Feridon Pirgu v. United Services Automobile Association ( 2014 )

STATE OF MICHIGAN
COURT OF APPEALS
LINDITA PIRGU, Guardian and Conservator of UNPUBLISHED
FERIDON PIRGU, a Legally Incapacitated December 16, 2014
Person,
Plaintiff-Appellant,
v No. 314523
Oakland Circuit Court
UNITED STATES AUTOMOBILE LC No. 2011-119378-NI
ASSOCIATION, d/b/a USAA INSURANCE
AGENCY, INC.,
Defendant-Appellee.
Before: BECKERING, P.J., and HOEKSTRA and GLEICHER, JJ.
GLEICHER, J. (concurring in part and dissenting in part).
I concur with most of the majority’s well-reasoned opinion. I respectfully depart from
the majority only regarding the calculation of attorney fees due under MCL 500.3148(1). In my
view, the trial court abused its discretion by strictly applying a contingency-fee approach to the
determination of counsel’s attorney-fee request. Although the trial court belatedly paid lip
service to the factors set forth in Wood v DAIIE, 413 Mich 573, 588; 321 NW2d 653 (1982), it
failed to actually employ them. In my view, the contingency-fee construct the court utilized
contravenes both MCL 500.3148(1) and Wood, necessitating remand for a true attorney-fee
hearing.
I. FACTS AND PROCEEDINGS
In October 2008, plaintiff Feridon Pirgu was struck by a car while riding his bicycle. He
sustained skull and orbital fractures and brain bleeding, and emerged from his hospitalization
with a closed head injury diagnosis. Because Pirgu did not own a vehicle, the Michigan
Assigned Claims Facility (MCAF) assigned responsibility for payment of Pirgu’s first-party no-
fault benefits to Citizens Insurance Company. Citizens paid Pirgu a panoply of benefits
including for attendant care, replacement services, and wage loss while concomitantly pursuing
a declaratory judgment action contending that defendant United States Automobile Association
(USAA) bore primary liability. Ultimately, Citizens prevailed. USAA began adjusting the claim
in 2010, and immediately discontinued payment of Pirgu’s attendant care, replacement services,
and wage-loss benefits.
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Pirgu filed this first-party no-fault action seeking reinstatement of the discontinued
benefits up to the date of the trial and into the future. He also sought attorney fees. At trial,
USAA admitted that Pirgu had suffered a closed head injury, but raised several defenses to
payment: any ongoing disabilities were exaggerated, related to a 2004 accident, or were so minor
that he had no need of supplemental care and could return to work. Multiple physicians (at least
nine) testified at trial concerning the injuries sustained in both accidents and Pirgu’s ongoing
need for care and treatment. The trial consumed nine days spread over two-and-a-half weeks.
The jury found that Pirgu was still suffering from the effects of the 2008 accident when USAA
cut off his benefits. It awarded $54,720.00 for attendant-care benefits, $7,992.00 in wage-loss
benefits, and $7,525.44 in penalty interest.
Pirgu’s counsel, Richard M. Shulman, sought attorney fees in the amount of $220,945.00.
He claimed that he had expended more than 600 hours of time prosecuting the case and that his
normal billing rate was $350 an hour. The trial court found that fees were warranted because
USAA’s failure to pay the awarded PIP benefits was unreasonable. But rather than considering
Shulman’s proposed hourly rate and the number of hours he allegedly invested, the trial court
focused only on the verdict, observing that the jury awarded far less than the $200,000 to
$400,000 that Shulman had requested.1 Without citing any legal authority, the trial court ruled:
“I’m going to give you one-third of [$]54,000. . . .” After adding the interest awarded
(approximately $7,000), the trial court revised its calculations, determining that because Pirgu
had obtained roughly $61,000 and one-third of that amount was “about $25,000,” Shulman
would be entitled to $25,000. Shulman protested:
MR. SHULMAN: Your Honor, a contingent fee . . . isn’t proper in this
case because it’s -- it’s --
THE COURT: Do you want me to give you less than that?
