Richard D. Lueker, and Cynthia K. Morris, Formerly Known as Cynthia K. Boyle, Roy W. Bidwell, Eileen Bidwell, A. Rolfe Black, Dorothy W. Black, Vaun T. Floyd, Norman C. Barnhart, Donald D. Martin, Willa J. Martin, Daniel E. Boyle, Jr., and Patricia A. Boyle, Plaintiffs-Counter-Defendants v. First National Bank of Boston (Guernsey) Limited, and Sunwest Bank of Albuquerque, N.A. United New Mexico Bank First Security Bank, N.A., Defendants-Counter-Claimants

Citations: 82 F.3d 334; 1996 U.S. App. LEXIS 6962Docket: 95-2056

Court: Court of Appeals for the First Circuit; April 9, 1996; Federal Appellate Court

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First National Bank of Boston (Guernsey) appeals the denial of its request for attorneys' fees by the district court, which it sought under New Mexico law after the dissolution of a preliminary injunction it deemed wrongfully obtained. The district court rejected the request, citing Guernsey's alleged inequitable conduct. However, the appellate court determines that Guernsey is entitled to reasonable attorneys' fees, reversing the lower court's decision and remanding for a fee assessment.

The case originates from Richard Lueker's efforts to litigate against Lloyd's of London in the U.S. Lueker, a member of a Lloyd's syndicate, obtained two letters of credit from Guernsey to secure his membership, which required him to provide collateral. Lueker believed he was defrauded by Lloyd's but was constrained by a forum selection clause that mandated litigation in British courts. To circumvent this, he devised a plan to force Lloyd's to sue him in New Mexico by preventing Sunwest Bank from honoring its letters of credit to Guernsey, thereby impacting Guernsey's obligations to Lloyd's.

Lueker sued Sunwest in New Mexico state court, seeking to enjoin the bank from honoring its letters of credit to Guernsey, but did not include Guernsey as a party or allege any wrongdoing on its part. The state court granted a temporary restraining order against Sunwest, which was later converted into a preliminary injunction.

Mr. Lueker amended his complaint to include Guernsey as a defendant after a preliminary injunction was issued. Guernsey removed the case to federal court, where the court dismissed it for lack of personal jurisdiction and because Mr. Lueker failed to join Lloyd's as an indispensable party. The court also dissolved the injunction, deeming it "improvidently granted." Guernsey sought attorneys' fees based on New Mexico law, which allows recovery for parties that successfully dissolve wrongful injunctions. Mr. Lueker contended that Guernsey could not recover fees since it was not the party enjoined. The district court assumed Guernsey was entitled to fees but denied the motion due to perceived inequitable conduct for not intervening in the state proceedings. Guernsey is appealing this decision, raising two issues: (1) whether it can recover attorneys' fees despite not being the enjoined party, and (2) whether its failure to intervene constituted inequitable conduct.

New Mexico typically does not permit recovery of attorneys' fees, with an exception for parties who dissolve wrongful injunctions. The court found that Guernsey had standing to seek dissolution of the injunction, as it was later added to the complaint. The ruling emphasizes that a party with standing to challenge a wrongful injunction should be able to recover attorneys' fees to uphold the policy goals of preventing the misuse of injunctions.

Mr. Lueker contends that the issues in this case have been resolved in Guernsey's favor, referencing a prior ruling between Guernsey and Sunwest regarding letters of credit. However, his argument fails, as established by Shultz v. Pascoe, which mandates that underlying issues must favor the party seeking attorneys' fees to determine if an injunction was wrongful. An injunction is considered wrongful if the plaintiff lacked a justifiable right to obtain it. In this case, Mr. Lueker lacked the legal basis to request the injunction due to the absence of indispensable party Lloyd's and Guernsey’s addition to the lawsuit after the injunction was issued, which precluded personal jurisdiction. Therefore, even if Mr. Lueker was correct on substantive issues, the injunction was procedurally wrongful. Consequently, Guernsey is entitled to recover attorneys' fees for dissolving the wrongful injunction.

Regarding allegations of inequitable conduct by Guernsey for not intervening in state court proceedings, Guernsey argued that such intervention would have subjected it to personal jurisdiction as intended by Mr. Lueker. The court agrees that Guernsey's choice not to intervene was reasonable given the circumstances, as Mr. Lueker was attempting to leverage the injunction to compel litigation in New Mexico. Therefore, the district court's finding of inequitable conduct was an abuse of discretion, and the case is remanded for an award of reasonable attorneys' fees.

