Hauptman, O'Brien, Wolf & Lathrop v. Milwaukee Guardian

• Decision Date: 19 May 1998
• Docket Number: No. A-97-428,A-97-428
• Citation: 7 Neb.App. 60,578 N.W.2d 83
• Parties: HAUPTMAN, O'BRIEN, WOLF & LATHROP, P.C., Appellee, v. MILWAUKEE GUARDIAN, a division of Milwaukee Insurance Company, Appellant.
• Court: Nebraska Court of Appeals

Page 83

578 N.W.2d 83

7 Neb.App. 60

HAUPTMAN, O'BRIEN, WOLF & LATHROP, P.C., Appellee, v. MILWAUKEE GUARDIAN, a division of Milwaukee Insurance Company, Appellant.

No. A-97-428.

Court of Appeals of Nebraska.

May 19, 1998.

Syllabus by the Court

1. Judgments: Appeal and Error. An appellate court has an obligation to reach a conclusion independent of that of the trial court with respect to questions of law.

2. Attorney Fees: Equity. An attorney who renders services in recovering or preserving a fund in which a number of persons are interested may in equity be allowed his or her compensation out of the whole fund, where the services are rendered on behalf of and are of benefit to the common fund.

3. Subrogation: Records. In a case involving the common fund doctrine, the record must support a finding that the holder of the subrogation interest received substantial benefit from the services of the injured party's counsel.

4. Attorney Fees: Insurance: Contracts. The amount of the attorney fee awarded in a common fund case does not necessarily correspond with the contract between the attorney and an insured, but instead depends on the nature of the services rendered and the general considerations applicable to court awards of attorney fees.

5. Attorney Fees. The general considerations for awards of attorney fees are the services actually performed, the amount in controversy, the nature of the case, the results obtained, the extent of preparation of the case, the difficulty of the questions involved, the skill required, the customary charges of the bar for similar work, and the character and standing of the attorney.

Stephen G. Olson II and Suzanne M. Shehan of Hansen, Engles & Locher, P.C., Omaha, for appellant.

Terry M. Anderson and Timothy J. O'Brien, of Hauptman, O'Brien, Wolf & Lathrop, P.C., Omaha, for appellee.

SIEVERS, MUES, and INBODY, JJ.

SIEVERS, Judge.

This case involves the question of whether Milwaukee Guardian, a division of Milwaukee Insurance Company (Milwaukee), must pay one-third of its $2,000 medical payment subrogation interest to the law firm of Hauptman, O'Brien, Wolf & Lathrop, P.C. (Hauptman, O'Brien). The answer largely depends upon whether the common fund doctrine applies in this case. The district court found that the common fund doctrine was applicable and ordered Milwaukee to pay $666.66 to Hauptman, O'Brien. Milwaukee appeals to this court.

FACTUAL BACKGROUND

The case was tried to the district court upon the testimony of Timothy O'Brien, an attorney with Hauptman, O'Brien, and statement of the following stipulated undisputed facts. A policy of automobile insurance was issued to Marlene Crouch by Milwaukee on March 4, 1995, which contained medical payment coverage of $2,000. This policy contained a provision giving Milwaukee the right of subrogation for payment of medical expenses against any responsible party from whom its insured recovered damages for medical expenses. On April 10, Crouch was involved in an automobile accident resulting in injuries for which she incurred medical expenses, and pursuant to the policy, Milwaukee made medical payments on behalf of Crouch in the amount of $2,000. The driver of the other vehicle in the accident, Mary Kaufman, was insured by Union Insurance Company. Crouch made a claim against Kaufman for damages arising out of the accident, and Crouch was represented in her claim by O'Brien.

Milwaukee maintains in-house legal counsel to handle all subrogation matters on its behalf. On July 25, 1995, a claims representative of Milwaukee, Susan Zellhoffer, contacted Union to notify it of Milwaukee's $2,000 subrogation claim. Zellhoffer requested that a separate check be issued directly to Milwaukee in payment of its subrogation claim. In a letter dated October 12, 1995, Zellhoffer again notified Union of Milwaukee's $2,000 subrogation claim. At no time was there any written or oral fee agreement between O'Brien and Milwaukee, and at no time was O'Brien notified by Milwaukee that it was representing its own interests. O'Brien was, however, sending copies of Crouch's medical bills to Milwaukee for payment during the settlement process. Crouch's claim against Kaufman was settled on October 20, for a total of $21,250, and Crouch signed a release of all claims on October 27. O'Brien sent Milwaukee a check for $1,333.34 with a letter explaining that the check was offered as payment in full of the subrogation interest, minus an attorney fee of $666.66. In a letter dated October 22, 1995, Milwaukee returned the check to O'Brien, indicating that Milwaukee was representing its own interests in the subrogation matter and that it would not pay a one-third attorney fee to O'Brien. At no time prior to October 22 was Milwaukee notified by Hauptman, O'Brien of the pending settlement of Crouch's claim or the release executed in favor of Union.

