Johnson v. Westhoff Sand Co., Inc.
| Citation | 135 P.3d 1127 |
| Decision Date | 09 June 2006 |
| Docket Number | No. 92,700.,92,700. |
| Parties | J. Michelle JOHNSON and Alan L. Johnson, Plaintiffs/Garnishors/Appellees/Cross-Appellants, v. WESTHOFF SAND COMPANY, INC., Defendant, v. Mid-Continent Casualty Company, Garnishee/Appellant/Cross-Appellee. |
| Court | United States State Supreme Court of Kansas |
James R. Borthwick, of Blackwell Sanders Peper Martin LLP, of Kansas City, Missouri, argued the cause, and Brian D. Martin, of the same firm, was with him on the briefs, for appellant.
Rex A. Sharp, of Gunderson Sharp & Walke, L.L.P., of Prairie Village, argued the cause, and Barbara C. Frankland, of the same firm, was with him on the briefs, for appellees.
This case involves a dispute over the amount of attorney fees and expenses assessed against an insurance company under K.S.A. 40-256. The district court's assessment against Mid-Continent Casualty Company (Mid-Continent) in the underlying garnishment action was based in part upon the Johnsons' contingent fee agreement with their counsel which established fees of 33% of any amount recovered through a settlement or trial judgment. The court also made an assessment against Mid-Continent in the accompanying dispute over the specific amount of attorney fees for which the Johnsons asserted an entitlement, i.e., "fees for fees" were awarded the Johnsons.
Mid-Continent appeals the Court of Appeals' decision affirming the district court on these and other issues. The Johnsons appeal the Court of Appeals' rejection of their argument that they were entitled to attorney fees of 40% from Mid-Continent, as contemplated by their fee agreement's appeal provision.
The issues on appeal, and this court's accompanying holdings, are as follows:
1. Did the district court abuse its discretion in determining the amount of attorney fees awarded for the underlying garnishment action? No.
2. Did the district court err under the "law of the case" doctrine in considering the contingent fee agreement? No.
3. Did the district court abuse its discretion in the amount of attorney fees awarded for the attorney fee litigation, i.e., fees for fees? No.
4. Did the district court err in awarding expert witnesses' fees and expenses under K.S.A. 40-256? Yes.
Accordingly, we affirm in part and reverse in part.
In June 1992, Michelle Johnson, her husband Alan Johnson, and their children (the Johnsons) were involved in an automobile accident with a semi-tractor trailer in a construction zone. Michelle lost her dominant right arm below the elbow as a result. Thereafter, the Johnsons retained counsel to file a personal injury lawsuit under a contingent fee agreement in which they agreed to pay their attorney 33% of any recovery through settlement or trial judgment and 40% in the event of an appeal.
The Johnsons filed suit against several parties, including Westhoff Sand Company (Westhoff). Although Westhoff was personally served, it did not inform its insurance carrier, Mid-Continent Casualty Company, of the lawsuit. The Johnsons' attorney notified Mid-Continent by telephone when he discovered that it insured Westhoff.
Despite numerous attempts, Mid-Continent was unsuccessful in contacting Westhoff. Ultimately, Mid-Continent failed to defend Westhoff in the lawsuit. After all the other defendants settled, the Johnsons obtained a default judgment against Westhoff on February 1, 1995, in the principal amount of $2,268,784.52.
The Johnsons contended that Westhoff's insurance policy with Mid-Continent provided coverage and sought to recover the full amount of the default judgment and attorney fees from Mid-Continent. In February 1997, 2 years after obtaining their default judgment against Westhoff, they instituted a garnishment action against Mid-Continent to collect on their judgment. Mid-Continent denied coverage because of Westhoff's failure to give notice and failure to cooperate with Mid-Continent in the proceedings.
After discovery, a court trial, and reconsideration, Mid-Continent was found liable and its coverage defense was held to be "without just cause or excuse" under K.S.A. 40-256. In August 2001, the district court concluded that the Johnsons were entitled to collect from Mid-Continent the entire amount of the default judgment: approximately $3.6 million in principal and interest. The district court also awarded attorney fees in the amount of $1,202,336.65, which was approximately 33 1/3% of the judgment.
Mid-Continent appealed. On February 7, 2003, the Court of Appeals affirmed the default judgment, but remanded for the district court to conduct a full hearing and consider all factors listed in KRPC 1.5(a) (2005 Kan. Ct. R. Annot. 397) to determine the appropriate amount of attorney fees. Johnson v. Westhoff Sand Co. (Johnson I), 31 Kan. App.2d 259, 275, 62 P.3d 685, rev. denied 275 Kan. 964 (2003). On February 5, 2003, it also awarded the Johnsons $12,000 in attorney fees and $282.96 in expenses they incurred on appeal.
