Brian L. Sinkler v. American Family Mutual Insurance Company ( 2019 )

2019 WI App 64COURT OF APPEALS OF WISCONSIN
PUBLISHED OPINION
Case No.: 2019AP88
†Petition for Review filed
Complete Title of Case:
BRIAN L. SINKLER,
PLAINTIFF-RESPONDENT,
NICOLE M. SINKLER,
PLAINTIFF,
V.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY
AND JAMES R. THOMAS,
DEFENDANTS,
EMCASCO INSURANCE COMPANY,
†DEFENDANT-APPELLANT.
Opinion Filed: October 22, 2019
Submitted on Briefs: September 24, 2019
Oral Argument:
JUDGES: Stark, P.J., Hruz and Seidl, JJ.
Concurred:
Dissented:
Appellant
ATTORNEYS: On behalf of the defendant-appellant, the cause was submitted on the
briefs of Ronald W. Harmeyer of Ron Harmeyer Law Office LLC,
Milwaukee.
Respondent
ATTORNEYS: On behalf of the plaintiff-respondent, the cause was submitted on the
brief of Ralph J. Tease and Jesse B. Blocher of Habush Habush &
Rottier S.C.®, Green Bay.
A nonparty brief was filed by Michael J. Cerjak and Rachel E. Potter of
Cannon & Dunphy, S.C., Brookfield, and William C. Gleisner III, of the
Law Offices of William C. Gleisner III, Brookfield, for the Wisconsin
Association for Justice.
2
2019 WI App 64COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
October 22, 2019
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.
Appeal No. 2019AP88 Cir. Ct. No. 2017CV108
STATE OF WISCONSIN IN COURT OF APPEALS
BRIAN L. SINKLER,
PLAINTIFF-RESPONDENT,
NICOLE M. SINKLER,
PLAINTIFF,
V.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY
AND JAMES R. THOMAS,
DEFENDANTS,
EMCASCO INSURANCE COMPANY,
DEFENDANT-APPELLANT.
APPEAL from an order of the circuit court for Brown County:
MARC A. HAMMER, Judge. Affirmed.
No. 2019AP88
Before Stark, P.J., Hruz and Seidl, JJ.
¶1 STARK, P.J. EMCASCO Insurance Company (“EMC”) appeals an
order distributing the settlement proceeds in a third-party liability action filed
under WIS. STAT. § 102.29 (2017-18).1 EMC argues the circuit court erroneously
exercised its discretion by failing to distribute any portion of the reasonable cost of
collection to EMC’s attorneys, the Ron Harmeyer Law Office LLC (“the
Harmeyer firm”). In addition, EMC urges this court to adopt a per se rule that the
attorney fees awarded as a reasonable cost of collection in a third-party liability
action must be divided between the injured employee’s attorneys and the worker’s
compensation carrier’s attorneys on a pro rata basis—that is, in proportion to their
clients’ respective recoveries.
¶2 We conclude the circuit court properly applied the three-part
framework set forth in Anderson v. MSI Preferred Insurance Co., 2005 WI 62,
281 Wis. 2d 66, 697 N.W.2d 73, when determining and apportioning the
reasonable cost of collection in this case. Under the circumstances, the court did
not erroneously exercise its discretion by refusing to distribute any portion of the
reasonable cost of collection to the Harmeyer firm. We decline EMC’s invitation
to adopt a per se rule requiring the pro rata distribution of the reasonable cost of
collection. Accordingly, we affirm the order distributing the settlement proceeds.
1
All references to the Wisconsin Statutes are to the 2017-18 version unless otherwise
noted.
2
No. 2019AP88
BACKGROUND
¶3 Brian Sinkler was injured in a motor vehicle accident during the
course of his employment.2 Brian made a claim to EMC for worker’s
compensation benefits, and EMC ultimately paid benefits totaling $51,321.03 on
his behalf.
¶4 On April 28, 2015, Brian and his wife, Nicole, retained attorney
Ralph Tease from the law firm of Habush Habush & Rottier, S.C. (“the Habush
firm”) to pursue a third-party liability claim under WIS. STAT. § 102.29 against the
driver of the other vehicle involved in the accident, James Thomas, and Thomas’s
automobile insurer, American Family Mutual Insurance Company. Brian signed a
retainer agreement that stated, in relevant part: “I agree to give [the Habush firm]
33 1/3% of the recovery from my case as their fee. … In the event there is no
recovery, I will not be required to pay [the Habush firm].”
¶5 On January 27, 2017, the Sinklers—represented by the Habush
firm—filed the instant third-party liability lawsuit against Thomas and American
Family. The Sinklers’ complaint asserted a negligence claim on Brian’s behalf
and a loss of consortium claim on Nicole’s behalf. EMC was also named as a
defendant in the Sinklers’ lawsuit, based on the worker’s compensation benefits it
had paid on Brian’s behalf.3
2
To avoid confusion, we refer to Brian Sinkler and his wife, Nicole Sinkler, by their first
names throughout the remainder of this opinion. We refer to Brian and Nicole, collectively, as
“the Sinklers.”
3
See WIS. STAT. § 102.29(1)(a) (stating a worker’s compensation insurer that has paid
benefits on an employee’s behalf has the “same right” as the employee to “maintain an action in
tort against any other party” for the employee’s injury or death).
3
No. 2019AP88
¶6 On March 23, 2017—just shy of two years after the Sinklers retained
the Habush firm—EMC retained the Harmeyer firm to represent it in the Sinklers’
third-party liability lawsuit. The retainer agreement that EMC executed contained
the following provisions regarding the Harmeyer firm’s fee:
Subject to Wis. Stat. §102.29, client and [the Harmeyer
firm] agree that, with regard to recoveries in tort:
(a) [The Harmeyer firm’s] attorney fee shall be contingent
upon client’s recovery. [The Harmeyer firm] will not
charge client an hourly fee under any circumstances.
