KEYWELL AND ROSENFELD V THOMAS C BITHELL
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STATE OF MICHIGAN
COURT OF APPEALS
KEYWELL AND ROSENFELD,
Plaintiff-Appellant,
FOR PUBLICATION
December 6, 2002
9:05 a.m.
THOMAS C. BITHELL and IRENE BITHELL,
No. 229117
Oakland Circuit Court
LC No. 98-005433-CK
v
Defendant-Appellees.
Updated Copy
February 14, 2003
Before: Whitbeck, C.J., and Sawyer and Kelly, JJ.
PER CURIAM.
Plaintiff Keywell and Rosenfeld (K&R) appeals as of right the July 21, 1998, judgment
the trial court entered after the jury found in favor of Thomas and Irene Bithell. K&R, a law firm
that has ceased providing legal services and is in the process of dissolving, instituted this action
to collect $414,726.85 in attorney fees it claims that the Bithells owe it: $374,169.34 for an
easement suit, $3,126.65 for a zoning variance matter, $34,596.93 for insurance litigation, and
$2,834.33 for a property tax assessment matter.1 We reverse and remand.
I. Basic Facts And Procedural History
A. The Underlying Dispute
In 1984, the Bithells purchased a house in Bloomfield Township for approximately
$147,000. The house was directly across the street from the Oakland Hills Country Club (the
Club). At the time, a gate at the south end of the Club's driving range allowed people traveling to
and from the Club access to Oakhills Drive. However, in 1988, the Club constructed a new gate
directly in front of the Bithells' house to allow trucks and machinery access to its property, which
considerably increased the traffic and noise around the Bithells' house. The Bithells believed that
the Club lacked a necessary zoning variance to make this change.
1
Given the considerable overlap between these four actions and their genesis from the same
problem, we refer to all four collectively as the "underlying action." We use "Bithell" to refer to
Thomas Bithell and the "Bithells" to refer to the family.
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The traffic and noise were just the start of the Bithells' problems concerning the Club.
After the Bithells moved into their house, Bithell developed very serious health conditions. One
of Bithell's sons developed an ongoing problem with migraines, and his oldest daughter also
became sick. The Bithells did not know that the Club's private sewer line ran under their house
to the public sewer line on their property. There was no documentary evidence in the chain of
title to the house showing an easement for the sewer. The house had, on a number of occasions,
become damp in the basement, but the Bithells were usually able to dry the area. However, the
wetness problem became dramatically worse in March 1991 when they discovered raw sewage
seeping into the basement and collecting on their property.
The Bithells, who repaired and disinfected their house after the seepage, attempted to
resolve the gate and sewage issues with the Club and Bloomfield Township, to no avail. Though
Bithell had seen sewage pooling on the Club's golf course across the street from his house, the
Club denied that its sewer was leaking onto the Bithells' property. The Club continued to use the
sewer, which in turn continued to cause sewage to leak into the Bithells' basement. Bithell only
connected his health problems with the sewage problem at the house when he made an offhand
comment to his physician, who reportedly warned him to abandon the house and all its contents
immediately. The Bithells then left their home, which had increased in value to approximately
$220,000, and all its contents. Later, the Bithells were able to sell the property on which their
house was located for $450,000. They then spent $50,000 to destroy the house and remove the
debris, and another $200,000 to pay their mortgage and the penalties that had accrued.
B. K&R's Involvement
In 1991, having just learned of the sewage problem, but before Bithell discovered that his
illness was related to the sewage at the house, the Bithells sought legal assistance from K&R.
The couple chose K&R because K&R attorney Robert R. Cleary, who specialized in labor and
employment law, had worked for Bithell at the Taubman Company for a number of years.
Taubman, a major retail shopping center developer, had continued to use Cleary as its attorney
even after he left the business for private practice.
K&R attorneys sent a demand letter to the Club on behalf of the Bithells, including their
children, asking for $850,000 to settle their dispute. When the Club refused, K&R attorneys sent
a letter to the Club, Bloomfield Township, and Township Supervisor Fred Korzon offering to
forgo requesting injunctive relief if they agreed to relocate the Bithells to a "comparable home"
in the same school district. The other parties rejected this offer as well, prompting K&R
attorneys to file a nine-count complaint in Oakland Circuit Court on behalf of the Bithells and
their children against the Club, Bloomfield Township, and Korzon. They sought monetary
damages and injunctive relief. Generally speaking, at that time the case was a relatively
uncomplicated property dispute focused on easement and trespass issues.
After the attorneys filed the complaint, Cleary prepared an "initial litigation plan" for the
Bithells. The plan summarized the factual background of the Bithells' claims and candidly
discussed the strengths and weaknesses of each claim and potential defense. The plan also stated
overall goals with respect to negotiating a settlement and the possibility of going to trial,
identified experts and their expected testimony, and generally described how the firm intended to
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prepare and manage the litigation. The plan, in section D, described the staffing Cleary
anticipated that the case would need, and stated:
Cost-effective staffing demands an initial evaluation of the elements of the
litigation plan and the proper delegation of tasks and responsibilities to the
appropriate staff level. In the instant case, it is anticipated that the following staff
levels will be utilized to minimize client costs without sacrificing the quality of
legal services to be provided:
Partner:
Associates:
Robert R. Cleary
Lucy R. Benham
Eric B. Gaabo
Robert Cleary and Lucy Benham will retain ultimate responsibility for
potentially dispositive decisions and will review all court filings which directly or
indirectly impact Plaintiffs [the Bithells]. Lucy Benham is responsible for day to
day litigation and discovery strategy and will maintain consistent client contact in
all important decisions. Mr. Gaabo will provide legal research as required during
the course of this litigation and will be responsible, with Lucy Benham, for
drafting all motions, briefs, and discovery pleadings.
The delegation of assignments and responsibilities of this matter will be
made throughout the defense of this litigation to ensure that all work is done at the
appropriate staff level in order to minimize cost without sacrificing the quality of
the legal representation. [Exhibit 1 to K&R's brief on appeal, pp 3-4.]
The plan, in section O, also purported to establish a "fee agreement," stating:
The legal fees and expenses incurred by Keywell and Rosenfeld in
bringing this lawsuit shall be paid as follows:
1. Plaintiffs [the Bithells] shall pay a $7,000 retainer on or prior to July 15,
1991 which shall be applied to Plaintiffs' current balance owed.
2. Plaintiffs shall pay, on a monthly basis, twenty five [sic] percent (25%)
of all fees billed after July 15, 1991.
3. Plaintiffs shall pay, on a monthly basis, 100 percent of all monthly
expenses incurred by Keywell and Rosenfeld in this matter.
