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The history of attorney fee calculations in Michigan

 
 

by Gary M. Victor   |   Michigan Bar Journal

 

There are myriad statutes and court rules in Michigan that provide for awards of reasonable attorney fees. A simple Westlaw search shows hundreds of such statutes and court rules. Statutes containing attorney fee provisions vary from those in the well-known Elliot-Larson Civil Rights Act1 or Freedom of Information Act2 to perhaps less-familiar provisions in the Whistle Blowers Act3 or the Motor Vehicle Service and Repair Act.4 Court rule provisions also vary from the common rules on case evaluations5 or offers of judgment6 to rules regarding vexatious pleadings in the Court of Appeals7 or garnishments after judgment.8

Michigan courts have long been plagued with trying to find some method of establishing consistency and objectivity in awards of “reasonable” attorney fees across these different statutes and court rules. This goal is important as it, hopefully, would encourage more accurate attorney fee determinations in trial courts as well as provide appellate courts with a better opportunity to analyze trial court decisions. This article tracks the cases involved in the longtime effort to objectify and unify attorney fee calculations in Michigan and the state’s current position on the issue.

THE EARLY CASES

Perhaps the first case to delineate criteria for attorney fee calculations was the 1928 Michigan Supreme Court case of Fry v. Montague. It arose out of the sale of 58 pairs of silver black foxes for which payment was not made. The attorney seeking fees had represented the trustee for the nearly bankrupt seller in negotiating a settlement with the buyer. A dispute developed and the attorney filed suit, asking for $4,000 in fees. The attorney was awarded $2,000 and both parties appealed.9

In discussing what should be considered in such a case, the Court stated:

We should, of course, consider the time spent, the amount involved, the character of the service rendered, the skill and experience called for in the performance of the work, and the results achieved.10

Without discussing these criteria in any detail, the Court affirmed the $2,000 award, relying principally on the experience of the trial judge as to whether there was an abuse of discretion.11

Another early Michigan Supreme Court case is Becht v. Miller.12 This 1937 case arose out of an estate dispute over an allowance of $7,500 in attorney fees. The Court quoted Fry’s criteria, spent considerable effort analyzing the attorney’s work, held that the trial court had abused its discretion by setting the fee too high, and reduced it to $2,000.13 It is odd for appellate courts to hold a trial court’s award of attorney fees as being too high but, again, the overall emphasis was on abuse of discretion.14

The Fry criteria was the most notable set of court-articulated principles to be used in attorney fee calculations for more than 40 years. The next case in this line came in 1973, when the Michigan Court of Appeals took on Crawley v. Schick.15

THE CRAWLEY v. SCHICK CRITERIA

Crawley v. Schick arose out of an automobile accident wrongful death case in which Karen Crawley, the administrator, negotiated a settlement of $55,000. The trial court awarded Crawley one-third of the settlement as attorney fees. Liberty Mutual Insurance Company intervened to recoup workers’ compensation benefits. One issue on appeal was inclusion of attorney fees as part of the costs of the settlement.

In discussing the attorney fee issue, the Court of Appeals stated:

Where the amount of attorney fees is in dispute each case must be reviewed in light of its own particular facts. There is no precise formula for computing the reasonableness of an attorney’s fee. However, among the facts to be taken into consideration in determining the reasonableness of a fee include, but are not limited to, the following: (1) the professional standing and experience of the attorney; (2) the skill, time and labor involved; (3) the amount in question and the results achieved; (4) the difficulty of the case; (5) the expenses incurred; and (6) the nature and length of the professional relationship with the client.16

Without thoroughly examining its own criteria, the court concluded that the fee was “not in excess in reasonable fees for the services performed.”17

The next step in the journey came nearly a decade later with Wood v. Detroit Automobile Inter-Insurance Exchange.18

IN WOOD, THE COURT ADOPTS THE CRAWLEY CRITERIA

Theodore Wood was a motorcyclist injured in an accident with a car, the driver of which was insured by the defendant. Wood sued for an unreasonable denial of personal injury protection (PIP) benefits. Eventually, a default judgment was entered for Wood which included $50,000 for mental anguish and a $5,000 attorney fee.19 The Michigan Court of Appeals reversed the $50,000 for mental anguish and affirmed the remainder. The Supreme Court granted leave.20

On the issue of attorney fees, the court specifically adopted the Crawley factors and further instructed trial courts as follows:

While a trial court should consider the guidelines of Crawley, it is not limited to those factors in making its determination. Further, the trial court need not detail its findings as to each specific factor considered. The award will be upheld unless it appears upon appellate review that the trial court’s finding on the “reasonableness” issue was an abuse of discretion.21

The court remanded for the trial court to consider an adjustment in the attorney fee as a result of the reversal of the mental anguish award.