(b) [The Harmeyer firm’s] attorney fee shall be 25% of the
gross recovery if the claim is settled before a lawsuit is
filed, and one-third of the gross recovery if the claim is
settled after a lawsuit is filed. [The Harmeyer firm] and
client agree that this is a “reasonable cost of collection,”
as that terms [sic] is used in Wis. Stat. §102.29.
(c) If [Brian] retains his … own attorney, that attorney
shall have no right to recover any fee based, or
otherwise contingent, on client’s recovery. Client
expressly rejects any attempt by any attorney other than
[the Harmeyer firm] to charge a fee for any recovery
realized by client.
(d) In the event a court … orders the Wis. Stat. § 102.29reasonable cost of collection attorney fee to be divided
between [the Harmeyer firm] and [Brian’s] attorney,
[the Harmeyer firm] and client agree that no more than
one-third of the gross recovery subject to the Wis. Stat.
§ 102.29 distribution formula shall be considered a
“reasonable cost of collection.” No more than one-third
of the gross recovery subject to the Wis. Stat. § 102.29distribution formula shall be divided between the
attorneys. Client rejects any attempt to “stack” attorney
fees in a manner which would result in more than
one-third of the gross recovery being paid for attorney
fees.
(e) In the event a court orders the Wis. Stat. §102.29reasonable cost of collection attorney fee to be divided
between [the Harmeyer firm] and [Brian’s] attorney,
[the Harmeyer firm] and client agree that the
appropriate division between [the Harmeyer firm] and
… [Brian’s] attorney shall be a pro rata division of the
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No. 2019AP88
attorney fee in the same proportion as client’s net
recovery to the employee’s net recovery.
¶7 Following a mediation on December 4, 2018, American Family
agreed to pay $175,000 to settle the Sinklers’ claims. The parties further agreed
that thirty percent of that amount—or $52,500—would be allocated to Nicole for
her loss of consortium claim. However, EMC and the Sinklers disputed how the
remaining $122,500 in settlement proceeds should be distributed.
¶8 The formula for dividing the proceeds of a third-party liability claim
is set forth in WIS. STAT. § 102.29(1)(b). After deducting the amount attributable
to any loss of consortium claim,4 the first step of the distribution formula is to
subtract the “reasonable cost of collection” from the settlement amount.
Sec. 102.29(1)(b)1. Under § 102.29(1)(c), if both the employee and the worker’s
compensation insurer were represented by counsel and “join[ed] in the pressing”
of the claim, then “the attorney fees allowed as a part of the costs of collection
shall be, unless otherwise agreed upon, divided between the attorneys for those
parties as directed by the court.”
¶9 After the reasonable cost of collection is deducted from the proceeds
of a third-party liability claim, one-third of the remaining amount is paid to the
injured employee. WIS. STAT. § 102.29(1)(b)1. After that deduction is made, the
worker’s compensation insurer is reimbursed for any benefits that it either paid on
the employee’s behalf or may later be obligated to pay. Sec. 102.29(1)(b)2. The
4
See DeMeulenaere v. Transport Ins. Co., 116 Wis. 2d 322, 325, 342 N.W.2d 56 (Ct.
App. 1983) (stating an award for loss of consortium “is not to be considered” in the statutory
distribution formula).
5
No. 2019AP88
employee is then entitled to any remaining proceeds of the claim.
Sec. 102.29(1)(b)3.
¶10 The dispute between EMC and the Sinklers pertained to the first step
of the statutory distribution formula—namely, the deduction of the “reasonable
cost of collection.” See WIS. STAT. § 102.29(1)(b)1. The Sinklers asserted that
after deducting Nicole’s award for loss of consortium, $43,132.22 should be paid
to the Habush firm as “costs of collection.” That amount included the Habush
firm’s one-third contingency fee of $40,833.33,5 plus $2298.89 in costs. The
Sinklers’ calculations did not provide for the distribution of any portion of the
reasonable cost of collection to the Harmeyer firm.6
¶11 EMC, in turn, argued that the reasonable cost of collection was
$40,833.33—one-third of $122,500. EMC contended that amount should be
distributed between the Habush firm and the Harmeyer firm “on a pro rata basis,
based on their respective clients’ recoveries.” According to EMC’s calculations,
this approach would result in the Habush firm receiving $14,087.50 (34.5% of the
reasonable cost of collection) and the Harmeyer firm receiving $26,745.83 (65.5%
5
The Habush firm determined the amount of its contingency fee by calculating one-third
of $122,500—the “gross recovery” on the third-party liability claim after deducting Nicole’s
award for loss of consortium.
6
Pursuant to the Sinklers’ calculations, after deducting $43,132.22 from the gross
recovery of $122,500, $79,367.78 in settlement proceeds remained. The Sinklers proposed that
one-third of that amount ($26,455.93) would be distributed to Brian, as required by WIS. STAT.
§ 102.29(1)(b)1. That would leave a balance of $52,911.85, of which $51,321.03 would be paid
to EMC “in full reimbursement of its statutory worker’s compensation lien.” The Sinklers
proposed that the remaining balance of $1590.82 would be “designated as a credit, or cushion, to
[EMC], against any additional claim for indemnity or medical-related worker’s compensation
benefits made by or on behalf of [Brian].”
6
No. 2019AP88
of the reasonable cost of collection).7 EMC further asserted that each firm should
receive its respective litigation costs—i.e., $2298.89 for the Habush firm and
$977.71 for the Harmeyer firm.
¶12 Following briefing by the parties and a nonevidentiary hearing, the
circuit court concluded that the Habush firm was entitled to recover $43,132.22 as
the reasonable cost of collection. It awarded no portion of the reasonable cost of
collection to the Harmeyer firm. EMC now appeals, arguing that the court
erroneously exercised its discretion by failing to award any portion of the
reasonable cost of collection to its counsel. EMC further contends that this court
should adopt a per se rule requiring the reasonable cost of collection to be divided
pro rata between an injured employee’s attorneys and a worker’s compensation
carrier’s attorneys in proportion to their clients’ respective recoveries.
