Smith v. Khouri

• Decision Date: 02 July 2008
• Docket Number: Docket No. 132823. Calendar No. 4.
• Citation: 481 Mich. 519,751 N.W.2d 472
• Parties: Kevin SMITH, Plaintiff-Appellee, v. Louie KHOURI, D.D.S., Louie Khouri, D.D.S., P.C., and Advanced Dental Care Clinic, L.L.C., Defendant-Appellant.
• Court: Michigan Supreme Court

751 N.W.2d 472

481 Mich. 519

Kevin SMITH, Plaintiff-Appellee, v. Louie KHOURI, D.D.S., Louie Khouri, D.D.S., P.C., and Advanced Dental Care Clinic, L.L.C., Defendant-Appellant.

Docket No. 132823. Calendar No. 4.

Supreme Court of Michigan.

Argued December 4, 2007.

Decided July 2, 2008.

Robert Gittleman Law Firm, PLC, by (Robert Gittleman), Farmington Hills, for the plaintiff.

Van Belkum & Felty, P.C. (by Gary N. Felty, Jr.), Plymouth, for the defendants Amici Curiae.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Ann M. Sherman, Assistant Attorney General, for the Attorney General.

Kienbaum Opperwall Hardy & Pelton, P.L.C. (by Eric J. Pelton and Noel D. Massie), Birmingham, for the State Bar of Michigan.

Vandeveer Garzia (by Thomas Peters) and Wascha, Waun & Parillo, P.C. (by Thomas W. Waun), Troy, Grand Blanc, for the Negligence Section of the State Bar of Michigan.

Robert M. Raitt, Southfield, for the Michigan Association for Justice.

TAYLOR, C.J.

In this case, we review a trial court's award of "reasonable" attorney fees as part of case-evaluation sanctions under MCR 2.403(O) calculated under some of the factors we listed in Wood v. Detroit Automobile Inter-Ins. Exch., 413 Mich. 573, 321 N.W.2d 653 (1982), and Rule 1.5(a) of the Michigan Rules of Professional Conduct. We take this opportunity to clarify that the trial court should begin the process of calculating a reasonable attorney fee by determining factor 3 under MRPC 1.5(a), i.e., the reasonable hourly or daily rate customarily charged in the locality for similar legal services, using reliable surveys or other credible evidence. This number should be multiplied by the reasonable number of hours expended. This will lead to a more objective analysis. After this, the court may consider making adjustments up or down in light of the other factors listed in Wood and MRPC 1.5(a). In order to aid appellate review, the court should briefly indicate its view of each of the factors.

Given that the trial court made its decision without first determining the reasonable hourly or daily rate customarily charged in the locality for similar legal services, we vacate the lower court judgments regarding the case-evaluation sanctions and remand the case to the trial court to revisit the issue in light of the opinion we adopt today.

I. STATEMENT OF PROCEEDINGS

Plaintiff sued defendants in 2003 for dental malpractice in the Oakland Circuit Court. The case went to case evaluation and was evaluated at $50,000. Plaintiff accepted the award but defendants rejected it. After a 2½-day trial, the jury returned a verdict in favor of plaintiff. The verdict, reduced to present value,¹ was $46,631.18.

After defendants' motion for judgment notwithstanding the verdict or for a new trial was denied, plaintiff filed a motion in January 2005 seeking case-evaluation sanctions under MCR 2.403. Plaintiff sought $68,706.50 in attorney fees for time spent by four lawyers at the firm that represented him. In particular, plaintiff sought $450 an hour for the 102 hours² lead trial attorney Robert Gittleman claimed, $450 an hour for six hours claimed by another partner, $275 an hour for 59 hours attributable to one associate, and $275 an hour for 14 hours claimed by another associate. Plaintiff's motion was supported by several items, including Mr. Gittleman's curriculum vitae showing his extensive experience in trying dental malpractice cases. Plaintiff's motion also attached copies of three circuit court judgments awarding Mr. Gittleman attorney fees: a 1985 case awarding $200 an hour, a 1998 case awarding $300 an hour, and a 2004 case awarding $400 an hour. Plaintiff also represented that the other partner had been practicing law for 35 years and had tried numerous cases that resulted in favorable verdicts. The motion also indicated that the associates had both tried personal injury cases to conclusion and that $275 an hour was the going rate for their work and research, which were necessitated by the evaluation rejection.