As of Wood, whether or not trial courts detailed their findings on the Crawley guidelines, the emphasis was on abuse of discretion. A further clarification and objectification of attorney fee decisions would have to wait for another Supreme Court decision. In the interim, two Court of Appeals cases relating to a more objective approach to fee determinations — the lodestar — deserve mention.

The first is Smolen v. Dahlman Apartments, Ltd.22 Smolen was a Landlord-Tenant Relationships Act23/Michigan Consumer Protection Act24(MCPA) case involving the question of whether residential landlords could retain security deposits for costs associated with apartment cleaning. After some 400 hours of time, the trial court awarded $2,000 in attorney fees under the MCPA. On appeal, the plaintiffs argued that the court should adopt a lodestar — a reasonable hourly rate multiplied by the reasonable number of hours worked — as the starting point in attorney fee calculations. The Court of Appeals remanded the case for a new fee hearing while declining to adopt the lodestar approach,25 instead reiterating a reliance of the factors outlined in Crawley.26

The second case, Howard v. Canteen Corp,27 was brought under the Civil Rights Act28 and reached a contrary decision less than a year after Smolen. The Court of Appeals approved a lodestar:

The most useful starting point for determining the amount of a reasonable attorney fee is the number of hours reasonably expended on the case multiplied by a reasonable hourly rate.29

After the contradictory holdings of Smolen and Howard, some trial courts used a lodestar approach in calculating attorney fees while others relied on Crawley. The adoption of the lodestar approach as the standard for Michigan would come nine years later with the Supreme Court decision in Smith v. Khouri.30

MSC ADOPTS THE LODESTAR APPROACH

Smith v. Khouri was the first Supreme Court case to hold that some version of the lodestar should be used as the beginning point in calculating attorney fee awards. Smith was an appeal of an attorney fee award under case evaluations rule MCR 2403(O). After examining the existing methods of calculating a reasonable attorney fee, the Court stated:

We conclude that our current multifactor approach needs some fine-tuning. We hold that a trial court should begin its analysis by determining the fee customarily charged in the locality for similar legal services, i.e., factor 3 under MRPC 1.5(a). In determining this number, the court should use reliable surveys or other credible evidence of the legal market. This number should be multiplied by the reasonable number of hours expended in the case (factor 1 under MRPC 1.5(a) and factor 2 under Wood). The number produced by this calculation should serve as the starting point for calculating a reasonable attorney fee. We believe that having the trial court consider these two factors first will lead to greater consistency in awards.31

Some commentators suggested that there were several problems with the Court’s fee analysis.32 Despite its shortcomings, Smith at least established a form of lodestar as a beginning point for use in calculating reasonable attorney fees. One cannot fault the Court’s intention.33

The Smith lodestar became the primary method of determining attorney fees under both statute and court rules for the next eight years. The latest attempt by the Supreme Court to tinker with attorney fee calculations came in the 2016 case of Pirgu v. United Services Automobile Association.34

PIRGU: THE LATEST STEP IN THE ATTORNEY FEE JOURNEY

Pirgu, like Wood, is an unreasonable denial of PIP benefits case. The trial court stated the issue was application of the Smith framework to the no-fault insurance act,35 but the Court of Appeals had held otherwise. Leave to appeal was made to the Supreme Court; however, in lieu of granting leave, the Court reversed with new guidance on attorney fee calculations.36

After examining the history of fee determinations under Wood and Smith, the Court expressed the need for an adjustment and a new approach as follows:

Smith requires trial courts to consult two different lists of factors containing significant overlap, which unnecessarily complicates the analysis and increases the risk that courts may engage in incomplete or duplicative consideration of the enumerated factors. Therefore, we distill the remaining Wood and MRPC 1.5(a) factors into one list to assist trial courts in this endeavor:

  1. the experience, reputation, and ability of the lawyer or lawyers performing the services,
  2. the difficulty of the case, i.e., the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly,
  3. the amount in question and the results obtained,
  4. the expenses incurred,
  5. the nature and length of the professional relationship with the client,
  6. the likelihood, if apparent to the client, that acceptance of the particular employment will preclude other employment by the lawyer,
  7. the time limitations imposed by the client or by the circumstances, and
  8. whether the fee is fixed or contingent.