4. In the event that Plaintiffs obtain a monetary recovery either through
settlement or as damages following trial, Plaintiffs shall pay:
a. The remaining balance of all fees incurred through July 15, 1991;
b. The remaining balance of seventy five [sic] percent (75%) of fees
incurred after July 15, 1991; and
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c. An additional amount equal to five percent of such monetary recovery.
5. If plaintiffs recover nothing from Defendants through settlement or a
trial on the merits, Plaintiffs shall pay:
a. One hundred percent (100%) of attorney fees, costs and expenses.
Cleary signed the plan on behalf of K&R. The Bithells did not sign the plan.
The Bithells later expanded their litigation to include claims regarding the gate the Club
had constructed across from their house and an emphasis on the personal injury aspects of the
sewage problem, not merely the underlying property issue. Additionally, the Bithells became
involved in an action against their insurer for the damage to their house, an administrative zoning
proceeding concerning the Club's gate, and a tax proceeding to lower the house's assessed value
in light of the sewage problem. K&R represented the Bithells in all these matters. The pretrial
processes for these four cases were extremely expensive in that K&R had to pay for court
reporters for depositions, a variety of experts, sewer testing, biological testing, and medical
opinions. The Bithells paid K&R's costs through November 1991, although never at the time
K&R incurred them. The Bithells stopped paying anything after costs reached $50,000.
Evidently, the Bithells calculated the costs amassed to that point, including items or services for
which they had directly paid the provider, added those costs to what they had already paid K&R,
deducted that subtotal from $50,000, and paid the remaining amount to K&R to the penny; K&R
received slightly less than $50,000 for the costs it had already incurred for the Bithells. The
Bithells did not pay K&R's fees at all, and those fees continued to mount.
For a period of about nine to ten months in 1992, Cleary did not have time to review the
firm's bills for the Bithells' attorney fees and other costs. As a result, the firm did not send any
bills during this time to the Bithells. Cleary was busy because, though still a partner in K&R, he
had begun substituting for a Taubman attorney who had taken a leave of absence. Taubman was
paying K&R a $15,000 retainer each month for Cleary's services, and paying for any additional
time Cleary worked for the company on an hourly basis. Taubman had also provided Cleary with
office equipment and a special telephone number to facilitate his work with Taubman employees.
K&R viewed Taubman as a very important client, not only because of the volume of work it
provided the firm, but because it paid its bills promptly. Cleary reported to three individuals at
Taubman, including Bithell, who was Senior Vice President for Human Resources and
Administration and was responsible for recommending compensation.
Several months into the case, Benham passed the case to K&R partner Elaine Parson.
Benham reportedly needed to focus more on her other clients and had more interest and
experience in transactional work than litigation. In contrast, Parson had significant experience in
the litigation. Settlement negotiations with the defendants in the underlying action ultimately
failed. In July 1993, as the case was proceeding toward trial, the Bithells retained attorney Lee
Wulfmeier to assist with the personal injury aspect of the litigation. Wulfmeier had experience
with personal injury and medical malpractice cases, but did not practice with the K&R firm. In
the fall of 1993, Cleary, who had never actively worked on the Bithells' case, left K&R to work at
Taubman.
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On December 14, 1993, Wulfmeier sent Frederick Keywell, one of K&R's founding
partners, a letter referring to a meeting they had in order to discuss the fee arrangement. In the
letter, Wulfmeier said he thought that the only way K&R would be compensated would be if the
Bithells settled or recovered an award at trial. Wulfmeier estimated that the case would require
another five hundred hours of attorney work to prepare it for trial, and at least another $25,000 in
pretrial expenses. Wulfmeier then proposed an alternative fee agreement:
It appears to me that the only fee solution is to allow for actual costs to be
paid first from any recovery; I would then suggest that our respective firms would
each receive 16.5 percent [one-sixth] of the net recovery. Further, it would be
necessary for Keywell and Rosenfeld to remain as active participants in the
litigation. If this concept meets with your approval and Mr. Bithell's approval, we
could "fine tune" an agreement. Please advise.
The letter did not refer to what, if any, fee agreement K&R and the Bithells already had in place.
Before the trial court in the case involving the easement and personal injury to the
Bithells decided a defense motion for summary disposition, K&R moved to withdraw as the
Bithells' counsel. According to the February 14, 1994, motion submitted to Oakland Circuit
Judge Gene Schnelz:
1. Keywell [the firm] was retained by the Plaintiffs [the Bithells] to
represent their interests in this litigation on or about July, 1991.
2. At the time Keywell was retained by the Plaintiffs, Plaintiffs agreed to
pay Keywell for its services as the services were performed.
3. Keywell prepared and sent Plaintiffs' bills on a monthly billing schedule
beginning July, 1991.
4. In or about mid-1993, the Plaintiffs also retained Lee Wulfmeier of
Schureman, Frakes, Glass & Wulfmeier to represent their interest in this litigation.
5. On July 14, 1993, Mr. Wulfmeier filed his appearance on behalf of
Plaintiffs in this litigation.
6. To date, Keywell has been paid by Plaintiffs only a small portion of its
attorney fees, and, Keywell has paid the majority of the costs incurred in this
litigation.
7. At the present time Plaintiffs are not paying Keywell its attorneys fees,
nor are Plaintiffs paying litigation costs Keywell incurs in pursuing this matter.
Presently, Plaintiffs owe Keywell, for reimbursement of costs alone, $45,497.31.
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8. Keywell does not wish to continue its representation of the Plaintiffs in
these circumstances because Plaintiffs' representation has resulted in an
unreasonable financial burden on Keywell.
9. Moreover, the Plaintiffs have failed to fulfill their obligations regarding
Keywell's services, and the Plaintiffs have been given reasonable warning that
Keywell will withdraw unless Plaintiffs meet their obligations.
10. Plaintiffs['] interests are adequately protected by Mr. Wulfmeier and
thus, Plaintiffs will not be prejudiced by the withdrawal of Keywell as their
attorneys.
11. Keywell has made all of its litigation files directly available to Mr.
Wulfmeier for his use and assistance in this matter despite Plaintiffs' lack of
payment for Keywell's services.
12. Keywell will continue to make its litigation files available to Mr.
Wulfmeier and the Plaintiffs for their assistance in this litigation.
13. Plaintiffs have received notice through protracted negotiations that
Keywell intended to seek the Court's permission to withdraw unless Plaintiffs
began to pay Keywell's fees and their own costs.[2]
Parson signed the motion and the supporting brief.
The Bithells objected to the motion to withdraw, submitting a February 22, 1994,
affidavit from Cleary, who was then working at Taubman. Cleary averred that the Bithells
originally had a fee agreement as outlined in the litigation plan, but that the Bithells subsequently
acquiesced to a contingent fee agreement that would give K&R "the lessor [sic] of 1/3 of the
proceeds of the litigation or settlement plus costs or the total legal fees generated plus costs."
