Law Firm May Collect Unpaid Fees Based On Contract Provision

A trial court properly awarded the plaintiff-attorney more than $78,000 in legal fees for representing herself and her law firm in litigation with a former client, the Michigan Court of Appeals has ruled.

The decision in Silverman v Korn (Docket No. 350830) was initially released as an unpublished opinion in October 2021. However, the opinion was approved for publication on November 18, 2021, which means it is now binding precedent.

Silverman was on remand from the Michigan Supreme Court and before the Court of Appeals for the second time. In a March 2021 order, the high court cited a provision in the parties’ contract for legal services that said: “If Attorney has to commence litigation … to collect outstanding fees, [the defendant] shall be responsible for all fees, costs, and attorney fees for Attorney’s actual time expended” and instructed the Court of Appeals to “consider the import, if any, of the emphasized language and whether the plain language of this provision allows the plaintiff to recover the ‘attorney fees’ in accord with its precedents.”

On remand, the Court of Appeals said the plaintiff-law firm could recover attorney fees based on the language of the contract.

“Because the law firm’s entitlement to recover attorney fees is entirely a matter of contract, and because the pertinent contract provision clearly envisions the firm acting as its own courtroom advocate in the event of litigation over outstanding fees, the trial court correctly recognized the applicability of that provision in this case,” the Court of Appeals wrote. “Indeed, the contractual fee-shifting provision left no discretion to the trial court (‘Client shall be responsible for all fees, costs, and attorney fees for Attorney’s actual time expended …’).”

Judges Deborah A. Servitto and Jane M. Beckering joined the decision. Judge Jonathan Tukel did not participate.

Background

The plaintiffs, Elizabeth A. Silverman and her law firm, Elizabeth A. Silverman PC, filed suit against the defendant, Lawrence Korn, for unpaid legal fees. The fees were incurred during the defendant’s divorce case. The defendant counterclaimed, asserting legal malpractice against the plaintiffs.

The Oakland County Circuit Court granted summary disposition to the plaintiffs. The trial court awarded the firm $78,653.95 in attorney fees, which reflected the amount due for Silverman’s work in the divorce matter, plus costs and fees incurred in the present action.

That decision was appealed. In August 2020, the Court of Appeals reversed and vacated the trial court’s order in an unpublished opinion.

The plaintiffs appealed to the Michigan Supreme Court. Rather than granting leave to appeal, the high court remanded the matter with instructions that the Court of Appeals scrutinize the language of the parties’ contract in light of Omdahl v West Iron County Board of Education, 478 Mich 423 (2007), and Fraser Trebilcock Davis & Dunlap PC v Boyce Trust 2350, 497 Mich 265 (2015).

 ‘More Instructive’ Precedent

On remand, the Court of Appeals said the case differed from Fraser and Omdahl because the plaintiff-law firm claimed the fees were incurred not based on any statute, court rule or common-law exception, but on a provision in the retainer agreement. That provision said: “If Attorney has to commence litigation against client to collect outstanding fees, Client shall be responsible for all fees, costs, and attorney fees for Attorney’s actual time expended.’”

According to the Court of Appeals, the April 2021 published decision in ABCS Troy, LLC v Loancraft, LLC (Docket No. 349835) was “more instructive to the specific matter at hand.” The panel in ABCS Troy acknowledged the default “American rule,” which says attorney fees awarded pursuant to statute, court rule or other recognized exception are not considered part of the amount in controversy. However, the panel also acknowledged that parties may “contract around” the American rule.

The ABCS Troy panel “explicitly held that contractual attorney fees need not necessarily be treated the same as statutory or rule-based attorney fees,” the Court of Appeals said. “In doing so, this Court implicitly held that all facets of contractual attorney fees are functions of the contractual language engendering them, including how they are characterized. We find the reasoning in ABCS Troy not only binding under MCR 7.215(C)(2), but also sound.”

The Court of Appeals also cited Wilkie v Auto-Owners Ins Co, 469 Mich 41 (2003), and explained that the freedom of parties to contract as they see fit is a “bedrock principle of American contract law” and that courts are to enforce agreements as written “absent some highly unusual circumstance, such as a contract in violation of law or public policy.” Moreover, the Court of Appeals pointed out that contractual fee-shifting provisions are an exception to the American rule that a party must bear its own litigation expenses.

“[W]e find that the prerogative to contractually apportion responsibility for attorney fees extends to a law firm wishing to guarantee reimbursement for its own members’ time actually devoted to litigating on behalf of the firm for outstanding fees,” the Court of Appeals stated.

Contract Allows Recovery

The Court of Appeals then examined the contract in this case, noting the applicable provision was not worded “as if merely to emulate familiar statutory or court-rule language concerning actual or reasonable attorney fees, or thus simply incorporate such established principles applicable to fee-shifting situations as the need for a bona fide attorney-client relationship.”

Rather, by specifying the defendant would be liable “’for Attorney’s actual time expended’ in the event that ‘Attorney has to commence litigation … to collect outstanding fees,’ with the understanding that ‘Attorney’ means the law firm itself, that provision plainly indicates that the party claiming outstanding fees, and the party expending time and energy to litigate the matter, would be one and the same,” the Court of Appeals said. “In other words, the subject contract provision does not impliedly or otherwise envision a conventional attorney-client relationship apart from that between the firm and defendant, but rather envisions the attorney half of that existing relationship striking out on its own, self-sufficiently, upon finding itself in conflict with defendant over outstanding fees.”

In conclusion, the Court of Appeals held the trial court properly found the plaintiff-law firm was entitled to recover fees because: 1) it was a matter of contract and 2) the applicable contractual provision “clearly envision[ed]” the plaintiff acting as its own advocate if there was litigation over unpaid fees.