These factors are not exclusive, and the trial court may consider any additional relevant factors. In order to facilitate appellate review, the trial court should briefly discuss its view of each of the factors above on the record and justify the relevance and use of any additional factors.37

Under Pirgu, an objective approach to attorney fee calculations seems to be a bit closer to fruition. Consolidating the two sources makes the latest criteria more specific. Perhaps more important is the requirement that trial judges should discuss each of the factors on the record and justify the relevance and use of any additional factors which, hopefully, leads trial judges to make more reasonable fee awards in the first place and allows for more successful appeals when judges stray from that path.

Before we conclude, one other case should be discussed: Jordan v. Transnational Motors, Inc.38

JORDAN AND CONSUMER PROTECTION

Prior to 1995, trial courts often made low fee awards in consumer protection-type cases, relying on Crawley and/or Rule of Professional Conduct criteria of the “amount involved and the results achieved.” Jordan, a defective vehicle case brought under the Magnuson-Moss Warranty Act39 and the MCPA, appears to make doing that a reversible error.40 Jordan held that in consumer protection cases, trial courts must consider the remedial purposes of the statutes involved when making attorney fee awards.41

CONCLUSION

Given Michigan’s hundreds of statutes and court rules providing for awards of reasonable attorney fees, considerable judicial effort has been expended over time in attempts to unify and objectify fee determinations. The history of those efforts — starting with cases in the 1920s and 1930s to Crawley v. Schick in 1973 and Wood v. Detroit Automobile Inter-Insurance Exchange in 1982 — focused on delineated guidelines. But the Michigan Supreme Court in 2008’s Smith v. Khouri adopted a lodestar approach as the beginning point in fee calculations by multiplying a reasonable hourly rate by the reasonable number of hours worked. That approach was refined in 2016 in Pirgu v. United Services Automobile Association. Trial courts must now start with the lodestar and explain, at least briefly, its application of other criteria. Hopefully, attorney fee decisions will now be more accurate and more easily reviewed upon appeal.


 

ENDNOTES

1. MCL 37.2802.

2. MCL 15.240.

3. MCL 15.363.

4. MCL 257.1336.

5. MCR 2.403.

6. MCR 2.405.

7. MCR 7.216.

8. MCR 3.101.

9. Fry v Montague, 242 Mich 391; 218 NW 691 (1928).

10. Id. at 393.

11. Id. at 394.

12. Becht v Miller, 279 Mich 629; 273 NW 294 (1937).

13. Id. at 641-43.

14. Id. Additionally, the court held that it was not bound by the expert opinion of attor­neys who had testified that the reasonable value of services of the attorney in question was approximately $10,000. The issue of other attorneys testifying to the value of a fee applicant’s services, in terms of reasonable hourly rates, will present itself later on.

15. Crawley v Schick, 48 Mich App 728; 211 NW2d 217 (1973).

16. Id. at 737.

17. Id. at 738.

18. Wood v Detroit Automobile Inter-Insurance Exchange, 413 Mich 573; 321 NW2d 653 (1982).

19. Id. at 577. Reasonable attorney fees are available to the prevailing pary pursuant to MCL 500.3148(1).

20. Id. at 577-578.

21. Id. at 588.

22. Smolen v Dahlman Apartments, 186 Mich App 292; 463 NW2d 261 (1990).

23. MCL 540.601 et seq.

24. MCL 445.901, et seq.

25. Smolen, 186 Mich App at 296.

26. On a positive note, the court held that attorney fees were available for work on appeal, Smolen, 186 Mich App at 298.

27. Howard v Canteen Corp, 192 Mich App 427; 481 NW2d 718 (192).

28. MCL 27.2101 et seq.

29. Howard, 192 Mich App at 437.

30. Smith v Khouri, DDS, 481 Mich 519; 751 NW2d 472 (2008).

31. Id. at 530-531.

32. Victor, Smith vs Khori, the Supreme Court Adopts a Modified Lodestar Likely to Produce Lower Fee Awards, 13 Consumer L Newsletter 5 (August, 2009), available at [https:// perma.cc/KWT5-ZBTG] (website accessed January 14, 2023).

33. “[W]e choose to provide the guidance that has been … sorely lacking for the many Michigan courts that are asked to impose ‘reasonable attorney fees’ under our fee-shifting rules and statutes,” Smith, 481 Mich at 536.

34. Pirgu v United Svcs Automobile Ass’n, 499 Mich 269; 884 NW2d 257 (2016).

35. MCL 500.3148(1).

36. Pirgu, 499 Mich at 271.

37. Id. at 281-282.

38. Jordan v Transnational Motors, 212 Mich App 94; 537 NW2d 471 (1995).

39. 15 USC 2301, et seq.

40. Victor, Recent Attorney Fee Cases and Their Potential Effect in Consumer Protection Cases, 78 Mich B J 278, 279-280 (1999).

41. Jordan, 212 Mich App at 98-99.