John Hankins v. City of Inkster

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 19a0142n.06
CASE NO. 18-1645
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
JOHN HANKINS, )
)
Plaintiff-Appellant,
)
FILED
Mar 22, 2019
v. )
) DEBORAH S. HUNT, Clerk
CITY OF INKSTER, et al., )
)
Defendants, )
_____________________________________ )
BARRY SEIFMAN; BARRY SEIFMAN, ) ON APPEAL FROM THE UNITED
P.C., ) STATES DISTRICT COURT FOR
) THE EASTERN DISTRICT OF
Third-Party Plaintiffs-Appellees,
) MICHIGAN
RAYMOND GUZALL III; RAYMOND )
GUZALL III, P.C., )
)
Third-Party Defendants-Appellants. )
Before: COLE, Chief Judge; BATCHELDER and DONALD, Circuit Judges.
PER CURIAM. This appeal stems from a dispute between two lawyers, formerly partners,
over an attorney contingency fee derived from the monetary settlement in a civil action and the
district court’s judgment that resolved that dispute. We AFFIRM.
I.
In 2009, Barry Seifman and Raymond Guzall were partners in the law firm of Seifman
& Guzall P.C. (the “Firm”). John Hankins, a fired police officer, retained the Firm, specifically
Guzall, to bring an employment-discrimination action in federal court against the City of Inkster
and the City’s Police Chief (“defendants”). The district court scheduled trial for February 2012.
Case No. 18-1645, Hankins v. City of Inkster, et al.
According to Guzall, in September 2011, Seifman revealed that he had been engaging in
certain illegal and unethical conduct. This, Guzall claims, required him to quit the Firm to avoid
potential prosecution as an accomplice. Seifman denies any such misconduct or wrongdoing.
When Guzall left the Firm in early February 2012, Hankins chose Guzall to continue his
representation and discharged Seifman and the Firm. A few weeks later, on the eve of trial, the
case settled with the defendants agreeing to pay Hankins a large monetary award, one-third of
which would go to Guzall under the contingent fee agreement. But Seifman claimed that the Firm
was entitled to that fee, filed a lien on Hankins’s settlement, and moved to intervene. The district
court granted the motion, ordered the defendants to remit one-third of the settlement amount
(i.e., the attorney’s contingent-fee amount) to the court for deposit in an interest-bearing escrow
account, and permitted Seifman to file a third-party complaint against Hankins, the defendants,
and non-party Guzall. Because the defendants paid the entire settlement amount and Hankins
received his two-thirds, neither is an interested party at this stage of the case.
Meanwhile, Seifman had sued Guzall in Oakland County (Mich.) state court in February
2012, claiming that Guzall had improperly taken client files when he left. Guzall counter-claimed,
accusing Seifman of numerous criminal and unethical acts. Despite the stipulated exclusion of the
present fee dispute from that lawsuit, the district court held this case in abeyance pending the
outcome of that action due to the similarities of the accusations and claims, and the risk of
inconsistent judgments. Eventually, the state court held that Guzall had improperly taken the client
files but that no other claims by either party remained because Guzall and Seifman had accepted
their “case evaluations” (alternative-dispute-resolution decisions). The court closed the case. The
Michigan Court of Appeals affirmed, Seifman v. Guzall, No. 328643, 2017 WL 187989 (Mich.
App. Jan. 17, 2017), and the Michigan Supreme Court denied leave to appeal further, Seifman v.
Guzall, 898 N.W.2d 604 (Mich. 2017). The district court reopened this fee-dispute.
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Case No. 18-1645, Hankins v. City of Inkster, et al.
