Adler Stilman Pllc v. Oakwood Healthcare Inc ( 2018 )

STATE OF MICHIGAN
COURT OF APPEALS
ADLER STILMAN, PLLC UNPUBLISHED
February 13, 2018
Plaintiff-Appellant,
v No. 333538
Wayne Circuit Court
OAKWOOD HEALTHCARE, INC., and STATE LC No. 16-003850-NZ
FARM MUTUAL AUTOMOBILE INSURANCE
ASSOCIATION,
Defendants-Appellees.
Before: MURRAY, P.J., and FORT HOOD and GLEICHER, JJ.
GLEICHER, J. (dissenting).
Under the American Rule, litigants pay their own attorney fees. The rule provides that
unpaid fees may be recovered only though a contract enforcement action. But there are statutory
and equitable exceptions. This case presents an equitable exception.
Plaintiff, a law firm, sued defendants, raising an equitable claim for attorney fees. The
majority opinion ignores plaintiffs’ equity argument, holding that because the law firm had no
contract with defendants, its claim for fees is foreclosed. The majority’s analysis overlooks a
longstanding principle of Michigan law permitting fees when an attorney’s work benefits a
nonclient. In my view, that principle supports that plaintiff has established an equitable basis for
an attorney fee. I respectfully dissent.
I
Ronald Reese, an independent truck driver, was injured while unloading a trailer owned
by Joseph Renkiewicz or a company Renkiewicz controlled. Defendant Oakwood Healthcare,
Inc. provided Reese’s medical care. Reese had no personal medical or no-fault coverage. He
incurred over $100,000 in medical expenses. Oakwood billed Reese for these charges, and
initiated an effort to procure Medicaid coverage for him.
Three months after Reese’s accident, Barry Adler, Reese’s attorney, wrote to Oakwood,
advising that he was looking for insurance coverage for Reese and intended to “charg[e] your
facility a fee for collecting this money on his behalf.” Oakwood did not respond.
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Adler undertook an intensive search for coverage. He sought workers compensation
benefits, only to conclude that Reese was an independent contractor who was not entitled to
these benefits. Adler then looked for no-fault coverage, but Reese owned no vehicle and
Renkiewicz strenuously evaded Adler’s multiple attempts at contact. Adler searched insurance
databases and hired an investigator to determine whether Renkiewicz had insured the truck or
trailer, but to no avail. When it became clear that no insurance policy covered Reese, Adler
submitted an application for benefits to the Michigan Assigned Claims Plan (MACP). The
MACP refused to assign Reese’s claim to an insurer, forcing Adler to file a lawsuit against the
plan. The suit also named Renkiewicz and several of his companies as defendants. MACP then
assigned Reese’s claim to State Farm. At that point, Oakwood intervened in the litigation,
asserting that it had retained its own counsel. Oakwood disclaimed Adler’s right to any attorney
fees for work he had performed on Oakwood’s behalf.
State Farm denied coverage. It claimed that Reese owned the uninsured trailer,
disqualifying him from no-fault benefits. The fuel for this argument came from Renkiewicz,
who had created a forged ownership document to avoid his own liability for failing to insure the
trailer. Adler hired an expert who exposed the fraud, leaving State Farm without a defense.
Case evaluation brought about a successful end to the suit for Reese and Oakwood. The award
allocated $93,500 to Oakwood, representing 90% of its bill; Reese got $99,000. All parties
accepted the case evaluation award, and the matter resolved.
After judgment entered in Reese’s case, Adler’s law firm sued Oakwood and State Farm.
The three-count complaint alleges that State Farm and Oakwood violated the firm’s charging lien
(Counts I and II), and that Oakwood was unjustly enriched by the firm’s efforts, entitling the
firm to restitution for the benefit it conferred. Essentially, Adler asserts that he performed the
vast majority of the legal work while Oakwood sat back and went along for the ride. In lieu of an
answer, Oakwood and State Farm filed motions for summary disposition under MCR
2.116(C)(8) and (C)(10). Oakwood contended that it had not retained Adler, had no agreement
with Adler, and that it would be “unethical” for Adler to recover any fee. Because Oakwood
hired its own counsel to intervene in Reese’s lawsuit and obtained its own case evaluation award,
Oakwood argued that Adler had no right of recovery under a “common fund” theory either.
