Pirgu v. United Services Automobile Association

Michigan Supreme Court

Lansing, Michigan

Chief Justice: Justices:

Syllabus Robert P. Young, Jr. Stephen J. Markman

Brian K. Zahra

Bridget M. McCormack

David F. Viviano

Richard H. Bernstein

Joan L. Larsen

This syllabus constitutes no part of the opinion of the Court but has been Reporter of Decisions:

prepared by the Reporter of Decisions for the convenience of the reader. Corbin R. Davis

PIRGU v UNITED SERVICES AUTOMOBILE ASSOCIATION

Docket No. 150834. Argued on application for leave to appeal January 14, 2016.

Decided June 6, 2016.

Feridon Pirgu sustained closed head injuries after he was struck by a vehicle driven by an

individual insured by defendant, United Services Automobile Association. Plaintiff, Feridon’s

wife Lindita, was appointed as Feridon’s guardian and conservator. Plaintiff filed a complaint

against defendant in the Oakland Circuit Court after defendant discontinued payment of personal

protection insurance (PIP) benefits previously provided for Feridon’s care. Plaintiff sought a

judgment of $200,000 to $400,000 and the reinstatement of benefits. The jury awarded plaintiff

$70,237.44. Plaintiff requested attorney fees totaling $220,945. Plaintiff’s counsel claimed that

he spent more than 600 hours prosecuting the case, and that his normal billing rate was $350 an

hour. The trial court, John J. McDonald, J., concluded that plaintiff was due attorney fees

because defendant’s failure to pay the PIP benefits was unreasonable. The trial court noted that

the jury awarded plaintiff approximately 33 percent of the amount plaintiff sought, and thus the

court awarded plaintiff $23,412.48 in attorney fees, approximately 33 percent of the jury verdict.

Plaintiff appealed in the Court of Appeals. The Court of Appeals, BECKERING, P.J., and

HOEKSTRA, J., (GLEICHER, J., dissenting), affirmed the trial court in an unpublished opinion per

curiam issued December 16, 2014 (Docket No. 314523). The Supreme Court scheduled oral

argument on plaintiff’s application for leave to appeal, and in lieu of granting leave, reversed the

trial court’s judgment, vacated the trial court’s award of attorney fees, and remanded the matter

to the trial court for reconsideration.

In a unanimous opinion by Justice VIVIANO, the Supreme Court held:

A trial court must begin its calculation of a reasonable attorney fee under

MCL 500.3148(1) by multiplying the reasonable hourly rate customarily charged in the locality

for similar legal services by the reasonable number of hours expended on the case. Thereafter, a

trial court must consider the following eight factors to determine whether an up or down

adjustment to that baseline number is appropriate: (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 additional

relevant factors. To facilitate appellate review, a trial court should briefly discuss its view of

each of the factors on the record and justify the relevance and use of any additional factors.

The trial court abused its discretion by failing to apply this framework, and the Court of

Appeals’ majority erred to the extent that it affirmed the trial court’s attorney fee award.

Reversed, trial court fee award vacated, and case remanded to the trial court for

reconsideration.

©2016 State of Michigan

Michigan Supreme Court

Lansing, Michigan

Chief Justice: Justices:

OPINION Robert P. Young, Jr. Stephen J. Markman

Brian K. Zahra

Bridget M. McCormack

David F. Viviano

Richard H. Bernstein

Joan L. Larsen

FILED June 6, 2016

STATE OF MICHIGAN

SUPREME COURT

LINDITA PIRGU, Guardian and

Conservator of FERIDON PIRGU, a Legally

Incapacitated Person,

Plaintiff-Appellant,

v No. 150834

UNITED SERVICES AUTOMOBILE

ASSOCIATION d/b/a USAA INSURANCE

AGENCY, INC.,

Defendant-Appellee.

BEFORE THE ENTIRE BENCH

VIVIANO, J.

The issue in this case is whether the framework for calculating a reasonable

attorney fee set forth in Smith v Khouri 1 applies to attorney fee determinations under

1

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

MCL 500.3148(1) of the no-fault insurance act. 2 The Court of Appeals’ majority

affirmed the trial court’s calculation of the attorney fee award, concluding that the Smith

framework does not apply to attorney fee determinations under § 3148(1). We disagree

with this conclusion and instead hold that the Smith framework—as described in Justice

CORRIGAN’s concurring opinion, and as modified herein—applies to attorney fee

determinations under § 3148(1). 3 Therefore, in lieu of granting leave to appeal, we

reverse the judgment of the Court of Appeals, vacate the fee award, and remand to the

trial court for reconsideration of its attorney fee award in light of this opinion.

