Justices deny leave in capped attorneys’ fees dispute

The Michigan Supreme Court has denied leave in a dispute over capped attorneys’ fees.

The justices left intact a published 2-1 Court of Appeals decision that said a law firm’s contingent-fee agreement with a client did not entitle it to obtain one-third of the attendant-care benefits provided to the client for a period of three years.

In Wasenko v. The Auto Club Group ( MiLW 07-106995 ), Judge Christopher P. Yates, joined by Judge Noah P. Hood, said the trial court erred by incorrectly relying on MCL 500.3148(4) instead of contract principles to resolve the dispute. The matter was sent back to Wayne County for a redetermination of reasonable attorneys’ fees and costs to which defense counsel is entitled.

Judge Douglas B. Shapiro dissented , saying that the law firm was “entitled to a fee equal to 1/3 of the net recovery at the time of the settlement and no more.”

Fee dispute

Steven Wasenko was left paralyzed from the waist down after a November 2000 motor vehicle collision.

A little more than a decade later, he suffered a life-threatening infection that he claimed was a complication from his injuries from the 2000 collision.

The infection caused a perpetually open wound that prevented Wasenko from working and required in-home attendant care. The Auto Club Group paid for Wasenko’s enhanced care starting in June 2011.

In 2019, Auto Club stopped making payments for his attendant-care benefits due to alleged fraud. Wasenko then retained Nabih Ayad and Ayad Law to seek PIP benefits from Auto Club.

Acting as Wasenko’s attorney under a contingent-fee agreement, Ayad filed a complaint on Wasenko’s behalf in December 2019. After two years of litigation, Ayad settled the case against Auto Club for $251,523. This covered all of Wasenko’s claims up to July 1, 2021, and took the issue of alleged fraud off the table.

But the matter of attendant-care benefits beginning on July 1, 2021, remained unresolved. At the time the settlement was memorialized, Ayad said on the record that Wasenko intended to file a separate lawsuit to address the retroactivity of an amendment to the no-fault act that was in dispute.

After the settlement agreement was executed, Ayad wrote to Wasenko, saying that Ayad and his firm had an attorney’s lien on all future payments to Wasenko for attendant care. That claim was presented to the Wayne County Circuit Court to resolve when Auto Club moved to reopen Wasenko’s no-fault case to get an “order of proper distribution of benefits pursuant to MCL 500.3112.”

The Wayne County court issued an order that granted Ayad Law’s motion to withdraw as Wasenko’s counsel and denied Wasenko’s motion to quash Ayad Law’s lien. However, the trial court stated “that pursuant to MCL 500.3148(4), Ayad Law, PLLC’s charging lien is limited to three years.”

Neither party was happy with that result. Wasenko filed an appeal; Ayad and his firm filed a cross-appeal.

Capped fees award vacated

The contingent-fee agreement Wasenko and Ayad Law signed in November 2019 provided that, “as compensation for services rendered by attorney Client will pay a fee contingent on any net recovery as follows: One third of the entire recoveries after outstanding debts are deducted.”

The agreement also entitled Ayad Law to a lien “upon Client’s cause of action, claim or counterclaim.”

As a matter of contract, Yates pointed out, Ayad Law could credibly claim as its fee one-third “of the entire recoveries” it obtained for Wasenko meaning one-third of all attendant-care payments made to Wasenko by Auto Club.

Wasenko also could also plausibly claim that the firm had a contractual right limited to one-third of the $251,523 settlement. Thus, the trial court had to choose between the competing positions as a matter of contract law.

The trial court, citing an attorney-fee provision in the no-fault act MCL 500.3148(4) ruled that the firm’s charging lien was limited to three years.

“The trial court framed the entire dispute over attorney fees as a matter that had to be resolved under that language,” Yates wrote. “But considered in the broader context of the entire statute, the trial court’s reliance on only subsection (4) of MCL 500.3148 to arrive at its decision is unsustainable.”

When the Legislature added subsection (4) in June 2019, it placed a cap on the penalty of attorneys’ fees against the insurer; the penalty provision of the statute now is “[s]ubject to subsections (4) and (5)” of MCL 500.3148.

“To apply MCL 500.3148(4) to cap the amount of attorney fees that plaintiff’s attorneys can recover from their clients in PIP cases under the no-fault act is to pound a round peg into a square hole,” Yates wrote. “When plaintiff’s attorneys recover fees from their clients in PIP cases, that recovery of fees manifestly does not constitute a ‘penalty,’ as contemplated by our Supreme Court.”

The judge looked to Beach v. State Farm Mut Auto Ins Co, which “illustrates the salient distinction between attorney fees recovered from an insurer and attorney fees recovered from a plaintiff’s attorney’s own client in a PIP case under the no-fault act.”

The Beach court affirmed the trial court’s denial of requested attorneys’ fees because the jury found there were no overdue PIP benefits.

“If we applied that same statutory language from MCL 500.3148(1) to Ayad Law’s request for attorney fees, Ayad Law would be entitled to no fees whatsoever from its own client because no portion of plaintiff’s claim for future PIP benefits for attendant care was ‘overdue,’ as required by MCL 500.3148(1),” Yates explained. “Applying the penalty provision of the statute in that manner makes no sense, so application of the cap on penalty-provision attorney fees prescribed by MCL 500.3148(4) likewise makes no sense. Instead, we are convinced that MCL 500.3148 in all of its subsections applies only to ‘penalty provision’ attorney fees recovered from insurers, rather than attorney fees recovered by plaintiff’s attorneys from their own clients in PIP cases under the no-fault act.”

Yates concluded that the appeals court had no choice but to vacate the lower court’s award of capped attorneys’ fees.

“Because there is no restriction on the fee agreement imposed by any Michigan statute, the trial court must decide the case based entirely on contract principles unless it concludes that the contract is unenforceable,” he wrote.

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