Defendants presented numerous objections, arguing that the requested attorney fees would be highly unreasonable if they were awarded and specifically challenged the rate of $450 an hour and the fact that the fees sought exceeded the judgment. They contrasted the requested $450 an hour rate and the relatively small verdict with a recent Court of Appeals case, Zdrojewski v. Murphy, 254 Mich.App. 50, 657 N.W.2d 721 (2002), in which a plaintiff's attorney had sought $350 an hour but had only been awarded $150 an hour in case-evaluation sanctions in a personal injury case where the verdict had been $900,000. An objection was also made that some of the billings were duplicative, in that it was unnecessary for two lawyers to jointly try the same relatively simple two-day case.³ Defense counsel indicated that his challenge was not so much to the hours claimed (other than the duplication claim), but to the rates sought. However, he did not seek an evidentiary hearing. Instead, he agreed to have the court decide the motion on the basis of what had been submitted.

The trial court indicated its belief that $450 an hour was a reasonable rate for Mr. Gittleman. The court took judicial notice of the fact that senior trial practitioners in Oakland County bill rates of about $450 an hour. The judge indicated that he had reviewed the billings and that he did not believe there was any duplication. The court said that Mr. Gittleman was a recognized practitioner in the area of dental malpractice and that he had a superlative standing in that area, having tried numerous cases. The court, however, did not make any findings relevant to the other partner or the associates. The court concluded by stating that the entire amount claimed was reasonable and signed an order granting attorney fees of $65,556 (the claimed amount of $68,706.50 minus the stipulation to drop seven hours attributable to Mr. Gittleman).⁴

Defendants appealed in the Court of Appeals, arguing that the hourly rates were unreasonable, and attaching an article from the November 2003 issue of the Michigan Bar Journal⁵ showing that the median billing rate for equity partners in Michigan was $200 an hour and $150 an hour for associates.

The panel affirmed in an unpublished opinion.⁶ It rejected defendants' claim that the amount of the attorney-fee award was excessive because it was based on unreasonable hourly rates. The Court of Appeals agreed with the trial court that $450 an hour was a reasonable rate for Mr. Gittleman. The panel conceded that the data submitted by defendants showed lower rates, but concluded that the data did not reflect the range of hourly rates charged by attorneys who specialize in complex litigation such as dental malpractice. It acknowledged that the trial court had not made any findings regarding the other three attorneys. Nevertheless, the panel found sufficient the trial court's overall statements regarding the complexity of dental malpractice cases as well as the skill, time, and cost expended to obtain the favorable verdict. Finally, the Court of Appeals refused to follow Zdrojewski because there was evidence that courts of this state had consistently awarded attorney fees for Mr. Gittleman's services at hourly rates higher than the $150 an hour approved in Zdrojewski.

Defendants appealed in this Court, and we granted leave to appeal limited to the case-evaluation sanction issue, asking the parties to address several issues relating to the Wood factors and also invited briefs from several amici curiae.⁷

II. STANDARD OF REVIEW

A trial court's decision whether to grant case-evaluation sanctions under MCR 2.403(O) presents a question of law, which this Court reviews de novo. Casco Twp. v. Secretary of State, 472 Mich. 566, 571, 701 N.W.2d 102 (2005); Allard v. State Farm Ins. Co., 271 Mich.App. 394, 397, 722 N.W.2d 268 (2006). We review for an abuse of discretion a trial court's award of attorney fees and costs. Wood, 413 Mich, at 588, 321 N.W.2d 653. An abuse of discretion occurs when the trial court's decision is outside the range of reasonable and principled outcomes. Maldonado v. Ford Motor Co., 476 Mich. 372, 388, 719 N.W.2d 809 (2006).

III. LEGAL BACKGROUND

A. PURPOSE OF THE RULE

The general "American rule" is that "attorney fees are not ordinarily recoverable unless a statute, court rule, or common-law exception provides the contrary." Nemeth v. Abonmarche Dev., Inc., 457 Mich. 16, 37-38, 576 N.W.2d 641 (1998); Haliw v. Sterling Hts., 471 Mich. 700, 706, 691 N.W.2d 753 (2005). Consistently with the American rule, this Court has specifically authorized case-evaluation sanctions through court rule, allowing the awarding of reasonable attorney fees to promote early settlements.⁸ The examination of those rules and the extent fees can be awarded is at issue in this case.

MCR 2.403 is the Michigan court rule regarding case evaluation. The rule holds that if both parties accept a case evaluation, the action is considered settled and judgment will be entered in accordance with the evaluation.⁹ However, if Jone party accepts the award and one rejects it, as happened here, and the case proceeds to a verdict, the rejecting party must pay the opposing party's actual costs unless the verdict is, after several adjustments, 10 percent more favorable to the rejecting party than the case evaluation.¹⁰ Actual costs are defined in MCR 2.403(O)(6) as those costs taxable in any civil action and "a reasonable attorney fee based on a reasonable hourly or daily rate as determined by the trial judge for services necessitated by the rejection of the case evaluation."

The purpose of this fee-shifting provision is to encourage the parties to seriously consider the evaluation and provide financial penalties to the party that, as it develops, "should" have accepted but did not. This encouragement of settlements is traditional in our jurisprudence as it deters protracted...