MR. SHULMAN: Of course not, your Honor.
THE COURT: Okay. Then that’s what you’re getting.
Later during the same hearing, Shulman and the trial court engaged in a second dialogue
concerning attorney fees. Shulman insisted that the court was required to consider the factors
enumerated in Wood, 413 Mich at 513, and was not permitted to award attorney fees due under
MCL 500.3148(1) on a contingency-fee basis. The trial court interrupted, launching the
following exchange concerning Wood:
THE COURT: No, it talks about the expertise of the attorney, the effort
put into the case, the time put into the case, the --
MR. SHULMAN: The --
1
In his closing argument, Shulman offered the jury several different hourly rates for attendant
care. This partially accounted for the range of the requested verdict.
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THE COURT: -- the results, yeah, and the --
MR. SHULMAN: -- skilled time and labor involved, the amount in
question and the results achieved, the difficulty of the case, the expenses incurred,
the nature and length of the professional relationship with the client --
THE COURT: Right.
MR. SHULMAN: -- and any other appropriate factors.
THE COURT: Right.
MR. SHULMAN: It seems to me that the Court . . . is ruling based on the
amount that was asked of the jury, versus what was awarded and there’s case law
that speaks specifically to that issue, . . . and many appellate Courts have ruled,
that it’s not based on the amount that was asked, if you --
THE COURT: No, I understand but . . . doesn’t it also relate . . . to the
reasonableness of the attorney fees?
MR. SHULMAN: It -- it relates to the --
THE COURT: Is it reasonable to ask for 500,000 and get 50?
***
MS. BROWN: Your Honor -- but, again, you sat through the trial, there
was an enormous amount of wasted time, there was an enormous amount of
wasted time during the trial depositions of the experts, there was an enormous
amount of time wasted on the lack of preparedness --
THE COURT: Let’s put it this way, I don’t know whether it was wasted
but there was a lot of time that --
MS. BROWN: -- unnecessarily --
THE COURT: -- forever to ask a question sometimes.
The trial court ruled that based on the amount Pirgu recovered ($70,237.44), Shulman was
entitled to $23,412.48 in attorney fees.
At a second hearing, Shulman reiterated his complaint that a contingency approach to his
attorney-fee request was improper. The trial court shot him down once more:
THE COURT: -- I can take into consideration the results of the case,
that’s one of the things you like [sic] at, too --
MR. SHULMAN: I understand --
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THE COURT: -- and the complexity and I figure the best way of doing it
is looking at it in that way and I think the attorney fees are what I granted --
MR. SHULMAN: Well, . . .your Honor’s award was based on your --
what your Honor came up with was based on one-third.
I believe that the case law says that . . . the starting point is the number of
hours and the prevailing --
THE COURT: -- or adding.
MR. SHULMAN: I’m sorry?
THE COURT: And then you start reducing or adding.
MR. SHULMAN: And . . . according to your Honor’s award, you
awarded $38.00 an hour in my time, which I disagree with, respectfully, your
Honor, and -- and I intend to --
***
MR. SHULMAN: But your Honor’s award was effectively $38.00 an
hour for the 600 plus hours of time that I spent, from 2010 --
THE COURT: How much of that time --
MR. SHULMAN: -- for trial.
THE COURT: -- shouldn’t have been spent?
How much of that time was --
MR. SHULMAN: Your Honor, that time was necessary.
THE COURT: No, it wasn’t.
I sat through the trial, I watched the depositions, you fumbled around,
forever, at times, took much longer than it had to take.
On appeal, Pirgu contends that Smith v Khouri, 481 Mich 519; 751 NW2d 472 (2008),
supplies the proper method for determining attorney fees in a first-party no-fault case. The
majority holds that Wood rather than Smith applies, and that the trial court’s approach was
reasonable. I respectfully suggest that under either Smith or Wood, the trial court abused its
discretion by neglecting to consider the number of hours Shulman invested in the case and his
appropriate hourly rate. In my view, only after considering that information could the trial court
calculate a reasonable attorney fee.
