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Court of Appeals Holds that Law Firm Representing Itself in an Action for Attorney Fees is Entitled to Case Evaluation Sanctions

The Michigan Court of Appeals recently issued an opinion providing that a law firm that represents itself in an action for non-payment of attorney fees is entitled to obtain case evaluation sanctions and be compensated for its own fees incurred in bringing the fee action when the former client fails to accept case evaluation pursuant to MCR 2.403(O). Fraser Trebilcock Davis & Dunlap, PC v Boyce Trust 2350, Boyce Trust 3649 and Boyce Trust 3650, for publication, Case Nos. 302835, 305149, 307002 (February 6, 2014).

The underlying case involved an action filed in Midland Circuit Court to collect unpaid attorney fees. After presentation of the proofs, the jury found that the defendant breached the fee agreement by failing to pay $70,000 in attorney fees due and owing. The total judgment, including interest and taxable costs was $73,501.90. After the court denied the defendants’ motion for new trial, the law firm moved for an award of case evaluation sanctions pursuant to MCR 2.403(O), as the law firm accepted, but the defendants rejected a case evaluation award of $60,000.

The trial court recognized that if a law firm uses is own attorneys to litigate an action against a former client for unpaid fees, any judgment would be “diminished by the lost opportunity of providing legal services to paying clients.” In addition, the trial court asked “what disincentive is there for a client to not stiff the lawyer?” The defendants relied on Watkins v Manchester, 220 Mich App 337 (1996), wherein the Court held that an attorney who proceeded in pro per in a FOIA lawsuit was not permitted to recover attorney fees under MCR 2.403(O). However, the trial court found that the law firm was not a pro se litigant because it was a professional corporation represented through its agents. Accordingly, the trial court held that the law firm was entitled to $80,434 in case evaluation sanctions for its attorney fees.

The Court of Appeals reviewed the Watkins v Manchester case relied upon by the defendants as well as the underlying decisions. In doing so, the Court of Appeals analyzed the purpose behind the attorney fee provision under the FOIA and the rationale for granting attorney fees under MCR 2.403(O). The Court noted that the purpose of case evaluation sanctions is to encourage resolution of cases without trials by shifting the cost of litigation to the party that rejects the evaluation and does not obtain a more favorable verdict at trial. The Court of Appeals held “[w]e do not perceive how the purpose of MCR 2.403(O) is furthered by excusing a rejecting party from the consequences of a rejection merely because the opposing party chose to represent itself. This is especially pertinent where, as here, the party law firm was represented by its own attorneys, who were already familiar with the underlying facts.”

The Court of Appeals also rejected the argument that the law firm did not “incur” attorney fees in representing itself because MCR 2.403(O) does not require that the attorney fee be “incurred,” it only mandates that the costs include a reasonable attorney fee based on an hourly or daily rate, as determined by the trial court, for services rendered by the rejection of the case evaluation award.

You can read the entire decision here.  To learn more, contact Jennifer Grieco directly at jgrieco@neumananderson.com