I. FACTS AND PROCEDURAL HISTORY

In 2008, Feridon Pirgu sustained closed head injuries after he was struck by a car

driven by an insured of defendant, United Services Automobile Association. Plaintiff,

Feridon’s wife Lindita, was appointed as his guardian and conservator. Shortly

thereafter, plaintiff sought various personal protection insurance (PIP) benefits for

Feridon. Because Feridon was uninsured, the claim was initially assigned to the

Michigan Assigned Claims Facility, which then assigned the claim to Citizens Insurance

Company. Following a priority dispute between Citizens and defendant, defendant was

determined to have first priority for payment of PIP benefits. Defendant began adjusting

the claim in 2010, and immediately discontinued payment of the benefits.

2

MCL 500.3101 et seq.

3

Smith, 481 Mich at 538-543 (opinion by CORRIGAN, J.).

2

Plaintiff filed suit against defendant for reinstatement of the discontinued benefits

and for attorney fees, seeking a judgment in the amount of $200,000 to $400,000. 4

Following trial, the jury awarded plaintiff $70,237.44. 5 Thereafter, plaintiff’s counsel

sought $220,945 in attorney fees, claiming that he had expended more than 600 hours

prosecuting the case and that his normal billing rate was $350 per hour. Because the trial

court concluded that defendant’s failure to pay the PIP benefits was unreasonable, it

found that attorney fees were warranted under § 3148(1). 6 The trial court noted that the

jury awarded plaintiff approximately 33 percent of the judgment amount sought, and

therefore, the trial court awarded $23,412.48 in attorney fees, approximately 33 percent

of the jury verdict.

The Court of Appeals affirmed in a split, unpublished opinion. 7 The majority

concluded that it was bound to follow University Rehab Alliance, Inc v Farm Bureau Gen

Ins Co of Mich, 8 which held that the Smith framework does not apply to reasonable

4

The variance in the amounts is accounted for by the two different hourly rates for

attendant care that plaintiff’s counsel offered to the jury in his closing argument.

5

The jury awarded $54,720 for attendant-care benefits, $7,992 in wage-loss benefits, and

$7,525.44 in penalty interest.

6

Defendant has not challenged this ruling.

7

Pirgu v United States Auto Ass’n, unpublished opinion per curiam of the Court of

Appeals, issued December 16, 2014 (Docket No. 314523). We note that the Court of

Appeals incorrectly identified defendant as the United States Automobile Association.

8

University Rehab Alliance, Inc v Farm Bureau Gen Ins Co of Mich, 279 Mich App 691,

700 n 3; 760 NW2d 574 (2008).

3

attorney fee awards under § 3148(1). 9 Applying University Rehab’s totality of the

circumstances analysis, the Court of Appeals’ majority concluded that the trial court’s

award was reasonable. The majority gave the following justifications: (1) the results

achieved were considerably less than the amount sought, (2) the fee award was

commensurate with what plaintiff’s counsel would have received under a contingency fee

arrangement, and (3) the trial court expressly found that not all of the hours plaintiff’s

counsel expended were necessary. 10

Dissenting in part, Judge GLEICHER would have held that the trial court abused its

discretion by neglecting to consider the number of hours plaintiff’s counsel invested in

the case and his appropriate hourly rate. 11 The dissent also opined that no-fault cases

require a court either to fully apply the factors detailed by this Court in Wood v Detroit

Auto Inter-Ins Exch 12 or to fully apply the Smith framework. 13 The dissent also criticized

the trial court for only considering the amount in question and the results achieved. 14

This Court scheduled oral argument on the application, directing the parties to

address whether reasonable attorney fee determinations under § 3148(1) are governed by

9

Pirgu, unpub op at 3-4.

10

Id. at 5.

11

Id. at 4 (GLEICHER, J., concurring in part and dissenting in part).

12

Wood v Detroit Auto Inter-Ins Exch, 413 Mich 573, 588; 321 NW2d 653 (1982).

13

Pirgu, unpub op at 7 (GLEICHER, J., concurring in part and dissenting in part).

14

Id. at 6-7.