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II. THE WOOD OR SMITH FACTORS
In decreeing no-fault insurance compulsory for all motorists, the Legislature
contemporaneously undertook to highly regulate Michigan’s no-fault insurance business. In
Shavers v Attorney General, 402 Mich 554; 267 NW2d 72 (1978), our Supreme Court upheld the
constitutionality of the no-fault act’s complex regulatory scheme, finding its enactment
justifiable as an effort to remedy the “operational deficiencies of the tort system.” Id. at 621.
One such tort system shortcoming involved the “[l]engthy delays . . . in compensating those
injured in automobile accidents—often in cases where the need for prompt compensation was
strongest.” Id. at 621-622. “The goal of the no-fault insurance system was to provide victims of
motor vehicle accidents assured, adequate, and prompt reparation for certain economic losses.”
Id. at 578-579.
Accordingly, the statutory requirement that an insurer promptly pay benefits due holds a
central place among the act’s regulations. Accident victims are entitled to payment of certain
personal injury protection benefits as soon as “the loss accrues.” MCL 500.3142(1). Once an
expense is incurred, benefits must be paid “within 30 days after an insurer receives reasonable
proof of the fact and of the amount of loss sustained.” MCL 500.3142(2). Commanding
punctual payment of compensation for economic losses, the Shavers Court explained, “may
remedy the delays under the tort system” as well as the tort system’s failure to fairly compensate
all “personal injury victims of motor vehicle accidents[.]” Shavers, 402 Mich at 622.
The Legislature gave bite to the 30-day pay regulation by reinforcing it with two
provisions. First, “[a]n overdue payment bears simple interest at the rate of 12% per annum.”
MCL 500.3142(3). This is a penalty for insurer misconduct rather than a compensation
provision. Univ of Mich Regents v State Farm Mut Ins Co, 250 Mich App 719, 735; 650 NW2d
129 (2002). The purpose of this interest-penalty provision “is to see that the injured party is
quickly paid.” Allstate Ins Co v Citizens Ins Co of America, 118 Mich App 594, 607; 325 NW2d
505 (1982).
The second protection, the no-fault act’s attorney-fee provision, serves precisely the same
goal. Darnell v Auto-Owners Ins Co, 142 Mich App 1, 14-15; 369 NW2d 243 (1985). An
insurer that unreasonably refuses to pay benefits is not only on the hook for 12% interest, but
also bears responsibility for paying the fees of the vindicated claimant’s attorney. A claimant’s
attorney fees “shall be a charge against the insurer in addition to the benefits recovered, if the
court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in
making proper payment.” MCL 500.3148(1).
The purpose of the no-fault act’s attorney-fee penalty provision is to
ensure prompt payment to the insured. Accordingly, an insurer’s refusal or delay
places a burden on the insurer to justify its refusal or delay. The insurer can meet
this burden by showing that the refusal or delay is the product of a legitimate
question of statutory construction, constitutional law, or factual uncertainty.
[Ross v Auto Club Group, 481 Mich 1, 11; 748 NW2d 552 (2008) (citations
omitted).]
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Thus, the no-fault act protects claimants from bearing their own legal fees when
challenging a recalcitrant insurer. Indisputably, the attorney-fee and interest provisions serve
also to deter “unreasonable payment delays and denials of no-fault benefits that force the
commencement of legal action[.]” Lakeland Neurocare Ctrs v State Farm Mut Auto Ins Co, 250
Mich App 35, 43; 645 NW2d 59 (2002). By including these provisions in the no-fault act, the
Legislature deemed it proper to punish as well as to deter:
Permitting the imposition of these penalty provisions by health care providers
provides a legitimate and enforceable incentive to no-fault insurers to perform
their payment obligations, imposed by operation of law, in a reasonable and
prompt manner. [Id. at 44].
