the trial court noted that the fact that Ryan had obtained a settlement from Farr in the underlying mechanics lien matter did not preclude bringing a malpractice action against the former mechanics lien counsel.  The trial court stated that the reasonableness of the mechanics lien settlement would be a fact issue for the jury.  Had there been a meritorious mechanics lien claim, Ryan would have likely had a claim for recovery of the mechanics lien costs and attorneys’ fees.

On appeal the Minnesota Court of Appeals reversed the trial court’s grant of summary judgment.  After a detailed review of Minnesota’s mechanics lien cases, the appellate court held that no pre-lien notice had been required.  As a consequence, Ryan had a valid mechanics lien when Meagher & Geer was retained; there were fact issues as to whether Meagher & Geer had caused Ryan to sustain damages in the underlying mechanics lien matter.  Given that the mechanics lien matter was meritorious, O’Neill’s failure to comply with the expert witness disclosure statute in the legal malpractice suit against Meagher & Geer arguably gave rise to a meritorious legal malpractice claim against Defendant O’Neill.  In addition, the appellate court affirmed the trial court’s reasoning which held that the settlement obtained in the mechanics lien matter did not preclude a malpractice claim against the mechanics lien attorney.  Since there were fact issues as to whether Ryan would have been able to maintain a mechanics lien against the non Farr owned properties and whether Ryan would have been able to obtain a better settlement in the mechanics lien matter, but for the conduct of Meagher & Geer, the trial court’s dismissal was reversed and the case remanded.

On October 20, 2015, the Minnesota Supreme Court granted further review of this case.