4

Wood and/or Smith, and whether the trial court abused its discretion in calculating the

attorney fees due to plaintiff.15

II. STANDARD OF REVIEW

We review a trial court’s award of attorney fees and costs for an abuse of

discretion. 16 An abuse of discretion occurs when the trial court’s decision is outside the

range of reasonable and principled outcomes. 17 A trial court necessarily abuses its

discretion when it makes an error of law. 18 Questions of law are reviewed de novo. 19

III. ANALYSIS

At issue in this case is the proper method for calculating a reasonable attorney fee

under MCL 500.3148(1), which provides that:

An attorney is entitled to a reasonable fee . . . in an action for

personal or property insurance benefits which are overdue . . . if the court

finds that the insurer unreasonably refused to pay the claim or unreasonably

delayed in making proper payment.

15

Pirgu v United Servs Auto Ass’n, 498 Mich 860 (2015).

16

Moore v Secura Ins, 482 Mich 507, 516; 759 NW2d 833 (2008).

17

Id.

18

People v Duncan, 494 Mich 713, 723; 835 NW2d 399 (2013).

19

Universal Underwriters Ins Co v Kneeland, 464 Mich 491, 496; 628 NW2d 491

(2001).

5

The statute is an exception to the “American rule,” which provides that “attorney fees

generally are not recoverable from the losing party as costs in the absence of an exception

set forth in a statute or court rule expressly authorizing such an award.” 20

At the outset, it is helpful to understand the current state of the law regarding the

determination of a reasonable attorney fee. In Wood, which also involved an attorney fee

award under § 3148(1), we enumerated the following factors for determining the

reasonableness of an attorney fee:

(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.[21]

We held that a trial court should consider the factors outlined in Wood, but that it is not

limited to them in making its determination. 22

In Smith, we reviewed a reasonable attorney fee award as part of case-evaluation

sanctions under MCR 2.403(O), and revisited Wood’s multifactor approach. 23 We held

that a trial court must begin its reasonableness analysis “by determining the fee

customarily charged in the locality for similar legal services,” and then multiplying that

number “by the reasonable number of hours expended in the case.” 24 After a trial court

20

Haliw v City of Sterling Heights, 471 Mich 700, 707; 691 NW2d 753 (2005).

21

Wood, 413 Mich at 588 (quotation marks and citations omitted).

22

Id.

23

Smith, 481 Mich at 527-529 (opinion by TAYLOR, C.J.).

24

Id. at 530-531.

6

has calculated this baseline figure, it must consider and briefly discuss on the record the

remaining Wood factors and the factors in MRPC 1.5(a) 25 to determine whether any up or

down adjustments from the base number are appropriate. 26

There was a split in Smith, however, regarding whether two factors, “the amount

in question and the results achieved” (factor 3 under Wood and factor 4 under MRPC

1.5(a)), and “whether the fee is fixed or contingent” (factor 8 under MRPC 1.5(a)),

should be considered when determining a reasonable attorney fee for case-evaluation

sanctions. The lead opinion concluded that the two factors are not relevant. 27 Justice

CORRIGAN, joined by Justice MARKMAN, concurred with the reasoning and result of the

25

The MRPC 1.5(a) factors are:

(1) the time and labor required, the novelty and difficulty of the questions

involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the

particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers

performing the services; and

(8) whether the fee is fixed or contingent.

26

Smith, 481 Mich at 531, 533 (opinion by TAYLOR, C.J.).

27

Id. at 534 n 20.

7

lead opinion, but argued that there was no principled basis or textual support for

excluding the two factors from consideration. 28

Subsequently, in University Rehab, the Court of Appeals relied on our decision in

Wood, and on the MRPC 1.5(a) factors, to uphold a reasonable attorney fee award made

under § 3148(1). 29 Pertinent to this case, the Court of Appeals held that our decision in

Smith did not affect its analysis, stating:

First, Smith addressed MCR 2.403(O)(6)(b), which explicitly requires that

the reasonable-attorney-fee portion of actual costs be based on a reasonable

hourly or daily rate as determined by the trial court. Second, while two

justices would have held that whether an attorney has a contingent-fee

agreement with a client is not an appropriate factor when considering a

reasonable attorney fee as a case-evaluation sanction, that part of the

opinion is not binding precedent because a majority of justices did not

agree.[30]

Although the University Rehab panel applied a combination of the Wood and

MRPC 1.5(a) factors in a manner that is similar to the Smith concurrence’s approach, it

did not require the trial court to begin its analysis by making the baseline calculation

pursuant to Smith, and instead adopted a totality of the circumstances approach. 31

As noted, the Court of Appeals’ majority in this case followed University Rehab to

conclude that the Smith framework does not apply to reasonable attorney fee

28

Id. at 538 (opinion by CORRIGAN, J.).

