July 21, 2014 – A consumer with a legal claim against an auto dealer entered a settlement agreement without his lawyer’s knowledge. Recently, the Wisconsin Supreme Court ruled against the consumer’s lawyer regarding attorney’s fees.
Specifically, a five-justice majority ruled that a plaintiff-client did not assign his right to statutory attorney’s fees to his lawyer in a fee agreement. As a result, the lawyer had no right to seek statutory attorney’s fees from the settling defendant, the majority ruled.
Randy Betz claimed Diamond Jim’s Auto Sales in Milwaukee made fraudulent misrepresentations before selling him a 1999 Cadillac Escalade for $8,705.
Betz hired lawyer Vince Megna to file a lawsuit under Wis. Stat. section 100.18, a fee-shifting statute that lets successful plaintiffs collect reasonable attorney’s fees from the losing defendant. Megna filed the lawsuit, and made an offer of settlement.
The offer sought $10,750 in damages and $5,900 in attorney’s fees. However, Diamond Jim’s rejected the offer and made a counter-offer to repurchase the car and pay $2,000 in legal fees to Megna, who rejected the counter-offer on Betz’s behalf.
Several months later, Betz signed a $15,000 settlement agreement with the general manager for Diamond Jim’s. No lawyers were present. Under the agreement, the dealer agreed to pay higher damages, but did not agree to pay Betz’s legal fees to Megna.
Once Megna learned of the settlement, he filed a motion to compel Diamond Jim’s to pay statutory attorney’s fees. He said attorneys have the right to recover legal fees under fee-shifting statutes, and the settlement amount was not enough to cover his client’s damages plus the $16,808 legal fees outstanding at the time of settlement.
Ultimately, the circuit court enforced the settlement agreement and ruled against Megna on fees, meaning Megna would be required to seek legal fees from Betz instead of Diamond Jim’s. But a state appeals court later reversed, voiding the settlement.
The appeals court ruled that parties can normally settle cases without the presence or consent of counsel, but not in cases alleging claims under fee-shifting statutes, which allow consumers, including ones who cannot afford attorneys, to enforce their rights in low-dollar cases because legal fees “shift” to the defendant who violates the law.
The appeals court ruling meant the parties would have to go to trial or renegotiate the settlement. However, Diamond Jim’s appealed to the state supreme court.
In Betz v. Diamond Jim’s Auto Sales, 2014 WI 66 (July 15, 2014), a supreme court majority (5-1) reversed the appeals court, ruling in favor of Diamond Jim’s.
The court held that in fee-shifting cases that settle without counsel and with no provision for statutory attorney’s fees, an attorney has no right to seek the attorney’s fees against a defendant unless the client assigned the right to recover them in a fee agreement and the defendant had notice of the assignment. In this case, there was no assignment.
“Because we conclude that Betz did not assign his right to recover statutory attorney’s fees to Megna, we must conclude that Diamond Jim’s could not have had notice of the assignment,” wrote Justice Annette Ziegler for the five-justice majority.
The court reviewed Megna’s fee agreement for evidence of an assignment but found no clear language of one. Additionally, the majority rejected Megna’s argument that Betz equitably subrogated the right to statutory attorney’s fees to Megna.
“The legislature has concluded that it is the client’s right to recover statutory attorney’s fees,” Justice Ziegler wrote. “The equitable principles espoused by Megna do not trump the language of the agreement or the legislative directive.”
The majority noted that Megna can still seek legal fees from Betz and thus “equitable relief in the form of subrogation is not appropriate in this case.”
The majority suggested that attorneys should draft fee agreements that unambiguously assign a right to recover attorney’s fees in these types of cases in the future.
“A clear fee agreement not only protects the attorney, but also protects the client and avoids conflict,” Justice Ziegler wrote. “A more clearly drafted fee agreement in the case at issue would have resolved the problem without the necessity of additional litigation.”
Chief Justice Shirley Abrahamson wrote a lone dissent, concluding that “the fee agreement unambiguously assigned Betz’s right to attorney’s fees to Megna.”
“The majority opinion ignores the rule of interpretation that requires us to give reasonable meaning to each word of the contract,” wrote the chief justice, who thoroughly analyzed Megna’s fee agreement under contract principles.
“What reasonable meaning does the ‘FEE SHIFTING’ provision have if it is not an assignment of rights to legal fees in the event of a lawsuit?”