In dissent, Judge Tacha argues that New Mexico law permits recovery of attorneys' fees for dissolving a wrongful injunction only for the "party enjoined." Since the injunction was against Sunwest Bank and not Guernsey, she asserts that Guernsey is not entitled to fees, emphasizing that merely being added as a party does not equate to being the enjoined party. She contends that interpreting the law in this manner is a straightforward application, not overly technical.

The Honorable Nathaniel R. Jones, of the United States Court of Appeals for the Sixth Circuit, oversees the case involving Mr. Lueker's complaint for injunctive relief against Sunwest. The injunction would prevent Sunwest from disbursing funds under Letters of Credit, necessitating Lloyd's to present claims against the Plaintiff in a competent U.S. court. Under New Mexico law, a special appearance is made solely to contest jurisdiction, and failing to include an indispensable party is not a jurisdictional issue. Guernsey could have been subject to personal jurisdiction had it intervened to assert Lloyd's as an indispensable party. The court dissolved the injunction, citing it was improvidently granted. Guernsey sought attorney's fees for dissolving the wrongful injunction, but Mr. Lueker contended that Guernsey could not claim fees as it was not the enjoined party. The district court assumed Guernsey was eligible for fees but denied the request, believing Guernsey acted inequitably by not intervening earlier. Guernsey is appealing this denial, raising two issues: (1) whether it can recover attorney's fees despite not being enjoined, and (2) whether its conduct in not intervening was inequitable. 

New Mexico typically does not permit recovery of attorney's fees for winning litigants but provides an exception for those who dissolve wrongful injunctions. A party can recover fees if the injunction is found wrongful and the underlying issues favor the party seeking dissolution. The court disagrees with Mr. Lueker's assertion that Guernsey cannot benefit from this rule since it was made a party-defendant in the injunction complaint, thus having standing to seek dissolution and recover attorney's fees. The policy rationale behind this exception is to prevent misuse of the court's power in issuing injunctions, and the court emphasizes that denying fees based on technicalities would undermine these policy goals. Mr. Lueker argues that the underlying issues have been resolved against Guernsey.

The district court ruled in favor of Sunwest in a case involving Sunwest letters of credit, while Mr. Lueker's argument regarding attorneys' fees was flawed. In Shultz v. Pascoe, the New Mexico Supreme Court established that to recover attorneys' fees for dissolving an injunction, the underlying issues must favor the party seeking the fees, ensuring the injunction was wrongful. An injunction is deemed wrongful when the plaintiff lacks a legal or factual basis for it. Although Mr. Lueker may have had a substantive right concerning the underlying issues, he lacked a procedural right to request the injunction, as Lloyd's was an indispensable party and Guernsey was not subject to personal jurisdiction when added to the lawsuit. Therefore, it was concluded that Guernsey could recover attorneys' fees for the wrongful injunction.

Regarding Guernsey's alleged inequitable conduct for not intervening in state court before being named a party, the court found that Guernsey acted reasonably. Mr. Lueker sought to misuse the court's power for his own purposes, and Guernsey's refusal to intervene was justified. The district court's finding of inequitable conduct was deemed an abuse of discretion, leading to the remand for an award of reasonable attorneys' fees.

In dissent, it was argued that under New Mexico law, only the party directly enjoined can recover attorneys' fees for dissolving a wrongful injunction. Since Guernsey was not the enjoined party, the dissenting opinion contended that Guernsey should not be entitled to recover such fees. The majority's interpretation, which allowed recovery because Guernsey became a party-defendant, was seen as an overly technical reading of the law.

Interpreting "party enjoined" as the enjoined party, rather than any party involved in the litigation, aligns with a straightforward reading of New Mexico law. The dissenting opinion emphasizes this point. Mr. Lueker acknowledged this approach in his complaint for injunctive relief in state court, which seeks to prevent Sunwest from disbursing funds under Letters of Credit. Consequently, Lloyd's must present any payment claims from the Plaintiff in a competent U.S. court. Under New Mexico law, a special appearance is permissible solely to contest the court's jurisdiction. However, failing to include an indispensable party does not constitute a jurisdictional defect, indicating that Guernsey would have been subject to personal jurisdiction had it sought to intervene and assert Lloyd's status as an indispensable party.