Cleary stated that he agreed to this arrangement on behalf of K&R around January 1992, at which
time the Bithells owed the firm approximately $100,000 in legal fees, because the Bithells did
not have the money to pay K&R.
Fred Keywell responded to the Bithells' objections and Cleary's affidavit with his own
affidavit outlining the evidence he claimed supported the Bithells' obligation to pay K&R for
costs and fees:
2. On November 15, 1993 at 3:00 p.m. I met with Mr. Bithell to discuss
the status of his case and of the outstanding fees owed to this firm. Mr. Bithell
acknowledged that he owed the firm in excess of $400,000 and stated that if we
insisted upon payment at that time, he would be forced into bankruptcy. He asked
2
Emphasis added.
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if we would handle the case on a contingency fee basis. I refused, and told him
that I expected that we would be paid for our services.
3. On December 13, 1993 at 10:00 a.m. I met with Mr. Bithell and Lee H.
Wulfmeier at our office. The balance due this firm was discussed with Mr.
Wulfmeier and Mr. Bithell. Mr. Bithell had previously expressed his desire to me
that Mr. Wulfmeier handle the trial of this case. Mr. Wulfmeier stated that we
would have to work out a contingency fee arrangement if his firm were to assume
the representation of the Plaintiffs [the Bithells].
4. Mr. Bithell then suggested for the first time that his fee arrangement
with our firm was already based upon the outcome of the litigation. I expressed
surprise and asked Mr. Bithell if he had a writing setting forth such an
arrangement.
5. Mr. Bithell stated that he did not have such a writing but that Mr. Cleary
had agreed to a contingency fee arrangement.
6. I subsequently spoke to Mr. Cleary who denied that the fee arrangement
had been changed from his original letter outlining our hourly fee charges. Mr.
Clearly expressly denied there was a contingency fee arrangement with Mr.
Bithell.
7. On January 26, 1994 at Larco's Restaurant in Troy, Michigan, during a
lunch meeting with Robert Cleary, I asked Mr. Cleary whether he had ever, at any
time, assured Mr. Bithell that K&R would participate in a 1/3 contingency fee
arrangement with Mr. Bithell for payment of K&R's fees for its services on behalf
of Plaintiffs . . . .
8. Mr. Cleary directly replied to my question by assuring me that he had
not at any time entered into such an arrangement with the Plaintiffs or with Mr.
Bithell on behalf of the Plaintiffs.
9. As is stated on Page 3 of Mr. Bithell's Brief in Support of his Objections
[to the motion to withdraw], Mr. Cleary began monthly bills for K&R's services in
July 1991, continuing to bill monthly for one year until August 1992. Billings
were then sporadically sent until October 1993, when Mr. Cleary again began
billing Mr. Bithell for K&R services monthly. No possible reason exists for these
monthly bills except that Mr. Cleary believed K&R had an agreement for payment
of its fees.
10. Mr. Cleary recently left K&R to become employed by The Taubman
Company, and to the best of my knowledge, he is directly responsible to Mr.
Bithell at that Company.
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11. I have read the affidavit of Robert Cleary and state emphatically to this
Court that the contents thereof relating to an alleged contingency fee arrangement
with the Bithells regarding this litigation is contrary to what he had repeatedly told
me. Further, I am the managing officer of K&R and it is the express policy of this
law firm that any contingency fee arrangement must be approved by either a
meeting of the Board of Directors of this law firm or myself and must be in
writing. Mr. Cleary was well-aware of this policy. Neither our Board of Directors
nor I approved of any contingency fee arrangement for this matter until December
15, 1993 at a monthly meeting of our Board of Directors where I was authorized
to negotiate an acceptable contingency fee arrangement with Mr. Bithell. I have
never entered into such an arrangement with Mr. Bithell. When it became
apparent to me that Mr. Bithell and I would not reach agreement on a contingency
fee, I delegated my authority to Jimm F. White.
Evidently, K&R wanted the Bithells to sign a release of some sort in return for the contingent fee
agreement, but the Bithells refused.
Following a hearing, Judge Schnelz entered an order indicating that he had read all the
materials submitted in support of and objecting to the motion to withdraw. Judge Schnelz
granted the motion and stayed the proceedings to allow the Bithells to acquire new
representation.
In 1997, Keywell informed his firm that he was leaving to take advantage of a business
opportunity. The other partners decided to dissolve the law firm and divide its assets, appointing
Keywell, who had long functioned as one of the firm's managers, as the person responsible for
disposing of the firm's assets. The firm then attempted to collect all outstanding debts. The
Bithells had paid almost all the costs K&R had advanced for them. However, because the
Bithells had never paid their outstanding bill of $414,726.85 for the attorney fees from the four
matters K&R had handled for them, K&R brought this collection action. K&R sought to recover
under breach of contract, quantum meruit, account stated, and unjust enrichment theories.
C. Trial
Though the parties at trial delved into the reasonableness of K&R's billing, two issues the
Bithells raised as defenses dominated the trial: whether K&R and the Bithells had entered into a
contingent fee agreement and whether their withdrawal from the underlying easement action had
been proper. As the motion to withdraw and related documents suggested, the firm and the
Bithells did not part company amicably. Not surprisingly, the two sides in this case presented
very different versions of how the firm and the clients reached that point. What may be
surprising, however, is that at trial Cleary presented a third perspective on the fee arrangement
between the Bithells and K&R.
According to Keywell, Benham, Parson, and other K&R attorneys, though not written,
K&R had a policy requiring contingent fee agreements to be approved by most, if not all, the
partners, usually at a meeting, and then placed in writing with the clients. Though Keywell
personally owned about eighty percent of the firm, he typically chose to exercise only a single
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vote in this sort of matter. Thus, it was important for attorneys who wanted to take a contingency
case to secure broad support from the other partners as well as Keywell.
K&R's policy of obtaining contingent fee agreements in writing stemmed from a period
when the firm had lost considerable money on cases with contingent fee agreements. In any
event, Keywell and other firm lawyers said, the court rules required contingent fee agreements to
be in writing. They did not recall approving a contingent fee agreement for the Bithells, and had
been worried as the bills mounted but remained unpaid. Parson said that, as the attorney
principally in charge of the case, she would have known if there had been a contingent fee
agreement, but Cleary and the Bithells never mentioned that one existed. Further, it was
undisputed that the Bithells' alleged contingent fee agreement was never rendered in writing.