State Farm agreed. The circuit court adopted Oakwood’s reasoning and granted summary
disposition to defendants.
II
The majority opinion focuses on plaintiff’s charging lien claim, dispensing with it by
citing multiple authorities for the singular proposition that “[a]n attorney-client relationship must
be established by contract before an attorney is entitled to payment for services rendered.”
Plunkett & Cooney, PC v Capitol Bancorp Ltd, 212 Mich. App. 325, 329; 536 NW2d 886 (1995).
I agree that most of the time, a charging lien arises from an attorney-client relationship, and that
plaintiff’s claim to a charging lien in this case should fail. But that conclusion does not end the
case and should not have ended the majority’s analysis.
Plaintiff’s pleadings in the circuit court and on appeal have preserved a claim for an
equitable remedy in the nature of restitution. In one respect, restitution is really nothing more
than an equitable surrogate for contract damages. Professor Dan B. Dobbs has described
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restitution as a restoration required to prevent unjust enrichment. Dobbs, Law of Remedies:
Damages – Equity – Restitution § 4.1(2), at 371 (2d ed, 1993). Michigan law recognizes this
remedy. “Even though no contract may exist between two parties, under the equitable doctrine
of unjust enrichment, ‘[a] person who has been unjustly enriched at the expense of another is
required to make restitution to the other.’ ” Kammer Asphalt Paving Co, Inc v E China Twp
Schs, 443 Mich. 176, 185; 504 NW2d 635 (1993) (citation omitted). Indeed, as the Supreme
Court pointed out in Kammer, the restorative remedy known as restitution “is one by which the
law sometimes indulges in the fiction of a quasi or constructive contract, with an implied
obligation to pay for benefits received to ensure that exact justice is obtained.” Id. at 185-186
(quotation marks and citations omitted).1
The legal theory under which Adler’s complaint seeks restitution for the time and costs
he expended in finding coverage for Reese is unjust enrichment. “Unjust enrichment . . . is the
equitable counterpart of a legal claim for breach of contract.” AFT Mich v Michigan, 303 Mich
App 651, 677; 846 NW2d 583 (2014). The claim arises when a party “ ‘retains money or
benefits which in justice and equity belong to another.’ ” Id., quoting McCreary v Shields, 333
Mich. 290, 294; 52 NW2d 853 (1952). “ ‘[I]n order to sustain a claim of . . . unjust enrichment,
a plaintiff must establish (1) the receipt of a benefit by the defendant from the plaintiff and (2) an
inequity resulting to the plaintiff because of the retention of the benefit by the defendant.’ ” AFT
Mich, 303 Mich. App. at 677-678, quoting Morris Pumps v Centerline Piping, Inc, 273 Mich. App.
187, 195; 729 NW2d 898 (2006) (alterations in original).
The twin doctrines of unjust enrichment and restitution apply to the recovery of attorney
fees as well as other benefits. The United States Supreme Court recognized this application of
this form of equity in Mills v Elec Auto-Lite Co, 396 U.S. 375, 391-392; 90 S. Ct. 616; 24 L. Ed. 2d
593 (1970):
While the general American rule is that attorneys’ fees are not ordinarily
recoverable as costs, both the courts and Congress have developed exceptions to
this rule for situations in which overriding considerations indicate the need for
such a recovery. A primary judge-created exception has been to award expenses
where a plaintiff has successfully maintained a suit, usually on behalf of a class,
that benefits a group of others in the same manner as himself. . . . To allow the
others to obtain full benefit from the plaintiff’s efforts without contributing
equally to the litigation expenses would be to enrich the others unjustly at the
plaintiff's expense.
1
Restitution is the name of a remedy for unjust enrichment. “The restitutionary remedies and
unjust enrichment are simply flip sides of the same coin.” Alternatives Unlimited, Inc v New
Baltimore City Bd of Sch Comm’rs, 155 Md App 415, 454; 843 A2d 252 (2004). See also
Restatement, 2d, Restitution & Unjust Enrichment, § 1 cmt c (recognizing that there are
differences between unjust enrichment and restitution but explaining that “ ‘restitution’ and
‘unjust enrichment’ will generally be treated as synonymous” in certain contexts).
