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  • October 16, 2012

    In Fee-Shifting Cases, Represented Party Cannot Settle Without Lawyer's Knowledge

    In Fee-Shifting Cases, Represented Party Cannot Settle Without Lawyer's Knowledge

    By Joe Forward, Legal Writer, State Bar of Wisconsin

    In Fee-Shifting Cases, Represented Party Cannot   Settle Without Lawyer's Knowledge Oct. 16, 2012 – In general, a party represented by a lawyer can settle a case without the presence or consent of counsel, but not in cases alleging violations of fee-shifting statutes that create attorney fee claims, according to a recent state appeals court decision.

    Wisconsin’s fee-shifting statutes, which generally protect consumers, allow prevailing parties to collect reasonable attorney fees against losing defendants. Fee-shifting statutes generally incentivize lawyers to take on small money cases knowing legal fees can be recouped from defendants.

    Under state legislation enacted in 2011, reasonable attorney fees are now presumptively capped at three times the amount of damages.

    Plaintiff Randy Betz bought a 1999 Cadillac Escalade from Diamond Jim’s Auto Sales for about $8,000. But the car had problems, and Betz eventually hired attorney Vince Megna to pursue claims that the dealership made fraudulent misrepresentations about the car before selling it.

    Specifically, the suit alleged a violation of Wis. Stat. section 100.18, a fee-shifting provision. Megna's retainer agreement with Betz set out his right to pursue attorney fees against the defendant under a settlement agreement.

    In preliminary negotiations, both parties rejected an offer and counter-offer to settle. Betz’s offer sought $10,750 in damages and $5,900 in attorney fees. Diamond Jim’s counter offered to repurchase the vehicle at the purchase price, less mileage, and pay $2,000 in attorney fees.

    Diamond Jim’s General Manager Thomas Letizia then settled the case with Betz directly without any lawyer participation for $15,000, nearly double what Betz paid for the vehicle. But the settlement did not include a provision for payment of Betz’s attorney fees.

    The circuit court upheld the settlement agreement, foreclosing the possibility that Betz’s lawyers could collect attorney fees from Diamond Jim’s. In other words, Betz’s attorneys could only pursue Betz for a possibility of payment for legal services rendered.

    On appeal, Betz’s lawyers argued that “a claim for attorney fees under a fee shifting statute cannot be settled without the attorneys’ knowledge or consent.” They pointed out that Betz agreed to receive $15,000, but the settlement could not cover both damages and attorney fees.

    “It is grossly inequitable to allow wrongdoers, like Diamond Jim’s, to avoid payment of attorney fees intended as a penalty for their statutory violations and reap the benefit of a windfall obtained through settlement directly with a represented plaintiff,” Betz’s lawyers argued.

    In Betz v. Diamond Jim’s Auto Sales, 2012AP183 (Oct. 16, 2012), the District I Wisconsin Court of Appeals reversed the circuit court, concluding that the settlement agreement was void.

    “Although, generally, nothing forbids a party from settling with a represented party without the presence or consent of the represented party’s lawyer, such settlements, like all contracts are scrutinized in light of public policy interests,” wrote Appeals Court Judge Ralph Fine.

    “The legislature created fee shifting statutes to help persons who might not otherwise get legal redress,” Judge Fine continued. “To permit one side to go behind the backs of the other side’s lawyers in order to get a settlement that removed the fee-shifting incentives that prompted the lawyers to take the case, would nullify the legislative fee-shifting scheme.”

    On public policy grounds, the appeals court ruled that the circuit court erroneously upheld the settlement agreement, meaning the parties must now renegotiate settlement or go to trial.

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