Judith Robinson, the K&R office manager in charge of billing, also explained that she
recorded all the hours K&R attorneys worked for the Bithells because she believed that the
Bithells were paying the standard hourly fees as well as costs. She approached Cleary several
times when he was not approving bills for the Bithells, but he never mentioned a contingent fee
agreement. Had there been a contingent fee agreement in place, she would have handled the
billing differently. She added that, even if K&R expected to be compensated for its attorney fees
as part of a settlement or the result of a trial, she still would have handled the billing differently
because the work in progress reports would have been sufficient proof of the time spent on the
case. Her testimony revealed, as Keywell had suggested in his affidavit, that Cleary continued to
approve bills for hourly rates even after he supposedly agreed to a contingent fee agreement with
the Bithells. Benham added that the Bithells had assured her that they would pay their fees, and
she had never heard of a contingent fee agreement with the Bithells.
K&R also emphasized that the simple easement action that it had agreed to take quickly
added a personal injury component, which was not the sort of work K&R typically handled, and
grew into four separate actions. As Parson and Benham explained it, the firm had to hire a
number of experts and pay for testing to prove that the sewage was coming from the Club and
was causing Bithell's health problems. Parson added that Bithell took a very hands-on approach
to this case, becoming involved at every step. Perhaps drawing from his own management
experience at Taubman, Bithell asked for new people to work on the case a number of times,
which increased costs because of the time it took to acquaint the new attorneys with the progress
in the cases. Still, Benham said, when she moved on to other work she always remained
available to the attorneys working on the underlying action. Further, K&R attorneys noted, the
case had always had a relatively high price tag. The demand letter initially sent to the Club
indicated that the Bithells might be interested in settling for approximately $850,000, which later
increased to $1.5 million.
K&R argued that it was entitled to withdraw as the Bithells' firm because the Bithells
were so far in debt with respect to the hourly fees they owed the firm and the unpaid costs. As
Bithell even admitted in a deposition in the underlying action used to impeach him at trial, he and
his family "absolutely" owed the firm hundreds of thousands of dollars in fees. Other than
occasional items, such as a charge for a long-distance telephone call that was less than eleven
dollars, the Bithells never objected to the fees that K&R was charging while the firm represented
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them. Consequently, K&R claimed, even though it had not represented the Bithells through the
end of the underlying action, it was entitled to collect the hourly fees that had accumulated
throughout its representation or be given the reasonable value of its services to the Bithells under
a quantum meruit theory.
To prove that their fees were reasonable, K&R presented testimony from John Scott, a
partner at the Dickinson Wright law firm with almost forty years' experience as a lawyer and
extensive familiarity with reviewing legal bills. Scott said that K&R had a good reputation, as
confirmed by Martindale-Hubbell, that its fees were at or below the fees charged in the area by
other firms of similar experience, and that the Bithells' case was very complex and time
consuming. In his opinion, after considering all the criteria relevant to a proper fee identified in
MRPC 1.5, K&R's fees were "very reasonable," not excessive. He explained that, in hindsight, it
is always possible to question whether an attorney spent, perhaps, a little too much time on a
particular task or whether the bill might have been adjusted somehow, but that sort of reflection
did not undermine the reasonableness of the fees charged in this case. At the very most, the fees
would only overstate the reasonable value of K&R's services by ten percent. In any event, Scott
said, K&R's work on the case had benefited the attorneys who had taken over the case.
The Bithells claimed that they did not agree to the hourly fee agreement outlined in
Cleary's initial litigation plan. Though they had apparently agreed to pay on an hourly basis at
the outset, at some point Cleary told them that their case would cost no more than $50,000,
including fees and costs. So, when the fees and costs in this case exceeded $50,000, the Bithells
did not think that they had to pay any more money; they thought the remainder would come from
a settlement or trial, which would award those fees and costs as part of damages. Despite his
business acumen, he thought that most expenses associated with litigation were generated at the
beginning of the process and was surprised when the fees owed kept growing.
Later, Bithell said, Cleary convinced him and his wife to enter into a contingent fee
agreement. Under the agreement, K&R would only be paid if the Bithells recovered in a
settlement at trial. In that event, K&R would be entitled to one-third of the recovery or its actual
fees—whichever was less. In other words, the Bithells said that K&R had agreed to allow them
to pay under the scheme most favorable to them if they recovered. This meant that K&R might
not recover at all, or that it would recover less than its fees depending on the size of the Bithells'
award. Though Gary Klotz, a K&R partner, did not recall the contingent fee agreement in
exactly these terms, he remembered Cleary telling him that he had offered the Bithells a
contingent fee agreement. Klotz and Miriam Rosen, who had been an associate for most her time
at K&R, added that they were not aware of a hard and fast policy requiring partner approval of
contingent fee agreements, though neither attorney had worked on the Bithells' cases.
The Bithells had not complained about their attorneys while K&R was representing them.
They said that they even liked Benham and Cleary. However, they did not like Parson because
she was aggressive, she allowed the defendants in the underlying action to inspect their personal
belongings as part of discovery, and when she was late, she gave excuses for her tardiness that
they did not believe. Shortly before trial, the Bithells also reviewed K&R's billing statements
and found entries for which they thought that K&R was double billing or had spent too much
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time on a problem. Bithell also pointedly noted that, in the nine years between when K&R had
filed the complaint in the underlying action and when this collection case went to trial, he and his
family had yet to recover any money from the Club or Bloomfield Township.3 The Bithells had
recovered $150,000 in a settlement with the Oakland County Drain Commissioner, but K&R did
not represent them at the time, and about $100,000 from that settlement went to K&R for costs.
The Bithells also challenged the reasonableness of K&R's fees by introducing evidence
from James Elsman. Elsman, an attorney with just slightly less than forty years' experience, is a
sole practitioner who had previously practiced in a law firm. Put nicely, Elsman excoriated K&R
and the firm's attorneys, with the exception of Keywell himself. Though Keywell had described
the firm's attorneys as competent and experienced, and each attorney had described their own
credentials, Elsman said that K&R's attorneys were not at the top of their field, having not come
from Ivy League law schools. Elsman determined this by consulting the Martindale-Hubbell
directory. However, Elsman said that it was irrelevant that Martindale-Hubbell had given
Benham its top rating because Martindale-Hubbell was a "corporate buyout," evidently meaning
that the rating could be purchased and did not have to be earned. Elsman also called Parson a
"job jumper," referring to the fact that she had worked at other firms before joining K&R, and
then left K&R because of personality conflicts with other attorneys. He asserted that Benham
had just dropped the case, suggesting that she should not have transferred it to Parson. Elsman
also challenged the complaint filed in the primary underlying case as having adopted a "shot gun
approach," incorporating all possible claims, most of which were meritless.
Elsman emphasized that contingent fee agreements were common for personal injury
actions, like the underlying case. Looking at the bills, he concluded that the case was being
handled on a contingent fee basis. Elsman said that, on the one hand, the underlying case was so
simple it never should have taken as many hours as K&R attorneys put into it, but that it was also
sufficiently complex that K&R and its attorneys were not competent to handle the whole case.