And because the no-fault act is remedial in nature, its provisions must be liberally construed in
favor of the intended beneficiaries. Frierson v West American Ins Co, 261 Mich App 732, 734;
683 NW2d 695 (2004).
In Wood, the Supreme Court adopted specific guidelines for determining a “reasonable”
attorney fee in cases brought under the first-party provisions of the no-fault act. Acknowledging
that “there is no precise formula for computing the reasonableness of an attorney’s fee,” the
Court held that “a trial court should consider” the following guidelines, as well as any other
factors the court deems relevant:
(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. [Wood, 413 Mich at 588, citing
Crawley v Shick, 48 Mich App 728, 737; 211 NW2d 217 (1973).]
Here, the trial court ruled USAA had unreasonably denied coverage; USAA has not
challenged this finding. Having made that decision, the trial court was obligated to assess the
amount of attorney fees owed by applying the factors set forth in Wood.2 But instead of taking
the time to carefully evaluate Shulman’s professional standing and experience, the time, skill and
labor involved in obtaining Pirgu’s recovery, the difficulty of the case, the expenses incurred and
the nature and length of Shulman’s professional relationship with Pirgu, the trial court skipped to
a single Wood factor: the amount in question and the results achieved. As to that factor, the trial
court simply awarded one-third of the verdict. Although the trial court obviously disagreed that
Shulman was entitled to compensation for 600 hours of work, it made no effort to determine how
2
Whether the Wood factors have been supplanted by those set forth in Smith, 481 Mich at 522, is
an interesting question that remains unresolved. See Augustine v Allstate Ins Co, 292 Mich App
408, 429 n 2; 751 NW2d 472 (2008). I believe that in making a fee-reasonableness
determination, a court should draw on the factors set forth in MRPC 1.5(a), as described by the
Supreme Court in Smith. Unlike the majority, I see no meaningful difference between assessing
attorney fees as case evaluation sanctions, and assessing them as sanctions for unreasonably
denied or delayed payment of PIP benefits.
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many hours of Shulman’s time were necessary to achieve the verdict, or the rate at which
Shulman deserved to be paid.
In my view, full application of the Wood (or Smith) factors is necessary in first-party no-
fault cases for three reasons. First, a claimant usually has no alternative but to resort to a
contingency-fee legal arrangement when an insurer unreasonably denies paying benefits. Few
people, particularly injured accident victims, can afford to pay an attorney an hourly rate. Thus,
most attorneys handling first-party claims do so on a contingency-fee basis. Despite the ubiquity
of the contingency-fee arrangement in such cases, neither this Court nor the Supreme Court has
ruled that a trial court may avoid the necessity of an attorney-fee hearing (or a reasonable
equivalent) by simply dividing the judgment amount by three.
Second, the dollar amount of the first-party no-fault benefits at issue may be relatively
small. For example, a dispute may focus on whether a claimant is entitled to attendant care for
only two or three hours a day, such as for bathing and dressing assistance. The act’s attorney-fee
provision provides attorneys an incentive to undertake cases involving small claims that
nonetheless loom large to the injured party. In other words, despite that the contingency fee in
such cases might be minimal, MCL 500.3148(1) incentivizes lawyers to undertake representation
they could otherwise not afford, at the same time encouraging insurers to carefully consider
benefit decisions.
Third, the vindication of small claims may require the investment of substantial attorney
time. For example, if the question dividing the parties involves whether the claimed PIP benefits
relate to an accident or a preexisting condition, a claimant may be required to present extensive
expert testimony spanning many years of treatment. In such a case, the contingent-fee attorney
not only risks coming away empty handed despite a significant time investment, but necessarily
incurs substantial expenses in the preparation and litigation of the case (depositions, travel and
witness fees) that may never be reimbursed. And even if the attorney prevails, a court may find
his hours or his expenses duplicative, unnecessary, or inefficiently spent.