DISCUSSION
I. Amount and division of the reasonable cost of collection
¶13 As noted above, the reasonable cost of collection in a third-party
liability action includes “both the employee’s and the worker’s compensation
carrier’s attorneys’ fees and costs,” as long as both attorneys joined in the pressing
of the claim. Anderson, 281 Wis. 2d 66, ¶20; see also WIS. STAT. § 102.29(1)(c).
7
After deducting the reasonable cost of collection and both law firms’ litigation costs
from $122,500, EMC asserted there was a “net recovery” of $78,390.07. EMC contended those
funds should be distributed as follows: (1) one-third of the net recovery ($26,130.02) should be
distributed to Brian; (2) EMC should recover $51,321.03 “in full satisfaction of its claim”; and
(3) the remaining $939.02 should be distributed to Brian “as a cushion against future worker’s
compensation benefits.” Thus, pursuant to EMC’s calculations, Brian received 34.5% of the net
recovery, and EMC received 65.5% of the net recovery.
7
No. 2019AP88
In this case, it is undisputed that the Habush firm engaged in pressing the
third-party liability claim on the Sinklers’ behalf. In addition, the circuit court
found—and it appears undisputed on appeal—that the Harmeyer firm joined in the
pressing of the claim on behalf of EMC. It is further undisputed that the parties
did not agree as to how the reasonable cost of collection should be divided.
Therefore, § 102.29(1)(c) required the court to divide the reasonable cost of
collection between the Habush and Harmeyer firms.
¶14 The division of the reasonable cost of collection in a third-party
liability lawsuit is discretionary, and we will affirm the circuit court’s ruling as
long as the court properly exercised its discretion. See Anderson, 281 Wis. 2d 66,
¶19. A court properly exercises its discretion when it employs a logical rationale
based on the facts of record and the appropriate legal principles. Id. Our review
of a circuit court’s discretionary decisions may involve underlying questions of
law and fact. See Covelli v. Covelli, 2006 WI App 121, ¶13, 293 Wis. 2d 707, 718
N.W.2d 260. We review any questions of law independently, but we will not
disturb the circuit court’s factual findings unless they are clearly erroneous. See
id.¶15 In Anderson, our supreme court set forth a three-step process that a
circuit court must follow when determining and apportioning the reasonable cost
of collection in a third-party liability action. See Vande Corput v. Pekin Ins. Co.,
2018 WI App 56, ¶17, 384 Wis. 2d 252, 918 N.W.2d 117. First, the court
determines the “reasonable value for each party’s fees and costs.” Anderson, 281
Wis. 2d 66, ¶40. Second, the court must “evaluate the total cost of collection and
determine whether that sum is reasonable, in light of, among other things, the
recovery.” Id. When making this determination, the court may consider factors
such as the quality and quantity of the services provided and the posture of the
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No. 2019AP88
case. Id., ¶41. “The sum of the attorneys’ reasonable fees and costs may, but
need not, equal a reasonable cost of collection.” Id., ¶40. Under the third and
final step of the analysis, “the court must direct, unless otherwise agreed, how the
attorneys’ fees are to be divided between the attorneys.” Id., ¶42.
¶16 For the reasons explained below, we conclude the circuit court
properly exercised its discretion with respect to each step of the Anderson
analysis. As such, the court did not erroneously exercise its discretion by
declining to award the Harmeyer firm any portion of the reasonable cost of
collection.
A. Step 1: The reasonable value of each party’s attorney fees
¶17 Consistent with Anderson, the circuit court began by addressing the
reasonable value of each party’s attorney fees. When performing this step of the
Anderson analysis, a court “is typically guided by the respective attorneys’ fee
agreements.” Vande Corput, 384 Wis. 2d 252, ¶27.
¶18 In this case, both EMC and the Sinklers entered into contingency fee
agreements with their respective attorneys. Anderson explained that a circuit
court “must not simply enforce [a] contingency fee agreement” in a third-party
liability action but must instead evaluate that agreement “in light of all the
circumstances,” using the factors set forth in SCR 20:1.5(a). Anderson, 281
Wis. 2d 66, ¶37. Those 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;
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No. 2019AP88
(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.
SCR 20:15(1)(a). A court need not discuss each of these factors, but it must
consider “all the circumstances of the case to determine whether the contingency
fee amount is a just and reasonable figure.” Anderson, 281 Wis. 2d 66, ¶37
(quoting Village of Shorewood v. Steinberg, 174 Wis. 2d 191, 204, 496 N.W.2d
57 (1993)).
i. The Habush firm’s attorney fees
¶19 Here, the circuit court began by assessing the reasonableness of the
Habush firm’s one-third contingency fee agreement. The court first emphasized
that contingency fee agreements are critical to an employee’s ability to retain
counsel in a third-party liability action. See SCR 20:1.5(a)(8). Quoting Anderson,
the court observed that contingency fees “play a vital role in ensuring that certain
claimants get access to the courts by providing attorneys with a sufficient
incentive that outweighs the risks of litigating uncertain claims.” Anderson, 281
Wis. 2d 66, ¶38. Citing an affidavit submitted by attorney George Burnett in
support of the Sinklers’ position, the court further observed that in the context of
third-party liability claims, “[m]ost individual claimants cannot afford to hire a
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No. 2019AP88
lawyer on an hourly basis to pursue their claims nor would they be able to cover
the expenses incurred.” The court continued:
In fact, without the possibility of recovering the full 1/3 of
the gross recovery contemplated by customary contingency
fee agreements, attorneys would be less willing to represent
clients in such third party liability actions, particularly
when the gross recovery is likely to be small or when the
case presents complex issues.
¶20 The circuit court also found that the Habush firm’s contingency fee
agreement—which entitled the Habush firm to one-third of the gross recovery on
the third-party liability claim—was “customary” in the context of third-party
liability actions. See SCR 20:1.5(a)(3). In support of that finding, the court relied
on attorney Burnett’s affidavit, which stated that: (1) employees pursuing third-
party liability claims under WIS. STAT. § 102.29 “almost always retain their
lawyers on a contingent fee basis”; and (2) the “customary contingent fee charged
by attorneys representing employees in [§] 102.29 claims is usually 1/3 of the
gross value of the personal injury or death claim plus reasonable expenses incurred
in prosecuting the claim.”
