Michigan Supreme Court; Docket #150834; Published Opinion
Justices Young, Markman, Zahra, McCormack, Viviano, Bernstein and Larsen; Unanimous Opinion by Justice Viviano
Official Michigan Reporter Citation: Not Applicable; Link to Opinion 
STATUTORY INDEXING:
Penalty Attorney Fees: Requirement That Benefits Were Unreasonably Delayed or Denied [§3148(1)]
Calculating Attorney Fees Based on Contingent Fee [§3148(1)]
TOPICAL INDEXING:
Not Applicable
CASE SUMMARY:
In this unanimous Michigan Supreme Court Opinion by Justice Viviano, the Supreme Court held that attorney fees awarded by a trial court pursuant to MCL 500.3148(1) were improperly calculated because the trial court failed to make express findings on the attorney fee factors enumerated in Smith v Khouri, 481 Mich 519 (2008).
Feridon Pirgu was struck by defendant’s insured while riding a bicycle, suffering a closed head injury. Feridon became legally incapacitated and plaintiff Linda Pirgu was named his guardian and conservator. Plaintiff sought PIP benefits and the claim was assigned to Citizens Insurance Company, which initially provided coverage. After a priority dispute, it was determined that Citizens was obligated to pay benefits. Citizens later stopped paying benefits and plaintiff brought an action seeking coverage. A jury awarded plaintiff $70,237 for attendant care benefits, wage loss benefits, and penalty interest. The trial court also granted more than $23,000 in attorney fees for defendant’s unreasonable refusal to pay benefits.
Plaintiff appealed and, in a 2-1 decision, the Court of Appeals held the trial court properly followed the attorney fee framework set forth in Smith. The majority said that attorney fees can be adjusted based on various factors, including those set forth in Wood v DAIIE, 413 Mich 573 (1982), and Michigan Rule of Professional Conduct 1.5(a). The majority ruled this way based on the prior appellate decision in University Rehab Alliance Inc v Farm Bureau General Ins Co of Michigan, 279 Mich App 691 (2008), wherein the panel rejected the argument that Smith applies when determining an attorney fee award under §3148(1).
The Michigan Supreme Court reversed, declaring that the Smith framework applies to a determination of fees under §3148(1) and overruling University Rehab. In so holding, the Supreme Court noted the Court of Appeals majority had followed University Rehab to conclude that the Smith framework does not apply to reasonable attorney fee determinations under §3148(1). However, the Supreme Court disagreed with this conclusion and announced for the first time that Smith does, indeed, apply to fee determinations under §3148(1).
The Supreme Court said:
“Although §3148(1) is phrased differently than MCR 2.403(O)(6)(b), those differences are not material to determining whether the Smith framework applies. The plain language of the statute and the court rule both speak in terms of a reasonable fee. The operative language triggering the Smith analysis is the Legislature’s instruction that an attorney is entitled to a reasonable fee. The University Rehab panel erred by disregarding this language in §3148(1) when it concluded that Smith was distinguishable because it only applies to case-evaluation sanctions. Because the plain language of §3148(1) speaks in terms of awarding a ‘reasonable fee,’ we conclude that the Smith framework governing reasonable fee determinations is equally applicable in this context.”
The Supreme Court continued by pointing out that, although the wrong conclusion was reached in University Rehab, the panel properly recognized the non-binding nature of the lead opinion’s conclusion in Smith that two factors – the amount in question and the results achieved – are irrelevant in the case-evaluation context. In this regard, the Supreme Court stated:
“While we do not decide today whether those factors should be considered in that context, we hold that they must be considered by a trial court when awarding attorney fees under §3148(1). … Thus, while we agree with portions of University Rehab, we disagree with that Court’s conclusion that Smith is inapplicable to reasonable attorney fee determinations under §3148(1). In particular, University Rehab panel erred by failing to begin its analysis by calculating the baseline figure pursuant to Smith. Therefore, we take this opportunity to overrule University Rehab to the extent that it is inconsistent with our opinion today. Having done so, we conclude that the Court of Appeals erred by holding that the Smith framework does not apply to reasonable attorney fee determinations under 3148(1).”
Based on the foregoing, the Supreme Court said a trial court must take the following steps for a determination of reasonable attorney fees:
1) “begin its analysis by determining the reasonable hourly rate customarily charged in the locality for similar services”;
2) “multiply that rate by the reasonable number of hours expended in the case to arrive at a baseline figure”; and
3) consider “all of the remaining Wood and MRPC 1.5(a) factors to determine whether an up or down adjustment is appropriate.”
Because Smith requires trial courts to consult two different lists of attorney fee factors, many of which overlap, the Supreme Court also distilled the remaining factors in Wood and MRPC 1.5(a) as follows:
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, the Supreme Court noted, and a trial court may consider any additional relevant factors.
In conclusion, the Supreme Court held the trial court in this case erred because it did not begin its analysis by multiplying a reasonable hourly rate by the reasonable number of hours expended. The Supreme Court further concluded that, although the trial court acknowledged some of the Wood and MRPC 1.5(a) factors, it further erred by primarily relying on only one factor (the amount sought and the results achieved), and not discussing the other fee factors. The Supreme Court said:
“Therefore, the trial court necessarily abused its discretion, and as a result, the Court of Appeals erred by affirming the trial court’s attorney fee award.”
Accordingly, the Supreme Court vacated the attorney fee award and remanded the matter to the trial court for reconsideration.