29

University Rehab, 279 Mich App at 698-704.

30

Id. at 700 n 3 (citations omitted).

31

Id. at 700.

8

determinations under § 3148(1). We disagree with this conclusion. Instead, we conclude

that the Smith framework applies in this context.

In Smith, we refined the analysis that applies when a fee-shifting statute or rule

requires a trial court to determine a reasonable attorney fee. 32 We have held that the

Smith framework applies beyond the case-evaluation sanctions context in appropriate

circumstances. 33 Of course, whether it applies in a given case must depend on the plain

language of the statute or rule at issue. 34 As we often note, any statutory construction

must begin with the plain language. 35 “We must give effect to the Legislature’s intent,

32

See Smith, 481 Mich at 535 (opinion by TAYLOR, C.J.) (“We merely aim to provide a

workable, objective methodology for assessing reasonable attorney fees that Michigan

courts can apply consistently to our various fee-shifting rules and statutes.”).

33

In Coblentz v City of Novi, 485 Mich 961 (2009), we considered an award of

reasonable attorney fees under the Freedom of Information Act. At the time,

MCL 15.240(6) provided that “[i]f a person . . . prevails in an action commenced under

this section, the court shall award reasonable attorneys’ fees . . . .” In determining the

reasonable attorney fees due to the plaintiffs, the trial court considered whether the city’s

conduct was corrupt enough to justify fees and whether the fees would bankrupt the city

or burden the public welfare. Coblentz, 485 Mich 961. We held that “[n]othing in

MCL 15.240(6), or decisions of this Court, authorizes consideration of such factors in

determining a reasonable attorney fee award.” Coblentz, 485 Mich 961. Accordingly,

we reversed and remanded for a re-determination of the plaintiffs’ reasonable attorney

fees using the Smith factors.

34

The answer to Justice CAVANAGH’S question of whether the rule applies to other fee-

shifting provisions, Smith, 481 Mich at 554-555 (CAVANAGH, J., dissenting), must be

determined by examining the plain language of the rule or statute at issue in a given case.

35

Driver v Naini, 490 Mich 239, 246-247; 802 NW2d 311 (2011).

9

and the best indicator of the Legislature’s intent is the words used.” 36 These same

principles govern the interpretation of court rules. 37

Smith considered a fee award under MCR 2.403(O)(6)(b), which provides for “a

reasonable attorney fee based on a reasonable hourly or daily rate as determined by the

trial judge for services necessitated by the rejection of the case evaluation . . . .” Section

3148(1) contains slightly different language, providing that “[a]n attorney is entitled to a

reasonable fee for advising and representing a claimant in an action for [overdue PIP

benefits].”

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.38

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. 39 Because the plain language of

36

Johnson v Pastoriza, 491 Mich 417, 436; 818 NW2d 279 (2012).

37

Duncan, 494 Mich at 723.

38

We agree with Justice CORRIGAN’s statement in Smith that the plain language of

MCR 2.403(O)(6)(b) “merely requires that the court award a ‘reasonable attorney fee’; it

does not suggest that ‘reasonable attorney fee’ means something different for case

evaluation sanctions than for any other situation.” Smith, 481 Mich at 539 (opinion by

CORRIGAN, J.).

39

University Rehab, 279 Mich App at 700 n 3. The University Rehab panel also

disregarded Smith’s repeated use of language of general applicability, which clearly

10

§ 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.

Despite reaching the wrong conclusion, University Rehab properly recognized the

non-binding nature of the lead opinion’s conclusion in Smith that two of the factors—“the

amount in question and the results achieved” and “whether the fee is fixed or

contingent”—are not relevant in the case-evaluation context. 40 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). 41 We have

long recognized that the results obtained are relevant to determining the reasonable value

of legal services. 42 The results obtained are indicative of the exercise of skill and

contemplated that the methodology announced therein could be applicable to reasonable

attorney fee determinations outside the case-evaluation context. See e.g., Smith, 481

Mich at 522 (opinion by TAYLOR, C.J.) (“We take this opportunity to clarify that the trial

court should begin the process of calculating a reasonable attorney fee . . . .”) (emphasis

added); id. at 530 (“We conclude that our current multifactor approach needs some fine-

tuning.”); id. at 533 (“Having clarified how a trial court should go forward in calculating

a reasonable attorney fee . . . .”) (emphasis added).