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In Mills, the Supreme Court acknowledged that “the earliest cases recognizing a right to
reimbursement involved litigation that had produced or preserved a ‘common fund,’ for the
benefit of a group”; the cases did not hold that a “suit must actually bring money into the court as
a prerequisite to the court’s power to order reimbursement of expenses.” Id. at 393. As to the
costs of litigation, the Supreme Court explained, the rule has always permitted a court “to do
equity in a particular situation.” Id. (quotation marks and citation omitted).
The Michigan Supreme Court has not only adopted Mills’ reasoning, but cited
approvingly exactly the same primary passage as appears above. In re Attorney Fees of Kelman,
Loria, Downing, Schneider & Simpson, 406 Mich. 497, 503-504; 280 NW2d 457 (1979). The
Supreme Court further expounded in In re Attorney Fees of Kelman that “[t]he exception [to the
American Rule] is available when a fund is created, preserved or protected.” Id. at 504.
In In re Attorney Fees of Kelman, a law firm successfully represented a class of disabled
workers in a mandamus action against the Workmen’s Compensation Bureau involving the
computation of weekly benefit rates. Id. at 499-500. The law firm’s efforts yielded an additional
dollar per week in benefits for each class member, which amount the Supreme Court determined
“can be cumulated into a ‘fund.’ ” Id. at 504. The Supreme Court remanded the case to the
Workmen’s Compensation Bureau for an evaluation of “the fee the firm should receive,”
recognizing that a worker-by-worker determination “would be self-defeating, since the total
benefits in each individual case could not justify expenditure of the firm’s time to file a petition
and would certainly place a monumental task on an already overburdened board.” Id. at 506.
Technically, the common fund exception to the American Rule embodied in In re
Attorney Fees of Kelman and the common benefit exception exemplified in Mills are separate
and distinct equitable creatures. But they share a common foundational premise: “the equitable
notion that persons benefitting from a suit should pay their proportionate share of the cost of the
litigation.” 10 Moore’s Federal Practice 3d, § 54.171[2][b][iii], p 54-281.
In a factual context strikingly similar to case at hand, this Court found that an attorney’s
efforts in a no-fault case had created a common fund, and held that a hospital (the Detroit
Medical Center) was obligated to reimburse the plaintiff’s counsel for his efforts in obtaining a
recovery that benefitted the claimant as well as the DMC. In Miller v Citizens Ins Co, 288 Mich
App 424, 437-438; 794 NW2d 622 (2010), aff’d in part and rev’d in part on other grounds 490
Mich. 905; 804 NW2d 740 (2011), this Court reiterated that an exception to the “American rule”
exists when the party prevailing in an action secures a “common fund” for the benefit of that
party as well as others, such as medical providers who give care to a no-fault beneficiary:
Further, it appears to us that, with regard to the payment of plaintiff’s attorneys’
fees, an equitable, common-law exception to the American rule applies. See
Nemeth v Abonmarche Dev, Inc, 457 Mich. 16, 37-38; 576 NW2d 641 (1998),
citing Popma v Auto Club Ins Ass’n, 446 Mich. 460, 473-474; 521 NW2d 831
(1994). That exception is the common-fund exception. This exception “only
applies when a prevailing party creates or protects a common fund that benefits
himself and others.” Nemeth, 457 Mich. at 38 n 11; see, also, Popma, 446 Mich. at
475. [Miller, 288 Mich. App. at 437.]
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We emphasized in Miller that the rationale for the common-fund exception is rooted in
equity: the notion that it is unfair for the nonparty beneficiaries of the common fund to sit back,
do nothing, and benefit from the prevailing party’s efforts without sharing in the costs of those
efforts:
This exception is premised on the equitable principle that it is “unfair to allow
others to benefit at the expense of the prevailing party without contribution to the
costs incurred in securing the common fund.” Nemeth, 457 Mich. at 38 n 11. . . .
An insured plaintiff who prevails in a litigation against the plaintiff’s insurer
secures payment not only for the plaintiff’s benefit, but for the benefit of the
plaintiff’s medical providers, which were at risk of either not being paid or of
receiving a smaller fraction of their billed amounts for their services. [Miller, 288
Mich. App. at 437-438.]