O'Brien testified at trial that the law firm gathered medical records, took photographs, and interviewed police officers and a witness. The total time expended by the firm in the matter was 31.4 hours. O'Brien admitted on cross-examination that some of the hours spent on the case were attributable to paralegals, but he did not have a breakdown of the hours with him. O'Brien testified that the case was settled for $21,250, and that his fee agreement with Crouch was for a one-third contingency fee, plus expenses. O'Brien also testified that Milwaukee contacted him to find out Union's address and also wanted O'Brien to be aware of its subrogation interest.

The district court ruled that Union was negotiating with Hauptman, O'Brien, and not with Milwaukee, and that Hauptman, O'Brien expended time in creating the settlement fund, while Milwaukee only sent a letter and made a telephone call, but made no other efforts toward the recovery of $21,250. The court found that Hauptman, O'Brien proved by a preponderance of evidence that its efforts produced a fund, from which Milwaukee could be paid its subrogation interest, and that Hauptman, O'Brien was entitled to a fee "one-third of the amount recovered as recited in [Hauptman, O'Brien's] contract with Crouch...." or $666.66.

ASSIGNMENTS OF ERROR

Milwaukee appeals to this court and, restated, argues that the trial court erred in finding the common fund doctrine applicable and ordering Milwaukee to pay a one-third attorney fee based on the contract between Hauptman, O'Brien and Crouch.

STANDARD OF REVIEW

Questions of law are presented by the stipulated facts in this case, and an appellate court has an obligation to reach a conclusion independent of that of the trial court in such instances. In re Guardianship & Conservatorship of Bloomquist, 246 Neb. 711, 523 N.W.2d 352 (1994).

ANALYSIS

This case first requires a determination of whether the common fund doctrine applies under the above-recited facts. The common fund doctrine has its genesis in Nebraska case law in United Services Automobile Assn. v. Hills, 172 Neb. 128, 109 N.W.2d 174 (1961). Hills involved a personal injury and automobile damage claim in which the holder of the subrogation interest requested that the claimant's attorney, Lyle Q. Hills, not represent it and that he delete the subrogation claim from the lawsuit. Hills advised the insurer that the cause of action was the claimant's and that it could not be split, and Hills proceeded with negotiations for settlement of the case, resulting in a settlement of $3,500. The subrogation interest was $454.93, and Hills sought a one-third fee of that amount, relying upon his fee agreement with the claimant. The Nebraska Supreme Court noted that the only issue before the court was the extent of Hills' interest in the $454.93. The Supreme Court first dispensed with the notion that compensation for an attorney depends upon an employment contract, because, citing 7 C.J.S. Attorney and Client § 193b(2) (1937), an attorney who renders services in recovering or preserving a fund in which a number of persons are interested may in equity be allowed his or her compensation out of the whole fund, where the services are rendered on behalf of and are of benefit to the " 'common fund.' " Id. at 132, 109 N.W.2d at 177. The court also found that the fact that the subrogated party had employed counsel and even opposed the suit which ultimately benefited that party would not prevent payment to counsel " 'who has succeeded in recovering or preserving the fund which is brought into the custody of the court.' " Id. The Hills court then announced:

The applicable rule is that where the holder of the subrogation right does not come into the action, whether he refuses to do so or acquiesces in the plaintiff's action, but accepts the avails of the litigation, he should be subjected to his proportionate share of the expenses thereof, including attorney's fees.

Id. at 133, 109 N.W.2d at 177. Thus, Hills was entitled to a one-third share of the $454.93.

We next turn to Krause v. State Farm Mut. Auto. Ins. Co., 184 Neb. 588, 169 N.W.2d 601 (1969), which further refined the common fund doctrine. Joseph L. Krause was an attorney who sued State Farm for fees based on his representation of Lowell Roumph, who had sustained property damage in a collision with an individual insured by Dairyland Insurance Company. Roumph had his own insurance with State Farm, which paid for the damage to Roumph's vehicle in the amount of $1,350. Krause negotiated a settlement with Dairyland Insurance. The court recited that throughout those negotiations, State Farm was aware of the efforts of Krause "and acquiesced in, but did not in any way take part in, such negotiations or assist in reaching the settlement." Id. at 590, 169 N.W.2d at 603. The Krause court translated the right of subrogation into a "trust" upon the fund coming into the hands of Roumph which required Roumph as a fiduciary to account for the proportionate share of the proceeds corresponding with the...