¶21 The circuit court next considered “the time and labor required,” “the
skill requisite to perform the legal service properly,” and the “experience,
reputation, and ability of the lawyer or lawyers performing the services.” See
SCR 20:1.5(a)(1), (7). The court determined those factors “weigh[ed] heavily in
favor of a determination that the Habush firm’s fee [was] reasonable.” The court
quoted one of our prior decisions, in which we stated the “‘time and labor’ factor
in SCR 20:1.5(a) must be redefined in the contingent fee analysis ‘to mean the
time and effort expended to acquire expertise in the area of practice.’” Maynard
Steel Casting Co. v. Sheedy, 2008 WI App 27, ¶20, 307 Wis. 2d 653, 746 N.W.2d
816 (quoting Anderson, 281 Wis. 2d 66, ¶60 (Ann Walsh Bradley, J.,
11
No. 2019AP88
concurring)). The court then noted that attorney Tease had “not only expended
significant effort to press Brian’s [WIS. STAT. §] 102.29 claim in this particular
case, he ha[d] also been practicing law for 36 years, the last 22 of which ha[d]
been devoted to plaintiff personal injury litigation,” including a significant number
of third-party liability claims. The court’s findings regarding attorney Tease’s
experience and expertise were supported by attorney Burnett’s affidavit, which
stated:
I have known and dealt with Ralph Tease, and [the Habush
firm] for over 30 years. Mr. Tease and I have tried cases
together and against each other. I have also been involved
in many litigation matters with [the Habush firm]. In all
my dealings with Mr. Tease and his law firm I have found
them to be highly competent, extremely experienced, and
well-prepared lawyers. They have an outstanding
reputation in the community and from my own personal
observations, obtain excellent results on behalf of their
clients.
¶22 In addition, the Sinklers introduced evidence indicating that the
Habush firm aggressively pursued the third-party liability claim by: gathering
police reports, obtaining photographs, and interviewing eyewitnesses; collecting
medical records and bills related to Brian’s injuries; engaging in hundreds of
communications with Brian, his doctors, law enforcement, witnesses, American
Family, and EMC; obtaining a permanency report from Brian’s primary treating
physician; serving pleadings and discovery on the other parties; preparing Brian
for his deposition; filing a designation of expert witnesses; preparing a detailed
mediation statement; and successfully negotiating a settlement at mediation. This
evidence further supported the circuit court’s finding that the “time and labor”
factor in SCR 20:1.5(a)(1) weighed in favor of determining that the Habush firm’s
one-third contingency fee was reasonable.
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No. 2019AP88
¶23 The circuit court also considered the amount of money involved and
the results obtained by the Habush firm. See SCR 20:1.5(a)(4). The court noted
that EMC had paid Brian $51,321.03 in benefits, and that by “securing a total
settlement amount of $122,500 … the Habush firm ensured not only that Brian
would receive a reasonable settlement after the cost of collection is deducted, but
also likely ensured that there would be a surplus remaining for Brian after EMC
was fully reimbursed.”
¶24 Finally, the circuit court considered a factor that is not listed in
SCR 20:1.5(a), but which this court has previously determined to be relevant in
assessing the reasonableness of a contingency fee—namely, the “attendant risks”
involved in litigating the client’s claim. See Maynard Steel, 307 Wis. 2d 653, ¶20
(citing Anderson, 281 Wis. 2d 66, ¶58 (Ann Walsh Bradley, J., concurring)); see
also Meyer v. Michigan Mut. Ins. Co., 2000 WI App 53, ¶20, 233 Wis. 2d 493,
609 N.W.2d 167. The court explained:
Here, the Habush firm undertook a significant risk in
representing Brian in his [WIS. STAT. §] 102.29 action. The
firm expended a significant amount of work on Brian’s
claim for almost two years following its retainer in
April 2015 in order to ensure the claim was adequately
prepared before filing this lawsuit. Had it failed to recover
a judgment in favor of Brian, the Habush firm would have
had to absorb all of the costs it had advanced in the action
in addition to receiving no fee for the hours its attorneys
had expended working on Brian’s claim. Thus, the risks
attendant to representing Brian in this action weigh heavily
in favor of a determination that Habush’s 1/3 contingency
fee is reasonable.
¶25 As the above summary demonstrates, the circuit court considered
multiple relevant and appropriate factors when assessing the reasonableness of the
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No. 2019AP88
Habush firm’s one-third contingency fee.8 EMC does not argue that any of the
factors considered by the court were improper or that any of the court’s factual
findings regarding those factors—including its findings regarding the nature and
quality of the Habush firm’s representation—were clearly erroneous. Based on
those findings, the court did not erroneously exercise its discretion by determining
that the Habush firm’s fee agreement was reasonable and that, as a result, the
reasonable value of the Habush firm’s attorney fees was one-third of the gross
recovery on the third-party liability claim.
¶26 Nonetheless, EMC argues the circuit court erred in determining the
reasonable value of the Habush firm’s attorney fees because the court “fail[ed] to
give proper attention to the actual wording of the [Habush firm’s] fee agreement,”
which stated that Brian agreed to pay the Habush firm one-third “of the recovery
from my case as their fee.” (Emphasis added.) EMC notes that the proceeds of a
third-party liability claim “do not belong to the injured employee” but must
instead be apportioned between the employee and any worker’s compensation
insurer that paid benefits on the employee’s behalf. See Adams v. Northland
Equip. Co., 2014 WI 79, ¶41, 356 Wis. 2d 529, 850 N.W.2d 272. EMC therefore
argues the court erred by determining that the Habush firm was entitled to one-
third of the gross recovery on the third-party liability claim—which included both
Brian’s recovery and EMC’s recovery.