Notably, we also observed in Miller that a provider not wishing to pay one-third of the
funds recovered on its behalf to an insured’s attorney could pursue its own claim, intervene,
instruct the insured’s attorney not to pursue a claim on its behalf, or notify the insurer that the
insured’s attorney does not represent the provider’s interests:
The [provider] could have pursued a claim on [the injured party’s] behalf or
intervened in this litigation after it was commenced, but [the provider] did not.
The [provider] could have advised plaintiff’s attorneys not to pursue payment for
its services or advised [the insurer] that plaintiff’s attorneys did not represent its
interests, but the [provider] did neither. [Id. at 438 (citation omitted).]
The Supreme Court granted leave to appeal in Miller and ultimately issued an order
affirming in part and reversing in part this Court’s opinion. Miller v Citizens Ins Co, 490 Mich.
904 (2011). The Supreme Court did not disturb this Court’s rationale regarding the common-
fund exception. Instead, it held that there was no common fund in Miller because, “through
settlement, the benefits were paid to plaintiff, and her attorney asserted an attorney’s charging
lien over the settlement proceeds. Thus, the effect of this was only to settle claims as between
the insurer, plaintiff, and her attorney.” Id.2
I am not entirely sure of the meaning or import of the terse order in Miller. Supreme
Court orders constitute binding precedent to the extent they can be understood as having a
holding based on discernible facts and reasoning. Evans & Luptak, PLC v Lizza, 251 Mich. App.
2
The majority’s “incidental benefit” analysis simply cannot be squared with this Court’s opinion
in Miller, or the Supreme Court’s order. Neither this Court nor the Supreme Court has ever
embraced an “incidental benefit” analysis in similar circumstances; to the contrary, this Court
acknowledged that the common fund created by a prevailing plaintiff “secures payment not only
for the plaintiff’s benefit, but for the benefit of the plaintiff’s medical providers,” and pointed out
that but for the plaintiff’s efforts, the medical providers either would have gotten nothing or far
less. Miller, 288 Mich. App. at 438. The Supreme Court did not disturb this aspect of this Court’s
opinion.
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187, 196; 650 NW2d 364 (2002). The Miller order’s facts and reasoning are not discernable to
me, even after an attempt at correlation with the facts recited in this Court’s opinion. One
explanation for the Supreme Court’s rejection of a common fund argument in Miller is that the
DMC did not issue any bill for its medical services until after the parties had settled the case,
unlike here where before a suit was filed, Oakwood had billed Reese for more than $100,000.
Because the plaintiff in Miller had not incurred any medical expenses, the Supreme Court’s
finding that no common fund had been created for the benefit of DMC is factually
distinguishable. In other words, the settlement in Miller could not have taken into account bills
that the DMC never issued. Here, the bills existed, formed a central part of the damages sought
in the lawsuit, and were substantially recovered thanks to the litigation that Adler spearheaded.
I readily acknowledge another important distinction. After Adler had done most of the
work needed to secure no-fault coverage for Reese, Oakwood obtained its own counsel and
disavowed Adler’s help. But Adler has made a compelling case that he nevertheless conferred a
valuable benefit on Oakwood by aggressively pursuing coverage, by initiating the lawsuit that
yielded the coverage, and by taking charge of (and funding) the discovery and the litigation that
led to the settlement. This Court has described the elements of a claim for unjust enrichment as:
“(1) the receipt of a benefit by the other party from the complaining party and (2) an inequity
resulting to the complaining party because of the retention of the benefit by the other party.”
Karaus v Bank of New York Mellon, 300 Mich. App. 9, 22-23; 831 NW2d 897 (2012). Adler has
established both.3
Oakwood’s rejoinder to Adler’s unjust enrichment claim is that compensating him would
be “unethical” under State Bar Formal Ethics Opinion C-226, issued in 1982, because Adler had
no attorney-client relationship with Oakwood. Oakwood has misinterpreted the Ethics Opinion.
Actually, the Opinion permits an attorney to take a fee under the common-fund exception:
It is unethical for a lawyer to charge a hospital a fee for medical payments
voluntarily paid by a client’s no-fault insurance carrier under circumstances where
no lawyer-client relationship exists between the hospital and the lawyer.