After the parties' petitions for review and Mid-Continent's request to stay execution were denied, the district court entered a journal entry of judgment after appeal of $3,993,066.91 — the amount of the judgment affirmed by the Court of Appeals, plus interest. Mid-Continent paid the judgment on June 6, 2003.
On November 3, 2003, the Johnsons filed a motion with the district court to determine the amount of attorney fees awarded under K.S.A. 40-256. The court held an evidentiary hearing at which experts testified, exhibits were submitted, and counsel presented oral argument. The trial testimony generally reflected that as the complexity of the case increased, so would the contingent fee percentage or hourly rate, depending on the fee agreement.
The Johnsons submitted the following evidence to the district court.
(1) a work history summary of the case from the time of default judgment to the time of collection, February 1, 1995, through June 6, 2003;
(2) an August 12, 2003 letter from Rex Sharp (Johnsons' counsel) to James Borthwick (defense counsel) stating the approximate time spent on the garnishment action through the appeal, showing a total of 748.5 hours before the appeal, and another 270 hours on appeal until collection;
(3) the July 16, 1992 contingent fee agreement between the Johnsons and their counsel showing a 33% fee at or before trial and 40% on appeal, plus expenses;
(4) the executed summary sheet by the Johnsons' counsel detailing expenses and net fees incurred on the judgment collected from Mid-Continent, showing the Johnsons paid their counsel pursuant to the contingent fee agreement $1,595,080.21 in fees, i.e., 40% of the judgment, and $5,360.38 in expenses, totaling $1,600,440.59.
(5) an affidavit from the Johnsons' counsel affirming the exhibits entered and stating that attorney liens and reimbursement agreements to all prior law firms had been satisfied in full;
(6) expert affidavits from attorneys David Morris, Jacob Graybill, David Rebein, Lee Thompson, W. Greg Wright, Grant Shellenberger, Fritz Edmunds, Jr., and Michael Whitsitt in support of the reasonableness of the contingent fee agreement and the resulting fee in the case;
(7) an expert fee invoice of witness David Morris, totaling $5,423.60;
(8) an expert fee invoice of witness Jacob Graybill, totaling $4,712.50;
(9) additional time and expenses incurred by Johnsons' counsel through March 26, 2004, totaling 130.9 hours, and $6,005.07 in expenses; and
(10) the supplemental time and expenses incurred at trial.
The evidence indicated that as a contingency fee case, the Johnsons' counsel did not keep detailed time records during a portion of the suit. Therefore, some of the time spent on the case was estimated. For other times, however, detailed records were kept.
In response, Mid-Continent submitted stipulations from Johnsons' counsel, expert affidavits from attorneys Douglas Lancaster and Lee Smithyman, and an annotation of K.S.A. 40-256 cases prepared by Smithyman. In his affidavit, Lancaster asserted, based upon his extensive commercial litigation experience that a total of $111,480.00 in attorney fees was appropriate based on hourly rate computations:
"(a) For lead counsel Rex Sharp: 439
hours at $200 per hour $ 87,800.00
"(b) Associates time: 140 hours at $150
per hour $ 21,000.00
"(c) Paralegal time: 28 at $60 per hour $ 1,680.00
"Total Attorneys' fees to be awarded: $111,480.00"
Similarly, Smithyman's affidavit suggested that based on a local hourly rate for attorneys of Sharp's skill and experience, appropriate attorney fees would be between $85,000 and $102,600.
On May 21, 2004, the district court awarded the Johnsons $1,329,233.51 in attorney fees and $5,360.38 for expenses incurred in litigating the original garnishment action. The district court's award is 33 1/3% of the judgment entered on remand ($3,993,061— $5,360.38 in expenses.)
The district court also awarded the Johnsons an additional $51,580.00 in attorney fees plus $13,802.78 for expenses incurred in their having to litigate the specific amount of attorney fees to be awarded on remand (eventually $1.3 million). In other words, it awarded "fees for fees." The court rejected the Johnsons' version of fees for fees: $533,000, i.e., approximately one-third (pre-appeal) of the $1.6 million in attorney fees to which they argued they were entitled pursuant to their contingent fee agreement — and which they had paid to their counsel — on the garnishment action.
Finally, the district court denied the Johnsons' separate request for fees and expenses they incurred for appellate work in Johnson I, effectively holding that the Court of Appeals had already compensated them with the award of $12,000 in fees and $282.96 expenses.
Mid-Continent appealed the amount of the awards to the Court of Appeals, and the Johnsons...
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...in light of the existence of other Kansas statutes where the award of attorney fees is nondiscretionary. See Johnson v. Westhoff Sand Co., 281 Kan. 930, 939–40, 135 P.3d 1127 (2006) (interpreting a statute that used the word “shall” and holding the award of fees to be mandatory). We must no......
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