8
Although the circuit court did not expressly consider all of the factors set forth in
SCR 20:1.5(a) when assessing the Habush firm’s contingency fee agreement, EMC does not
argue that the court erroneously exercised its discretion by failing to consider any additional
factors. As noted above, a court need not examine every factor in SCR 20:1.5(a) when
determining whether a fee agreement is reasonable. Anderson v. MSI Preferred Ins. Co., 2005
WI 62, ¶37, 281 Wis. 2d 66, 697 N.W.2d 73.
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No. 2019AP88
¶27 We reject EMC’s interpretation of the Habush firm’s fee agreement.
The agreement provided that Brian would pay the Habush firm one-third of “the
recovery from my case,” not one-third of my recovery. (Emphasis added.) The
term “my case” in the fee agreement clearly referred to the single third-party
liability claim asserted in the Sinklers’ complaint, the proceeds of which—as EMC
correctly notes—belonged to both Brian and EMC. Thus, under the plain
language of the fee agreement, the Habush firm was entitled to one-third of “the
recovery” on the third-party liability claim, not just to one-third of Brian’s share of
the recovery.
¶28 Moreover, even if we concluded that the fee agreement’s use of the
term “my case” was ambiguous, we would nevertheless adopt the interpretation
advanced by the Sinklers and the Habush firm. The primary objective in
construing a contract is to carry out the parties’ intent. Beidel v. Sideline
Software, Inc., 2013 WI 56, ¶56, 348 Wis. 2d 360, 842 N.W.2d 240.
Accordingly, in the event of an ambiguity, “evidence of practical construction by
the parties is highly probative of the intended meaning of those terms and the court
will normally adopt that interpretation of the contract which the parties themselves
have adopted.” Zweck v. D. P. Way Corp., 70 Wis. 2d 426, 435, 234 N.W.2d 921(1975).
¶29 Here, the only parties to the fee agreement—Brian and the Habush
firm—agree that the one-third contingency fee set forth in the agreement was
intended to apply to the gross recovery on the third-party liability claim—not just
to Brian’s share of the gross recovery. In addition, attorney Burnett averred that,
in Wisconsin, the “customary contingent fee charged by attorneys representing
employees in [WIS. STAT. §] 102.29 claims is usually 1/3 of the gross value of the
personal injury or death claim.” (Emphasis added.) On this record, we cannot
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No. 2019AP88
conclude that the circuit court erroneously exercised its discretion by concluding
the reasonable value of the Habush firm’s attorney fees was one-third of the gross
recovery on the third-party liability claim.
ii. The Harmeyer firm’s attorney fees
¶30 The circuit court next addressed the reasonableness of the Harmeyer
firm’s contingency fee agreement. As discussed above, that agreement provided
that: (1) the Harmeyer firm would be entitled to one-third of the “gross recovery”
if the third-party liability claim was settled after a lawsuit was filed; (2) one-third
of the gross recovery was equal to the “reasonable cost of collection,” for purposes
of WIS. STAT. § 102.29; (3) Brian’s attorneys would not be entitled to recover any
fee based on EMC’s recovery; (4) in the event of a court-ordered division of the
reasonable cost of collection between the Harmeyer firm and Brian’s attorneys,
“[n]o more than one-third of the gross recovery” would be divided between the
parties’ attorneys; and (5) the reasonable cost of collection would be divided
between the Harmeyer firm and Brian’s attorneys “in the same proportion as
[EMC’s] net recovery to [Brian’s] net recovery.”
¶31 After considering several of the factors set forth in SCR 20:1.5(a),
the circuit court determined that the Harmeyer firm’s contingency fee agreement
was unreasonable.9 The court began by considering the “time and labor required”
and the “the experience, reputation, and ability of the lawyer or lawyers
9
EMC asserts that the circuit court erred by failing to consider the factors listed in
SCR 20:1.5(a) when assessing the reasonableness of the Harmeyer firm’s fee agreement.
However, as the subsequent discussion shows, EMC’s assertion is patently incorrect, as the court
expressly addressed several of the SCR 20:1.5(a) factors when analyzing whether the Harmeyer
firm’s fee agreement was reasonable.
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No. 2019AP88
performing the services.” See SCR 20:1.5(a)(1), (7). The court concluded those
factors were “not particularly persuasive with respect to the reasonableness of the
Harmeyer firm’s fee.” The court noted that while attorney Harmeyer had been in
practice for twenty-six years and had represented worker’s compensation insurers
in over 100 third-party liability actions, attorney Harmeyer’s “participation in this
action was limited to the mediation.” The bulk of the Harmeyer firm’s work was
instead performed by attorney Harmeyer’s associate, attorney Hillary Nester, who
the court found had been admitted to practice law in Wisconsin in January 2015
and therefore had “expended far less time and effort to acquire expertise in the
area of [WIS. STAT. §] 102.29 actions.”10
¶32 The circuit court further observed, based on the averments in
attorney Harmeyer’s own affidavit, that attorney Harmeyer’s role in the mediation
was “minimal”: “he shared EMC’s position with and received updates from the
mediator, proposed a resolution of Nicole’s loss of consortium claim (which the
Sinklers accepted without dispute), and negotiated with the mediator and Attorney
Tease about the division of the reasonable costs of collection.” The court also
noted that the Harmeyer firm “was not retained until almost two years after the
Habush firm had begun investigating Brian’s [WIS. STAT. §] 102.29 claim, and
almost two months after this action was filed.” For these reasons, the court stated
the amount of time and labor expended by the Harmeyer firm “in this specific
10
EMC asserts it was inappropriate for the circuit court to consider attorney Nester’s
relative inexperience when assessing the reasonableness of the Harmeyer firm’s fee agreement.
We are not persuaded, as SCR 20:1.5(a)(7) expressly directs courts to consider “the experience,
reputation, and ability of the lawyer or lawyers performing the services.”