In the examples I have provided—small dollar amounts at stake or complex fact
situations—a contingency-fee based award is likely to be unreasonable. Under such
circumstances, the contingency fee does not represent the actual value of an attorney’s services
to the client, and may well result in a windfall award for the insurer. Other cases—such as those
involving considerable amounts of overdue benefits that may be easily proven—may yield a
windfall for the claimant. To prevent such injustices and to avoid watering down the impact of
no-fault act’s attorney-fee provision, the Supreme Court mandated application of the Wood
factors. Under that rubric, the analysis commences with an assessment of the number of hours
expended and the attorney’s reasonable rate. The remaining factors allow a court to adjust a fee
award upward or downward based on the equities of a particular case.3
3
In analyzing other statutory attorney-fee provisions, our Supreme Court has never approved a
contingency-fee shortcut approach. See Michigan Dep’t of Transp v Randolph, 461 Mich 757,
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Here, application of the Wood factors may have yielded an award similar to the one
granted. But I doubt it. USAA mounted a strong, multifront defense to Pirgu’s PIP claim,
employing multiple experts of different medical specialties and relying on medical evidence
from Pirgu’s 2004 accident. This was a complicated case that required a substantial investment
of attorney time. In defense counsel’s words, the “grueling” trial flowed from “a very bitter
debate between the parties[.]” Despite that the jury’s award was less than Pirgu and his counsel
sought, the time expended in the case was nonetheless substantial. By no means was this an easy
case.
Moreover, I believe that the trial court improvidently denigrated the results Shulman
achieved. USAA precipitously discontinued benefits for Pirgu’s attendant care upon being
declared the primary insurer. The jury clearly found that doing so was unreasonable. The
verdict provided Pirgu with 4,560 additional hours of attendant care at a rate of $12 an hour, one
of the rate options offered in Shulman’s closing argument. Assuming that the jury determined
that Pirgu’s disabilities merited care for half a day, this amounts to more than a year of attendant
care. And given that Pirgu had earned only $7.40 an hour before the accident, the $7,992.00
wage-loss award was certainly not insubstantial.
By presumptively concluding that a one-third attorney fee qualified as “reasonable,” the
trial court shirked its responsibility to consider all of the circumstances giving rise to Shulman’s
ability to prove Pirgu’s claim, including the time and effort required to demonstrate the
impropriety of USAA’s actions. MCL 500.3148(1) contemplates that a fee award should
represent a reasonable evaluation of the services rendered, which may be adjusted up or down by
other facts. Aside from criticizing counsel’s “wasted time” and “fumbl[ing]” during the trial, the
court made no effort to engage the Wood factors. Nor did the trial court characterize Pirgu’s
claims as frivolous or having been brought in bad faith. While counsel’s inefficiency and lack of
preparation should factor into an attorney-fee award, it does not justify jettisoning the considered
approach embodied in Wood or Smith.
Finally, the contingency-fee contract binding Shulman and Pirgu represents a relatively
inconsequential factor under either Smith or Wood. The Legislature’s determination that the
penalty/deterrence attorney fee demanded under MCL 500.3148(1) must be “reasonable” means
that it must be commensurate with the wrong done, which in my mind equates with the time,
effort, and expense required to right the wrong rather than with an entirely separate agreement
made by the client and his counsel. In other fee-shifting contexts, contingency-fee arrangements
often yield upward adjustments in the attorney fees awarded, due to the risk undertaken by an
attorney in bankrolling the litigation. See Rendine v Pantzer, 141 NJ 292, 338-339; 661 A2d
1202 (2002), and Schefke v Reliable Collection Agency, Ltd, 96 Haw 408, 452-454; 32 P3d 52
(2001).
The contingency-fee arrangement entered into between Pirgu and Shulman was simply
one factor out of several that should have been considered in a calculus that otherwise centered
on time and value. Because the trial court determined Shulman’s reasonable attorney fee without
766; 610 NW2d 893 (2000) (“[W]e reject defendants’ argument that a one-third contingency fee
is presumptively reasonable.”).
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meaningfully evaluating any other pertinent factor, I would remand for a fee hearing conducted
pursuant to Smith.
/s/ Elizabeth L. Gleicher
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