Despite Elsman's characterization of the case as a personal injury action, he nevertheless said that
K&R had spent too much time and money on the case because it was a property action involving
a house worth only about $220,000. He said that it was also unethical for K&R to bill for "filthy
lucre," apparently insinuating that K&R had no legitimate interest in being paid for the services it
rendered. Elsman also disagreed that it was Judge Schnelz's right or responsibility to determine
whether K&R could withdraw.
Cleary said that the fee agreement in the litigation plan reflected the agreement he and the
Bithells had originally entered into concerning fees. He had never promised the Bithells to limit
costs and fees to $50,000. Rather, he had tried to estimate costs, not fees, and did not anticipate
how difficult the case became. Cleary was not sure that K&R had a definite policy mandating
3
This Court partially reversed the trial court's ruling in the underlying action, allowing the
Bithells to sue Bloomfield Township under the trespass-nuisance exception to governmental
immunity, one of the claims K&R had pleaded on their behalf. See Bithell v Oakland Hills
Country Club, unpublished opinion per curiam of the Court of Appeals, issued March 7, 1997
(Docket No. 185106).
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approval for cases taken on a contingent fee basis. However, when Bithell indicated to him that
the family did not have the money to pay the fees, Cleary said he spoke to other members of the
firm and had offered the Bithells a contingent fee agreement. The contingent fee agreement,
though not in writing, would have allowed K&R to collect its fees or one-third of the net
recovery, not the lesser of the two amounts. The contingent fee agreement did not alter the
Bithells' obligation to continue to pay costs. Cleary asserted that, though various partners had
come to him to discuss how to get the Bithells to pay their bills, they should have known a
contingent fee agreement was in place precisely because the Bithells had not paid for such a long
time.
After the parties rested, the Bithells' attorney argued that the trial court should grant their
motion "to dismiss the claim for unjust enrichment for the reason that the allegation is that there
is a contract; and it's the defense position . . . [that] if there's an existence of the contract, there's
no unjust enrichment recovery." K&R's attorney responded that she thought that it was
"appropriate that if the services were performed and there was a benefit to the [Bithells] . . . that
the plaintiffs [K&R] are entitled to be under equitable principles paid for the benefit to the
defendant [the Bithells]." The trial court, however, said, "All right, I'll determine this to be a
nonjury matter instead of granting your motion. I've heard all the evidence. The Court rules in
defendant's [sic] favor."
The Bithells' attorney then argued, "Your Honor, the second motion is to dismiss the
claim for account stated. There has been no evidence that the parties agreed to the amount that's
allegedly owing, and that's [a] requirement for the consolidated action." K&R's attorney
countered that
[a]n account claim under Michigan law can be supported by a failure to object.
And I believe the substantial proofs have been put on that monthly invoices were
sent and there was a failure to reject [sic]. And for that reason, I think that the
accounts stated claim[s] are extremely viable.
The trial court rejected this argument, commenting: "I would state that even considering the case
in the light most favorable to the plaintiff, reasonable minds could not differ, taking into
consideration all the overwhelming evidence in this case in favor of defendant on that issue or
those issues; and, therefore, would grant the defense's motion." Thus, the trial court granted the
Bithells' motions for directed verdict concerning the firm's account stated and unjust enrichment
claims.
Following the parties' closing arguments, the trial court summarized the theories of
recovery in its instructions to the jury:
First main issue is whether it's a written contract orally agreed to by the
party [the Bithells]; and then as the initial litigation [plan] under which the
plaintiff [K&R] is seeking to recover attorney fees on an hourly basis. The burden
of proof on that issue is on the plaintiff. Defendant denied the terms of that
contract and claims it was limited to a total of $50,00 on both expenses and hourly
rate fee.
-12-
Second main issue in the case is whether the parties entered into a
Contingent Fee Contract. The burden of proof on this issue is on the defendant.
Plaintiff denied this, claiming that the contract was never changed, and that there
is neither any actual authority for the going [sic: billing] attorney to change it on
his own or any apparent [authority for him to do so].
The third main issue is whether the plaintiff improperly withdrew from the
lawsuit as the lawyer for the defendant. The burden of proof on this issue is on
the defendants.
If there was either an hourly fee contract or a contingent fee contract and
the plaintiff properly withdrew from the lawsuit, then the plaintiff is still entitled
to be paid for the reasonable value of its legal services up to that date . . . .
* * *
And the final point in the main issue is, if there was a Contingent Fee
Contract in this case and if the plaintiff law firm improperly withdrew from the
lawsuit, then the plaintiff law firm is not entitled to any amount.
The trial court explained these theories again, saying that if the jury found
that there was an hourly fee agreement, then you find that there was a subsequent
Contingent Fee Agreement; and if you find that it was intended to replace the
earlier hourly fee agreement, then the original hourly fee agreement is no longer
binding.
If you find there is no contract in this case, then plaintiff is only entitled to
the reasonable value of the services rendered. The parties have used testimony
contending to show the value of the services rendered by the plaintiff.
If you find there is no contract, you can award fees on a Quantum Meruit
basis. Also, if you find that the plaintiff properly withdrew and there was a
contract, whether it be a contingent fee contract or hourly fee contract, then the
plaintiff may still be able to recover on a Quantum Meruit pay basis.
What do those Latin words mean? It means an amount of recovery as
much as deserved. It is an equitable principle that measures recovery under an
implied contract to pay compensation as reasonable value of services rendered. I
can only give you a list of the factors; but among the factors to consider is what
percentage of total work has been completed by the attorney or attorneys seeking
fees to obtain results of the parties.
All right. If you find that a fee agreement existed between the plaintiff and
the defendants, you must decide the reasonableness of the legal services fee
charged.
-13-
The trial court then informed the jury that attorneys must follow the rules of professional conduct
and instructed the jury consistent with MRPC 1.5, the rule governing reasonable fees. In all,
under the trial court's instructions, the jury had to return an award for K&R unless it found that
there was (1) a contingent fee agreement and the firm withdrew improperly or (2) that the firm's
services had no reasonable value.
K&R made several objections to the jury instructions. However, the firm's chief
objection was that the trial court had failed to read SJI2d 3.13 to the jury, which would have
informed the jurors that the trial court had taken notice of Judge Schnelz's order granting the
motion for K&R to withdraw from the underlying case. In effect, if the jury found that the
Bithells and K&R had a contingent fee agreement, this instruction would have barred the jury
from determining that the firm withdrew wrongfully. However, the trial court's refusal to issue
this instruction was consistent with its ruling on the first day of trial that whether the firm had
withdrawn was a disputed factual matter, and therefore a jury question.