The magistrate judge held a hearing but limited admissible evidence and argument to six
issues: (1) the Firm’s shareholder agreement between Seifman and Guzall; (2) when Guzall quit
the Firm and when he told Seifman; (3) when and how Hankins told Seifman and Guzall he was
firing the Firm; (4) when and how Hankins retained Guzall; (5) when and how Guzall took the
Hankins file from the Firm; and (6) the hours Guzall and Seifman each spent on the case, their
hourly rates, and whether Seifman was entitled to compensation in quantum meruit. The
magistrate judge expressly and emphatically barred evidence, argument, or discussion regarding
misconduct, specifically Guzall’s accusations against Seifman: “We will not try the [Michigan
state court] lawsuit de facto in the context of this evidentiary hearing on attorney fees.” Three
witnesses testified at the hearing (Hankins, Guzall, and Seifman), and the magistrate judge
admitted several documents, including the shareholder agreement. It was established that, at the
time he left, Guzall was a 25% shareholder in the Firm. Guzall insisted the shareholder agreement
was not a fee splitting agreement whereas Seifman insisted that it was.
The magistrate judge issued a Report and Recommendation, which the district court, after
thoroughly addressing and overruling Guzall’s objections to it, adopted as its final judgment. The
district court determined that Guzall’s individual work on the case was reasonably quantified at 80
hours, at $300 per hour, for direct compensation of $24,000. The court did not award Seifman any
direct compensation for work on the case. Further, the court determined that the shareholder
agreement was effectively a fee-splitting agreement, and the Hankins case was a corporate asset
subject to that contractual agreement, but which Guzall had taken from the Firm. Therefore, the
court held that Guzall was entitled to 25% of the Hankins contingency fee and the Firm (Seifman)
to 75%. The court rejected Guzall’s claims that Seifman breached the agreement and committed
illegal acts, criticizing those claims as “improper attempts to circumvent the findings and
conclusions of the Michigan state courts” and concluding that Guzall “previously agreed to dispose
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Case No. 18-1645, Hankins v. City of Inkster, et al.
of those claims in the [Michigan state court] case.” Guzall had agreed that the district court—
rather than the state court—would decide the contingency-fee issue and the district court explained
that resolving attorney fee disputes is part of the overall litigation. Thus, its admission of Seifman
into the suit and its judgment on that issue were not improper. Finally, the court rejected Guzall’s
claims that he was denied a fair opportunity to present evidence, as he was invited to and did
present evidence at the hearing.
II.
We review the district court’s findings of fact for clear error and conclusions of law de
novo. See Alexander v. Local 496, Laborers’ Int’l Union, 177 F.3d 394, 402 (6th Cir. 1999). We
review a decision on a Rule 24(b) motion to intervene for abuse of discretion. Grubbs v. Norris,
870 F.2d 343, 345 (6th Cir. 1989) (“permissive intervention . . . is clearly only reviewable under
an abuse of discretion standard”). We also review a district court’s evidentiary rulings for abuse
of discretion. United States v. Morales, 687 F.3d 697, 701–02 (6th Cir. 2012).
Guzall presses eleven claims that fall into four general categories: (1) Guzall’s accusations
of Seifman’s misconduct, (2) Seifman’s intervention, (3) Guzall’s costs in litigating the underlying
case, and (4) the district court’s treatment of the shareholder agreement as a fee-splitting
agreement. As to Guzall’s accusations of misconduct, see Appellant Br. p. 3–5 (issues 1, 2, 5, 9,
and 10 in the Statement of Issues Presented), we affirm the district court’s decision to refrain from
adjudicating Guzall’s claims, which overlap with the allegations of misconduct at the heart of
Guzall’s state court litigation. Guzall and Seifman accepted the case evaluation award to end that
litigation, and under Michigan law, “acceptance of a case evaluation is essentially a consent
judgment and res judicata applies to consent judgments.” Garrett v. Washington, 886 N.W.2d
762, 766 (Mich. Ct. App. 2016) (quotation marks, editorial marks, and citations omitted). The
district court properly applied res judicata and refrained from re-litigating those claims.
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Case No. 18-1645, Hankins v. City of Inkster, et al.