40

University Rehab, 279 Mich App at 700 n 3, citing People v Sexton, 458 Mich 43, 65;

580 NW2d 404 (1998) (“[A] majority of the Court must agree on a ground for decision in

order to make that binding precedent for future cases.”) (quotation marks and citation

omitted).

41

This is in accord with the lead opinion in Smith, since it recognized that both factors

“may be relevant in other situations.” Smith, 481 Mich at 534 n 20 (opinion by TAYLOR,

C.J.). See also Beach v Kelly Auto Group, Inc, 482 Mich 1101, 1102 (2008) (YOUNG, J.,

concurring). And, in any event, the parties have offered no justification for excluding

these factors when awarding attorney fees under § 3148(1).

42

See Becht v Miller, 279 Mich 629, 640; 273 NW 294 (1937) (“In ascertaining the

reasonable value of legal services, the court should consider . . . the results obtained.”).

11

judgment on the part of the attorney. 43 Similarly, the nature of the fee arrangement is

also a relevant factor because a contingency fee percentage may “express an attorney’s

expectations of the case and the risks involved.” 44 Accordingly, a trial court must

consider both of these factors when making adjustments to the baseline fee award.

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, the 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).

In sum, we hold that when determining the reasonableness of attorney fees

awarded under § 3148(1), a trial court must begin its analysis by determining the

reasonable hourly rate customarily charged in the locality for similar services. 45 The trial

court must then multiply that rate by the reasonable number of hours expended in the

43

Fry v Montague, 242 Mich 391, 393-394; 218 NW 691 (1928).

44

Smith, 481 Mich at 540 (opinion by CORRIGAN, J.).

45

Id. at 530-531 (opinion by TAYLOR, C.J.). We emphasize that the burden of proving

reasonableness rests with the party requesting the fees. Id. at 528-529. With respect to

the reasonable hourly rate, “the fee applicant must present something more than

anecdotal statements to establish the customary fee for the locality.” Id. at 532. “The

fees customarily charged . . . can be established by testimony or empirical data found in

surveys and other reliable reports.” Id. at 531-532.

12

case to arrive at a baseline figure. 46 Thereafter, the trial court must consider all of the

remaining Wood and MRPC 1.5(a) factors to determine whether an up or down

adjustment is appropriate. 47

Unfortunately, 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

46

Id. at 531.

47

Id.

13

factors. 48 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. 49

IV. APPLICATION

Having clarified the proper framework that applies to reasonable fee awards under

§ 3148(1), we turn to the award in the instant case. The trial court erred by not starting

its analysis by multiplying a reasonable hourly rate by the reasonable number of hours

expended. Further, although it acknowledged some of the Wood and MRPC 1.5(a)

factors, the trial court also erred by primarily relying on only one factor—the amount

sought and results achieved—and failing to briefly discuss its view of the other factors.

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, we reverse

the Court of Appeals, vacate the fee award, and remand to the trial court for

reconsideration in light of this opinion. 50

48

Id. at 530.

49

Id. at 529 n 14, 531, 531 n 15.

50

Defendant argues that plaintiff entirely failed to meet her burden of proof to support

her claim for attorney fees. See Smith, 481 Mich at 528-529 (opinion by TAYLOR, C.J.).

Because the trial court failed to properly apply Smith, it is unclear whether plaintiff met

her burden. Accordingly, the trial court should consider this issue on remand when it

applies the Smith framework.

14

V. CONCLUSION

We hold that when calculating a reasonable attorney fee award under § 3148(1), a

trial court must follow the Smith framework, as outlined by Justice CORRIGAN’s

concurring opinion and as modified by this opinion. The trial court abused its discretion

by failing to do so, and the Court of Appeals’ majority erred to the extent that it affirmed

the trial court’s attorney fee award. Therefore, the judgment of the Court of Appeals is

reversed, the fee award is vacated, and the case is remanded to the trial court for

reconsideration in light of this opinion.

David F. Viviano

Robert P. Young, Jr.

Stephen J. Markman

Brian K. Zahra

Bridget M. McCormack

Richard H. Bernstein

Joan L. Larsen

15