According to K&R, at some point after being sent to deliberate, the jury submitted a note
to the trial court "requesting an instruction as to the circumstances under which a lawyer or law
firm could properly withdraw."4 The trial court did not, however, issue any supplemental
instructions to the jury. Pursuant to the parties' stipulation, the trial court did not submit a verdict
form to the jury. Rather, the six-person jury announced the verdict on the record. Five of the six
jurors voted in favor of the Bithells, meaning that K&R recovered nothing.
II. Directed Verdict
A. Standard Of Review
K&R now claims that the trial court erred in two ways when it dismissed the unjust
enrichment and account stated claims. First, the firm contends that the trial court improperly
granted two motions to "dismiss," which MCR 2.504(B)(2) permits only in a bench trial, not in a
jury trial such as this case. Second, K&R argues that the trial court erred substantively in
deciding that there was no dispute on the record concerning the unjust enrichment or account
stated claims. This Court reviews de novo a trial court's decision to grant or deny a motion for a
directed verdict.5
B. Dismissal
There is no merit in K&R's first contention. MCR 2.504(B)(2) permits a defendant in a
bench trial to move for dismissal after the plaintiff 's case in chief. Yet, even assuming that there
4
We could not find the note in the lower court record, and the transcripts do not reflect that the
attorneys and the trial court ever discussed any such note. The Bithells, however, do not contest
K&R's factual assertions concerning this note. Thus, we assume that the jury actually sent this
note to the trial court.
5
See Meagher v Wayne State Univ, 222 Mich App 700, 708; 565 NW2d 401 (1997).
-14-
is no possible basis in the court rules for a "motion to dismiss" once a party has begun presenting
evidence to a jury, the Bithells' attorney, not the trial court, used the motion to dismiss language.
More importantly, had the trial court erroneously referred to a motion to dismiss,
appellate courts often look to the substance of a motion or ruling to determine its true nature, not
its label.6 In this case, the trial court plainly treated the so-called motion to dismiss as a motion
for a directed verdict. In contrast to the rule governing motions to dismiss, MCR 2.515 does not
distinguish between jury and bench trials. Thus, the trial court did not technically err in
considering whether there was sufficient proof of K&R's account stated and unjust enrichment
claims to submit to a jury.
C. Unjust Enrichment And Account Stated
The heart of this issue is whether the unjust enrichment and account stated claims should
have been submitted to the jury. Trial courts and this Court adopt the same analysis when
examining whether there are grounds to grant a motion for a directed verdict.7 The relevant
inquiry examines "the evidence presented up to the time of the motion in the light most favorable
to the nonmoving party, granting that party every reasonable inference, and resolving any conflict
in the evidence in that party's favor to decide whether a question of fact existed."8 "A directed
verdict is appropriate only when no factual question exists on which reasonable jurors could
differ."9
In Barber v SMH (US), Inc,10 this Court explained unjust enrichment is "(1) receipt of a
benefit by the defendant from the plaintiff and (2) an inequity resulting to the plaintiff because of
the retention of the benefit by the defendant." When unjust enrichment exists, "the law operates
to imply a contract in order to prevent" it.11 However, a contract will be implied only if there is
no express contract covering the same subject matter. 12
The Bithells' attorney contended that this equitable doctrine could not apply in this case
because the firm was arguing that there was an express contract between K&R and the Bithells.
In fact, K&R pleaded inconsistent claims. The firm's breach of contract and quantum meruit
claims depended on the jury finding that a contract, either an hourly fee agreement or a
contingent fee agreement, existed. In contrast, the firm's claim for unjust enrichment depended
on the jury finding that no express contract—that is, no fee agreement—existed between K&R
and the Bithells. MCR 2.111(A)(2) permitted K&R to make these inconsistent claims.
6
See Wickens v Oakwood Healthcare Sys, 465 Mich 53, 59; 631 NW2d 686 (2001).
7
See Meagher, supra at 708.
8
Derbabian v S&C Snowplowing, Inc, 249 Mich App 695, 703; 644 NW2d 779 (2002).
9
Id.
10
Barber v SMH (US), Inc, 202 Mich App 366, 375; 509 NW2d 791 (1993).
11
Id.
12
Id.
-15-
There were two distinct ways the jury could have found that K&R and the Bithells had no
express contract concerning the fees, and therefore an implied contract existed. First, the trial
court instructed the jury on the elements of a contract, informing the jury that K&R had "to prove
the terms of the contract." The evidence, however, varied widely concerning what express
contract, if any, the parties had and what its terms might have been. The testimony suggested
that the contract could have consisted of the terms identified in the initial litigation plan, those
terms without the retainer or five percent contingency, the contingent fee agreement under which
the Bithells would pay the lesser of one-third of a recovery or fees, the contingent fee agreement
under which the Bithells would have paid the greater amount of one-third of a recovery or fees,
or some variation on the alleged $50,000 cap. Considering these very different possible fee
agreements, the jury could have easily found that the parties never agreed on terms for the fee
arrangement, and therefore did not have a contract.13 Second, the jury could have found that the
parties had originally agreed to abide by the terms stated in the initial litigation plan, but that
agreement "was no longer in effect" after the Bithells were unable to pay, and was not replaced
by a new agreement.14
Under the first example, K&R could have recovered under the unjust enrichment theory
for its entire representation of the Bithells.15 Under the second example, K&R "could have
recovered for breach of contract for the period when the contract was in force and could have
recovered on an implied contract [unjust enrichment] basis for the period when there was no
contract in force."16 In any event, the evidence would have allowed the jury to find an implied
contract for at least some of K&R's work for the Bithells, which means that the trial court should
have examined whether the record included evidence of the two elements of an unjust
enrichment claim: benefit to the Bithells' from K&R's work, and an injustice in allowing the
Bithells' to enjoy that benefit without paying K&R for its services.17
The evidence suggested that, even if the Bithells might reasonably object to some of the
fees K&R charged, the firm performed significant amounts of work in the pretrial preparation of
the underlying action. There was a minor dispute at trial about whether the firm gave its files to
the Bithells and their new counsel, or whether the firm only had duplicates of materials the
Bithells already possessed. In any event, the firm filed pleadings and motions, took depositions,
secured experts, arranged for scientific testing, appeared at hearings, attempted to negotiate a
settlement, and generally shepherded the case for three years. Elsman disagreed on this point,
but Scott specifically said that this preparation was of value to the lawyers who took over the
case from K&R, and therefore of value to the Bithells. The Bithells certainly disputed the
proposition that it would be inequitable to leave K&R unpaid. However, the magnitude of the
13
See HJ Tucker & Assoc, Inc v Allied Chucker & Engineering Co, 234 Mich App 550, 573-574;
595 NW2d 176 (1999).
14
Id. at 573.