It is not unethical for a lawyer to charge a hospital a reasonable fee for medical
payments involuntarily paid by the client’s no-fault insurance carrier even if there
is no express lawyer-client relationship between the hospital and the lawyer,
provided that the hospital is first notified in writing of the lawyer’s contemplated
legal action, giving the hospital a reasonable opportunity to advise the lawyer that
it wishes to pursue its interests in the matter without the assistance of the lawyer’s
legal service. [State Bar Ethics Opinion C-226 (1982).]
3
Other courts have considered whether an insurance company’s retention of counsel eliminates
any application of the common-fund doctrine. In Ex Parte State Farm Mut Auto Ins Co, 118
So3d 699, 709-710 (Ala, 2012), the Alabama Supreme Court held that merely appearing as an
intervenor did not suffice. See also the cases cited id.at 710 n 5. The extent of Oakwood’s
participation in this case is not well-developed in the record.
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The second paragraph describes this case.
The opinion also highlights that “there is a distinction between benefits ‘voluntarily’ paid
and benefits ‘involuntarily’ paid.” Id. “Involuntary” payment is defined as payment made only
after a “lawyer is compelled to extend considerable professional service on the client’s behalf,
which efforts result in the payment of damages by the carrier, including a recovery for expenses
incurred by the hospital on the client’s behalf.” Id. In language particularly relevant here, the
Opinion continues:
In the case of involuntary payment, the hospital assumes the appearance of
a third-party beneficiary of the lawyer’s time and effort. In this case it would not
be unreasonable or unethical to permit the lawyer to charge the hospital a
reasonable fee in the absence of an express lawyer-client agreement, provided that
the hospital is first notified in writing of the lawyer’s contemplated legal action
which is likely to benefit the hospital, and the hospital is given a reasonable
opportunity to advise the lawyer that it wishes to pursue its interests in the matter
without the lawyer’s assistance. [Id.]
Here, Adler notified Oakwood that he had embarked on a hunt for coverage that would
likely benefit Oakwood. Oakwood said nothing. Adler persevered. After suit was filed,
Oakwood obtained counsel and intervened. Should Adler be precluded from seeking any
compensation for the efforts he made after Oakwood hired counsel? Maybe. I would leave this
question to the parties and the circuit court to explore, factually and legally.4
Adler’s complaint seeks nothing more than an equitable determination of whether his
efforts created a benefit for Oakwood that, absent his efforts, Oakwood would not have realized.
I would find such a determination to fall within a court’s equitable power. Adler’s extensive
legal work appears to have helped vindicate Oakwood’s rights under the No-Fault Act. The
4
Contrary to the majority’s concerns about a “mini-trial,” fee hearings are commonplace and
involve precisely the same proofs as would be involved here. Trial courts routinely evaluate
billing records, hours, and calculate an attorney’s contribution to a result. There is nothing
“imprudent” about this sort of analysis. See Smith v Khouri, 481 Mich. 519; 751 NW2d 472
(2008), and Pirgu v United States Auto Assoc, 499 Mich. 269; 884 NW2d 257 (2016), as
examples of the types of factual attorney-fee determinations expected of trial courts, which
involve questions identical to those presented here.
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degree to which the benefit realized by Oakwood was attributable to Adler rather than
Oakwood’s own counsel is unknown. The legal parameters remain to be fleshed out. I would
remand for an evidentiary hearing on those questions. 5
/s/ Elizabeth L. Gleicher
5
Likely this case is a factual outlier due to the profound difficulties Adler faced in locating no-
fault coverage for Reese. But it may herald future disputes involving unpaid medical providers.
Here, Oakwood was allowed to intervene in Reese’s suit against the MACP. As a party,
Oakwood was entitled to participate in case evaluation and to receive a case evaluation award.
Oakwood’s ability to intervene disappeared when the Supreme Court decided Covenant Med Ctr,
Inc v State Farm Mut Auto Ins Co, 500 Mich. 191, 217; 895 NW2d 490 (2017), holding that
healthcare providers do not possess a statutory cause of action against no-fault insurers. Citing
its order in Miller, the Court elaborated: “This does not mean that a healthcare provider is
without recourse; a provider that furnishes healthcare services to a person for injuries sustained
in a motor vehicle accident may seek payment from the injured person for the provider’s
reasonable charges.” In the future, healthcare providers may have little alternative but to work
closely with claimants’ attorneys to recoup expenses. Whether claimants’ attorneys will
gratuitously provide their legal services to create a benefit for providers remains to be seen.
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