As to Seifman’s intervention, see Appellant Br. p. 3–5 (issues 3, 4, and 11 in the Statement
of Issues Presented), the district court did not abuse its discretion in permitting Seifman to
intervene. See Dean v. Holiday Inns, Inc., 860 F.2d 670 (6th Cir. 1988) (permitting attorney to
intervene in similar context). And as to Guzall’s costs, see Appellant Br. p. 5 (issues 7 and 8 in
the Statement of Issues Presented), based on the factual record before us, the district court did not
abuse its discretion in conducting the evidentiary hearing or determining his hourly rate and costs.
See Ecclestone, Moffett & Humphrey, P.C. v. Ogne, Jinks, Alberts & Stuart, P.C., 441 N.W.2d 7,
8 (Mich. Ct. App. 1989) (explaining “that the court has the discretion to assess reasonable attorney
fees; there is no requirement for the court to assess actual attorney fees”).
Finally, as to the shareholder agreement, see Appellant Br. p. 4 (issue 6 in the Statement
of Issues Presented), Guzall argues the district court erred by interpreting the agreement as a fee-
splitting agreement. “Generally, the interpretation of a contract is reviewed de novo.” Gerken
Paving, Inc v. LaSalle Group, Inc., 558 F. App’x 510, 514 (6th Cir. 2014). Guzall complains that
the district court improperly considered unpublished and out-of-state cases in its analysis. But
Guzall cites no Michigan cases that counsel against a court’s interpreting a shareholder agreement
as a fee-splitting agreement in interpreting a contract. The district court did not err in considering
nonbinding opinions where no binding authority spoke to the issue presented.
Guzall alternatively argues that, even assuming the shareholder agreement could be
construed as a fee-splitting agreement, published opinions from the Michigan Court of Appeals
demonstrate that quantum meruit is the appropriate vehicle for deciding Seifman’s share of the
attorney contingency fee. See Ambrose v. Detroit Edison Co., 237 N.W.2d 520 (Mich. Ct. App.
1975); Reynolds v. Polen, 564 N.W.2d 467, 470 (Mich. Ct. App. 1997); Ecclestone, 441 N.W.2d
at 8. But Michigan courts have held that the recovery-by-quantum-meruit rule can be displaced
by a fee-splitting agreement. See McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, 494
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Case No. 18-1645, Hankins v. City of Inkster, et al.
N.W.2d 826, 827-28 (Mich. Ct. App. 1992) (enforcing a fee-splitting agreement between a lawyer
and his former firm instead of apportioning a fee based on quantum meruit and opining that such
agreements “should be encouraged”); Torpey v. Secrest, Wardle, Lynch, Hampton, Truex, Morley,
PC, Nos. 234956, 234973, 2003 WL 21958289, at *4 (Mich. Ct. App. Aug. 14, 2003) (holding
that a “fee-splitting arrangement mandating that a percentage of fees obtained by a departing
attorney for former firm cases be given to the firm as a way to compensate the firm for its work”
was enforceable). Indeed, in both McCroskey and Torpey, the court noted that such fee-splitting
agreements were “intended to eliminate the need for a quantum meruit analysis.” Torpey, 2003
WL 21958289, at *5; accord McCroskey, 494 N.W.2d at 828. Finally, in Kohl, Harris, Nolan &
McCarthy, P.C. v. Peters, No. 275377, 2008 WL 183294, at *2-*3 (Mich. Ct. App. Jan. 22, 2008),
the Michigan Court of Appeals even enforced a verbal fee-splitting agreement in which there was
no specific provision governing fee allocation if a lawyer left the firm.
In this case, the shareholder agreement was a fee-splitting agreement with no provision
governing fee allocation if either Seifman or Guzall left the firm and took a case with him. The
district court, consistent with McCroskey and Torpey, determined that the fee-splitting agreement
displaced the general rule and remained in force after Guzall left the Firm. Because we find
likewise, we conclude that the district court did not err in reaching this conclusion.
III.
For the foregoing reasons, we AFFIRM the judgment of the district court.
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