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No. 2019AP88
action appears to have been significantly less than that expended by the Habush
firm.”11
¶33 The circuit court next considered the contingent nature of the
Harmeyer firm’s fee agreement and the “non-customary use of contingency fees in
representation of worker’s compensation insurers.”12 See SCR 20:1.5(a)(3), (8).
In support of its finding that the Harmeyer firm’s fee agreement was not
customary, the court relied on the Harmeyer firm’s own concession that its fee
agreement was “untraditional.” The court also relied on attorney Burnett’s
averment that “[t]he normal practice is for worker’s compensation insurers to pay
their attorneys for those services independently,” rather than on a contingency fee
basis.13
11
This finding differentiates the instant case from Vande Corput v. Pekin Insurance
Co., 2018 WI App 56, ¶14, 384 Wis. 2d 252, 918 N.W.2d 117, in which the circuit court made an
express finding that there was “no reason to believe that either [the employee’s attorneys or the
worker’s compensation insurer’s attorneys] worked harder or did more to secure” the
“significant” settlement of the third-party liability claim.
12
As noted above, contingency fee agreements serve an important role “in ensuring that
certain claimants get access to the courts by providing attorneys with a sufficient incentive that
outweighs the risks of litigating uncertain claims.” Anderson, 281 Wis. 2d 66, ¶38. However,
we agree with the Sinklers that unlike most personal injury claimants, worker’s compensation
insurers “do not lack for resources to hire competent lawyers,” and, accordingly, contingency fee
agreements do not serve the same vital purpose with respect to worker’s compensation insurers as
they do with respect to individual claimants.
13
On appeal, EMC cites other evidence in support of its claim that the Harmeyer firm’s
fee agreement is customary. However, a factual finding is not clearly erroneous merely because
there is evidence in the record that would support a contrary finding. See Cogswell v.
Robertshaw Controls Co., 87 Wis. 2d 243, 249, 274 N.W.2d 647 (1979). “Rather, to command a
reversal, such evidence in support of a contrary finding must itself constitute the great weight and
clear preponderance of the evidence.” Id. at 249-50. That is not the case here, and we therefore
uphold the circuit court’s finding that the Harmeyer firm’s fee agreement is not customary.
(continued)
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No. 2019AP88
¶34 The circuit court also considered the “amount involved and the
results obtained.” See SCR 20:1.5(a)(4). The court specifically found that the
Harmeyer firm did not have a “significant impact on the amount of EMC’s
recovery in the [WIS. STAT. §] 102.29 action” and that its efforts did not
“promote[] the settlement” of the claim. In support of these findings, the court
observed that the amount of EMC’s recovery was “guaranteed by the statutory
formula,” and even if EMC had declined to hire its own counsel, “it would still
have been entitled to … the entire amount of its worker’s compensation lien.”
¶35 When discussing the results obtained as a result of the Harmeyer
firm’s work, the circuit court also cited attorney Harmeyer’s averments regarding
his limited participation in the mediation. In addition, the court relied on the
affidavit of attorney Gina Meierbachtol—counsel for American Family and
Thomas—who averred that no one from the Harmeyer firm had entered into
settlement discussions with her before, during, or after the mediation and that
“aside from providing updated lien figures,” the Harmeyer firm did not do
anything to “move[] this case towards the settlement of $175,000.00.” The court
also cited attorney Burnett’s averment that “it would be wasteful and outside
customary practice for attorneys representing a carrier to demand a contingent fee
from the gross proceeds of the [WIS. STAT. §] 102.29 claim unless their efforts
have promoted the settlement or disposition by trial of the claim.”
EMC also asserts that even if the Harmeyer firm’s fee agreement is not customary, that
fact provides no basis to deny the Harmeyer firm a recovery. We reject this argument because
SCR 20:1.5(a)(3) directs courts to consider “the fee customarily charged in the locality for similar
legal services.” Moreover, the circuit court did not deny the Harmeyer firm a recovery based
solely on the fact that its fee agreement was not customary. That was merely one factor the court
considered in determining that the agreement was unreasonable under the circumstances.
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No. 2019AP88
¶36 The circuit court further considered the fact that much of the work
performed by the Harmeyer firm was duplicative of work that had already been
performed by other attorneys involved in the case.14 For instance, the record
shows that the Harmeyer firm served discovery requests on the Sinklers and on
American Family and Thomas that were nearly identical to discovery requests that
had already been served on those parties. In addition, the Harmeyer firm refused
to share in the medical records that had already been collected by the Habush firm
and by attorney Meierbachtol and instead insisted on obtaining its own copies of
Brian’s medical records. Furthermore, attorney Nester traveled from Milwaukee
to Green Bay for Brian’s deposition, but she failed to ask any questions, raise any
objections, or join in any of the objections raised by attorney Tease. This evidence
supported the court’s finding that much of the work performed by the Harmeyer
firm “merely duplicated work completed by other participants in this lawsuit,
particularly with respect to discovery.”
¶37 EMC argues the circuit court erred by concluding that the Harmeyer
firm did not have a “significant impact” on the amount of EMC’s recovery. EMC
asserts this conclusion is inconsistent with the court’s earlier finding that the
Harmeyer firm “did engage in ‘pressing of the claim’” for EMC. This argument is
unpersuasive. The mere fact that a party and/or its attorneys joined in the pressing
of a claim, for purposes of WIS. STAT. § 102.29(1)(c), does not compel a
14
A court may not conclude that counsel for a worker’s compensation insurer did not
“join in the pressing” of a third-party liability claim under WIS. STAT. § 102.29(1)(c) simply
because the work counsel performed was duplicative of work performed by the employee’s
attorneys. See Anderson, 281 Wis. 2d 66, ¶¶21-22. However, in assessing the reasonableness of
counsel’s claimed fee, the court may consider “the quality and quantity of services provided” in
order to “weed out costs and fees that are merely duplicative, needless, or unreasonable with
regard to pressing the claim.” Id., ¶41.