15
Id. at 573-574.
16
Id. at 573.
17
See Barber, supra at 375.
-16-
undertaking on behalf of the Bithells, which the K&R attorneys described for the jury, including
all four legal matters, suggests that equity would require the firm to be compensated at some
level. Viewing this conflicting evidence in the light most favorable to the firm as the nonmovant,
the trial court erred in granting a directed verdict on this issue.18
As for the trial court's decision to direct a verdict of no cause of action for the account
stated claim, in Watkins v Ford19 the Michigan Supreme Court agreed with the articulation of an
account stated as "a balance struck between the parties on a settlement . . . ." "[W]here a plaintiff
is able to show that the mutual dealings which have occurred between two parties have been
adjusted, settled, and a balance struck, the law implies a promise to pay that balance." 20 In order
to demonstrate that its fees for its services to the Bithells had become an account stated, K&R
had to prove that the Bithells either expressly accepted the bills by paying them or failed to object
to them within a reasonable time.21 Proving an account stated "'must depend upon the facts.
That it has taken place, may appear by evidence of an express understanding, or of words and
acts, and the necessary and proper inferences from them.'"22
K&R presented evidence that, with the exception of a nine- or ten-month period, it
regularly sent bills to the Bithells stating the costs incurred on behalf of the family in the
underlying litigation, as well as the fees for the firm's services. The Bithells paid the bills,
although never fully or in sufficient amount to be applied to the fees, without objection until they
reached the $50,000 limit they felt applied to the case. After that point, in the fall of 1991, and
even after K&R withdrew, the Bithells continued, at least sporadically, to pay the costs that the
firm had incurred on their behalf. With the exception of a few items listed on the bills, the
Bithells never objected to the fees that the firm listed in the bills. In his deposition in the
underlying action, which evidently took place a year before K&R withdrew and which the jury
learned of at trial, Bithell even stated that he "absolutely" owed (at the time) approximately
$250,000 to K&R, and that sum was not subject to any contingencies. Irene Bithell also wrote a
note with one check referring to "our agreement." Only after the firm sued the Bithells to collect
the unpaid fees, seven years after K&R first started representing them, did the Bithells object to
the fees. At trial, though they claimed that some of the work Benham, Parson, and others
performed was duplicative and inefficient, they did not object to all the fees. According to
K&R's calculations, in their exhibit objecting to the firm's bills line-by-line, the Bithells still did
not object to more than $274,000 in fees the firm had charged them.
18
See Derbabian, supra.
19
Watkins v Ford, 69 Mich 357, 361; 37 NW 300 (1888).
20
Id.
21
See Corey v Jaroch, 229 Mich 313, 315; 200 NW 957 (1924) ("When an account is stated in
writing by the creditor and accepted as correct by the debtor, either by payments thereon without
demur or by failure within a reasonable time to question the state of the account as presented, it
becomes an account stated . . . .").
22
Kaunitz v Wheeler, 344 Mich 181, 185; 73 NW2d 263 (1955), quoting White v Campbell, 25
Mich 463, 468 (1872).
-17-
In all, this record suggests that there was at least a dispute regarding whether K&R had
proved its account stated claim after demonstrating that the Bithells failed to object for years to
virtually any of the bills and had explicitly conceded some of them. The Bithells were entitled to
challenge the firm's right to recover certain items listed in the bills.23 However, the trial court
erred in not allowing the jury to determine this issue as a whole because, giving K&R the benefit
of all reasonable doubts, there was a dispute of fact concerning whether there was an account
stated.24 Thus, K&R is entitled to a new trial on its account stated and unjust enrichment claims.
III. Evidentiary Issues
A. Standard Of Review
K&R challenges a number of pieces of evidence admitted at trial. This Court applies the
abuse of discretion standard of review to evidentiary issues.25
B. Hearsay
K&R argues that the trial court erred when it allowed Klotz, a former K&R partner, and
Rosen, a former K&R associate and partner, to testify that Cleary told them that the firm had a
contingent fee agreement with the Bithells. K&R argues that the trial court should not have
allowed them to testify because they were not involved in representing the Bithells, they did not
participate in the fee agreement discussions with the Bithells, and they had no personal
knowledge of any fee agreement with the Bithells. These arguments, however, only lay the
foundation for K&R's real argument that Klotz' and Rosen's recollections of Cleary's statements
regarding the Bithells were not admissible under MRE 801(d)(2).
MRE 802 states that "[h]earsay is not admissible except as provided by these rules."
MRE 801 defines hearsay as "a statement, other than one made by the declarant while testifying
at the trial or hearing, offered in evidence to prove the truth of the matter asserted." As K&R
points out, Klotz and Rosen had no personal knowledge of any fee agreement between the firm
and the Bithells. They simply were repeating information that Cleary had given them, which fits
this definition of hearsay. However, MRE 801(d) identifies certain types of statements that are
not hearsay. In particular, MRE 801(d)(2) indicates that a statement is not hearsay, and therefore
not excludable under MRE 802, if
[t]he statement is offered against a party and is (A) the party's own statement, in
either an individual or a representative capacity, except statements made in
connection with a guilty plea to a misdemeanor motor vehicle violation or an
23
See Kaunitz, supra at 185, quoting White, supra at 468 ("When [an account stated is]
accomplished, it does not necessarily exclude all inquiry into the rectitude of the account.").
24
See Derbabian, supra.
25
See Hilgendorf v St John Hosp & Medical Ctr Corp, 245 Mich App 670, 688; 630 NW2d 356
(2001).
-18-
admission of responsibility for a civil infraction under laws pertaining to motor
vehicles, or (B) a statement of which the party has manifested an adoption or
belief in its truth, or (C) a statement by a person authorized by the party to make a
statement concerning the subject, or (D) a statement by the party's agent or servant
concerning a matter within the scope of the agency or employment, made during
the existence of the relationship, or (E) a statement by a coconspirator of a party
during the course and in furtherance of the conspiracy on independent proof of the
conspiracy.
Klotz' and Rosen's testimony concerning Cleary's statements that there was a contingent fee
agreement with the Bithells fit the first part of this rule because the Bithells offered this
testimony against K&R, their party-opponent. Their repetition of Cleary's statements likely fit
subsection A because Cleary, at the time he made the statements, was a partner in K&R. Cleary's
statement also likely fit subsection D because he was the billing partner for the Bithells, and thus
making statements about billing was conceivably within the scope of his duties at K&R even if
he would not be considered a party-opponent at the time of trial. Nothing in this rule required
Klotz or Rosen to have personal knowledge of the Bithells' fee agreement with the firm or the
date on which Cleary made the statements in order to repeat them, as K&R contends. Though
K&R claims that MRE 801(d)(2) was not intended to apply in this case because Cleary was
simply talking to other members or employees of the firm, it concedes that it has no authority for
this proposition. Even if it was error for the Bithells to be allowed to introduce Cleary's out-ofcourt statements through Rosen and Klotz, the error was harmless because these statements did
not establish anything more than what he said when testifying at trial.