20
No. 2019AP88
conclusion that the party’s attorneys performed work that significantly affected the
amount of the party’s recovery. Here, for all of the reasons discussed above, the
court could reasonably conclude that even though EMC and the Harmeyer firm
joined in the pressing of the third-party liability claim, the ultimate impact of the
Harmeyer firm’s work on EMC’s recovery was minimal.
¶38 EMC also cites the circuit court’s finding that EMC’s interests were
not fully aligned with the Sinklers’ interests. As the court noted, it was to the
Sinklers’ benefit—and to EMC’s detriment—to assign a larger portion of the total
settlement to Nicole’s recovery on the loss of consortium claim because Nicole’s
recovery was not subject to the statutory distribution formula. The court further
found that the Harmeyer firm had a “duty to protect EMC’s interests.” Again,
these findings do not convince us that the court erroneously exercised its
discretion by concluding that the Harmeyer firm’s work did not have a “significant
impact” on EMC’s recovery, in light of all of the other factors discussed above.
Furthermore, it is undisputed that during the mediation, the Sinklers simply
accepted attorney Harmeyer’s proposed resolution of Nicole’s loss of consortium
claim without dispute. The record therefore fails to support an argument that the
Harmeyer firm performed any significant work toward resolving the parties’
conflict as to the loss of consortium claim.
¶39 Finally, when assessing the reasonableness of the Harmeyer firm’s
fee agreement, the circuit court properly considered the “risks attendant to [the
Harmeyer firm’s] representation of EMC in this action.” See Maynard Steel, 307
Wis. 2d 653, ¶20. The court reasoned that the “risks attendant to a worker’s
compensation insurer’s counsel joining an action filed by the injured employee’s
counsel are significantly lower than those attendant to the injured employee’s
counsel in investigating and instigating the entire action.” In other words, the
21
No. 2019AP88
court explained that because the statutory distribution formula mandates that an
insurer be reimbursed for benefits paid to an injured employee, EMC’s recovery
would have occurred regardless of whether EMC hired its
own counsel. Accordingly, when the Harmeyer firm
appeared in this action, it received the benefit of the
Habush firm’s preparation of the claim, without having to
assume the risk of absorbing the expense of such
preparation if the claim were not ultimately successful.
The Harmeyer firm therefore only risked receiving no
compensation for work completed from the date of its
retainer in March 2017 through the case’s conclusion; the
Habush firm, in contrast, risked receiving no compensation
for two years of preparation work as well as all work
completed after filing the action.
¶40 Based on all of the factors discussed above, the circuit court
determined that the Harmeyer firm’s contingency fee agreement was unreasonable
under the circumstances. In so doing, the court employed a logical rationale based
on the facts of record and the appropriate legal principles. As such, the court did
not erroneously exercise its discretion. See Anderson, 281 Wis. 2d 66, ¶19.
¶41 Having concluded that the Harmeyer firm’s fee agreement was
unreasonable, the circuit court determined the Harmeyer firm was not entitled to
recover any attorney fees under that agreement. The court then considered
whether it could determine the reasonable value of the Harmeyer firm’s attorney
fees by using either a lodestar or a quantum meruit analysis. Under a lodestar
analysis, the court begins by multiplying a reasonable number of hours expended
by a reasonable hourly rate, and it may then make adjustments to the resulting
total based on the factors set forth in SCR 20:1.5(a). Anderson, 281 Wis. 2d 66,
¶39. A quantum meruit recovery, in turn, is “based upon an implied contract to
pay reasonable compensation for services rendered” and is calculated by
multiplying the actual number of hours worked by a reasonable hourly rate.
Vande Corput, 384 Wis. 2d 252, ¶¶26-27 (citation omitted).
22
No. 2019AP88
¶42 In Vande Corput, we concluded that in the absence of an
enforceable fee agreement, it would “not be inappropriate” for the circuit court to
use a quantum meruit analysis to determine the reasonable value of the services
performed by a worker’s compensation insurer’s attorney. Id., ¶27. In this case,
however, the circuit court determined it could not employ either a quantum meruit
or a lodestar analysis because the Harmeyer firm had not presented any evidence
regarding: (1) the actual number of hours it had expended in connection with this
case; (2) the number of hours reasonably expended by worker’s compensation
insurer’s attorneys in similar cases; or (3) a reasonable hourly rate for the
Harmeyer firm’s services. On appeal, the Harmeyer firm does not dispute that it
failed to provide such evidence.15 Under these circumstances, the court properly
determined that it could not calculate the reasonable value of the Harmeyer firm’s
attorney fees using either a lodestar or a quantum meruit analysis.
¶43 In summary, the circuit court concluded that the Harmeyer firm’s fee
agreement was unreasonable, and it therefore could not use that agreement to
determine the reasonable value of the Harmeyer firm’s attorney fees. The court
then concluded that it could not calculate the reasonable value of the Harmeyer
firm’s fees using either a lodestar or a quantum meruit analysis because the
Harmeyer firm had failed to provide the necessary evidence. Accordingly, the
court concluded the “reasonable amount of the Harmeyer firm’s fee is zero
dollars.” While a determination that the reasonable value of an attorney’s fees is
15
Our decision in Vande Corput was released on August 30, 2018, after the parties in
this case had submitted their briefs to the circuit court regarding the appropriate distribution of
the settlement proceeds. On September 6, 2018, the circuit court issued an order permitting the
parties to submit supplemental briefs addressing Vande Corput. EMC failed to do so.
23
No. 2019AP88
$0 is not a typical result, a court has discretion to make that determination, as long
as it provides an adequate explanation for its decision. See Kolupar v. Wilde
Pontiac Cadillac, Inc., 2004 WI 112, ¶55, 275 Wis. 2d 1, 683 N.W.2d 58. In this
case, the court provided an extensive explanation for its conclusion regarding the
reasonable value of the Harmeyer firm’s attorney fees, and on the record before
us, we cannot say that the court erroneously exercised its discretion.16
B. Step 2: Reasonableness of the total cost of collection
¶44 The second step of the Anderson analysis requires a court to
“evaluate the total cost of collection and determine whether that sum is
reasonable.” Anderson, 281 Wis. 2d 66, ¶40. Here, the circuit court determined
the total cost of collection by adding the Habush firm’s one-third contingency fee
and out-of-pocket expenses—$43,132.22—to the reasonable value of the
Harmeyer firm’s attorney fees—$0. The court concluded the resulting amount—
$43,132.22—was reasonable, and there was no reason to reduce that amount.
¶45 The circuit court’s decision shows that it properly applied the second
step of the Anderson analysis. EMC argues the court erred because it should
have: (1) added the Habush firm’s one-third contingency fee to the Harmeyer
firm’s one-third contingency fee; and (2) determined whether the resulting total
16
EMC also contends on appeal that the circuit court erred by declining to award the
Harmeyer firm its out-of-pocket costs. We agree with the Sinklers that EMC forfeited this
argument by failing to adequately raise or develop it in the circuit court. See State v. Eugene W.,
2002 WI App 54, ¶13, 251 Wis. 2d 259, 641 N.W.2d 467 (To preserve an issue for appeal, a
party must raise it “with sufficient prominence such that the trial court understands that it is called
upon to make a ruling.”). Moreover, EMC failed to provide a meaningful response to the
Sinklers’ forfeiture argument, and we therefore deem the point conceded. See Charolais
Breeding Ranches, Ltd. v. FPC Sec. Corp., 90 Wis. 2d 97, 109, 279 N.W.2d 493 (Ct. App.
1979).
24
No. 2019AP88
cost of collection—i.e., two-thirds of the gross recovery on the third-party liability
claim—was reasonable. EMC further argues that a total cost of collection equal to
two-thirds of the gross recovery is not reasonable, and the court should have
therefore reduced the cost of collection to one-third of the gross recovery and, as
discussed below, apportioned that amount between the attorneys. This argument,
however, is premised on the notion that the court should have concluded the
reasonable value of the Harmeyer firm’s attorney fees was one-third of the gross
recovery. As explained above, the court did not err by instead concluding that the
reasonable value of the Harmeyer firm’s attorney fees was $0.
C. Step 3: Division of the cost of collection
¶46 Finally, the third step of the Anderson analysis requires a court to
“direct, unless otherwise agreed, how the attorneys’ fees are to be divided between
the attorneys.” Id., ¶42. Having concluded that the reasonable value of the
Harmeyer firm’s attorney fees was $0, the circuit court determined it was
appropriate to distribute the entirety of the reasonable cost of collection to the
Habush firm. Under the circumstances, that determination was not an erroneous
exercise of discretion. To the contrary, given the court’s conclusion regarding the
reasonable value of the Harmeyer firm’s attorney fees, it would have been patently
illogical for the court to award any portion of the reasonable cost of collection to
the Harmeyer firm.
II. EMC’s proposed per se rule
¶47 In the final section of its brief-in-chief, EMC proposes that this court
adopt a per se rule in third-party liability actions that when both the employee and
the worker’s compensation insurer retain attorneys on a contingency fee basis,
“the cost of collection should be divided in proportion to the clients’ recoveries;
25
No. 2019AP88
i.e., pro rata.” We decline EMC’s invitation to adopt such a per se rule, for two
reasons.
¶48 First, adopting EMC’s proposed rule would be contrary to WIS.
STAT. § 102.29 and Anderson, both of which grant circuit courts wide discretion
to divide the reasonable cost of collection. Section 102.29(1)(c) provides—
without limitation—that unless otherwise agreed upon, the cost of collection “shall
be … divided between the attorneys … as directed by the court.” Anderson, in
turn, states that a circuit court “must direct, unless otherwise agreed, how the
attorneys’ fees are to be divided between the attorneys.” Anderson, 281 Wis. 2d
66, ¶42. We decline to go beyond the plain language of the statute and our
supreme court’s clear holding in Anderson in order to impose a per se rule that
would limit circuit courts’ wide discretion in dividing the reasonable cost of
collection. See State v. Marshland Acres, Inc., 2013 WI App 72, ¶20, 348
Wis. 2d 29, 832 N.W.2d 157 (“We may not substitute our judgment for that of the
legislature, and we may not rewrite the statutes.”); see also State v. Lasky, 2002
WI App 126, ¶32, 254 Wis. 2d 789, 646 N.W.2d 53 (“[T]he court of appeals is
bound by prior decisions of the Wisconsin Supreme Court.”).
¶49 Second, we agree with the Sinklers that requiring a pro rata
distribution of the cost of collection in all third-party liability cases would be
unreasonable because, in many such cases, the amounts recovered by the
employee and the worker’s compensation insurer bear no relationship to the
amount of work performed by their respective attorneys. This result occurs
because, as explained above, the division of the recovery in a third-party liability
action is dictated by statute. Specifically, after the reasonable cost of collection is
deducted from the gross recovery, the employee is entitled to one-third of the net
recovery, the worker’s compensation insurer is reimbursed for any benefits it has
26
No. 2019AP88
paid or will be obligated to pay in the future, and the employee is then entitled any
remaining funds. WIS. STAT. § 102.29(1)(b).
¶50 Consequently, in a case in which the worker’s compensation insurer
has paid a large amount of benefits relative to the total amount of the gross
recovery, the insurer will necessarily receive a greater portion of the gross
recovery than the employee. That result will occur regardless of the amount of
work performed by the insurer’s and the employee’s respective attorneys. In such
circumstances, it would be illogical to require a pro rata distribution of the cost of
collection, particularly if the insurer’s attorney performed little or no work in the
case. Furthermore, requiring a pro rata distribution under those circumstances
would deter attorneys from representing employees in third-party liability actions
because they would know that regardless of how much work they performed on an
employee’s behalf, their fee would be limited by the statutory distribution formula.
For this reason—and based on the plain language of WIS. STAT. § 102.29(1)(c)
and our supreme court’s decision in Anderson—we decline EMC’s invitation to
adopt a per se rule requiring the pro rata distribution of the reasonable cost of
collection.
By the Court.—Order affirmed.
27