K&R also claims that the trial court erred because it applied MRE 801(d)(2)
inconsistently, allowing these statements from Cleary but barring testimony from Keywell and
other K&R attorneys who tried to repeat Cleary's statements regarding the fee agreement. For
instance, K&R asked Keywell to repeat Cleary's "response" in meetings when they had discussed
the Bithells' fees. When the Bithells' attorney objected, the trial court sustained the objection.
Despite the confusion regarding Cleary's loyalty to the firm, Taubman, and Bithell, he was never
K&R's party-opponent. Though the trial court did not explain its ruling, this and other similar
testimony did not truly fit MRE 801(d)(2), but was an improper attempt to impeach Cleary with
extrinsic evidence.26 Therefore, the trial court did not err in excluding K&R's attempts to
introduce Cleary's out-of-court statements when it permitted the Bithells to introduce other
statements by Cleary.
K&R also argues that the trial court should have barred Rosen from testifying about her
awareness and "understanding" of the fee agreement with the Bithells because she could not
recall with whom at the firm she had discussed the matter. This fogginess about details,
however, was relevant only to the weight of her testimony, not its admissibility.27 This
26
See MRE 608(b).
27
See, generally, McPeak v McPeak (On Remand), 233 Mich App 483, 496; 593 NW2d 180
(1999) (evidence with little weight is not necessarily inadmissible).
-19-
constituted her personal knowledge of the debate within the firm of what to do about the Bithells'
outstanding bill. This testimony vaguely referred to other discussions without revealing any
detailed statements made in the discussions, which, in any event, would have been admissible
under MRE 801(d)(2) for the reasons previously explained.
C. Elsman
Before trial, the trial court entered an order stating that "Mr. Elsman is not to testify to
anyone's personal lives or gossip that he may have heard about someone's personal life.
Defendants are cautioned that Mr. Elsman is not to offer opinions at trial which is [sic] not
supported." At trial, Elsman prompted K&R's attorney to object when he testified that whether
the case was a fixed or contingent fee matter was important to his opinion that the fees were
unreasonable, explaining:
Obviously we don't have a fixed fee here. Nobody said, except for one
early reference, that the cap on this was going to be fifty grand. And that's all I've
read from the testimony so far. But, you know, cost[s] alone are three times that;
so we're a little bit beyond analysis of anybody speculating like that. And the case
is clearly a contingent fee case. I mean when you have, as I understand the
testimony from—I just read the deposition. And the jury's been here to hear
people, and I don't know what they said because I wasn't here. But when a man
with the role of Cleary on this file is before you and says, this is a contingent fee
case, one-third, that ends the case. You might as well just close it up and decide
the case on that basis; because he was the billing . . . partner dealing with the
client.[28]
The Bithells' attorney said that this testimony was proper because he was supposed to consider
this "factor," referring obliquely to MRPC 1.5(a)(8), when evaluating whether K&R's fee was
reasonable. The trial court overruled the objection, saying that Scott had testified as an expert on
behalf of K&R, so it was fine for the Bithells to have their own expert and that he "can be asked
for his opinions." Elsman then proceeded to testify:
Contingent fee is what I'm talking about. Cleary found it [to] be
contingent and specifically one-third of any amount recovered. Nothing was
recovered; therefore, there's zero benefit. And I understand that there was another
member of the law firm that came here [Klotz] . . . and backed Cleary up saying,
yeah, I knew it was a contingent fee. And Klotz stood to profit five percent from
anything that's recovered, so he obviously was motivated to shoot straight because
he's going to be hurt, with what my conclusion is, a zero result that the fee was
contingent. The Keywell firm is not entitled to one penny, and they're sitting on
$150,0000 of costs that have been reimbursed, roughly speaking. Maybe its 145
28
Emphasis added.
-20-
or whatever, I'm not here to quibble about those costs; rather [sic] they're accurate
puffed up or what. I just don't want to get into that ethically if I don't have to.
K&R claims that Elsman improperly assessed the witnesses' credibility. It is partially
correct. MRPC 1.5(a)(8) says that one of the factors relevant to whether a fee is reasonable is
whether the fee "is fixed or contingent." When Elsman said that he considered Cleary's statement
that there was a contingent fee agreement, he was describing how he arrived at the conclusion
that the Bithells had a contingent fee agreement. As an expert called to testify about the
reasonableness of K&R's fees, this was proper. Elsman walked a very narrow line when he told
the jury that Klotz had corroborated Cleary's testimony. This, too, was relevant to whether a
contingent fee agreement existed even though it tended to bolster Cleary's credibility.
However, Elsman invaded the jury's province when he commented on Klotz' motivation
to tell the truth. Whether the pretrial order limiting Elsman's testimony prohibited these specific
statements is not clear. Nevertheless, as K&R notes, MRE 702 permits expert testimony when it
"will assist the trier of fact to understand the evidence or to determine a fact in issue . . . ."
Elsman as an attorney had no "specialized knowledge"29 of Klotz' credibility. The jury and
Elsman were equal in their abilities to determine whether Klotz was telling the truth, and
therefore this was not a proper subject for Elsman's expert testimony.30 Consequently, this
testimony was inadmissible, and may not be admitted in a new trial on remand.
IV. Jury Instructions
A. Standard Of Review
K&R challenges the trial court's instructions to the jury in several respects. "[C]laims of
instructional error" are subject to review de novo.31 However, to the extent that a trial court must
determine whether the evidence supports the instruction, the trial court is entitled to some
deference.32
B. Instructions Generally
This Court explained the relevant legal standard for assessing jury instructions in Burnett
v Bruner,33 saying that, in examining the instructions given the Court views "the jury instructions
as a whole to determine whether the trial court committed error requiring reversal." This Court
"will reverse for instructional error only where failure to do so would be inconsistent with
substantial justice."34 Additionally, "[j]ury instructions 'should include all the elements of the
29
MRE 702.
30
See People v Beckley, 434 Mich 691, 727-728; 456 NW2d 391 (1990) (Brickley, J.).
31
See Case v Consumers Power Co, 463 Mich 1, 6; 615 NW2d 17 (2000).
32
See Isagholian v Transamerica Ins Corp, 208 Mich App 9, 16; 527 NW2d 13 (1994).
33
Burnett v Bruner, 247 Mich App 365, 375; 636 NW2d 773 (2001).
34
Id.
-21-
plaintiff 's claims and should not omit material issues, defenses, or theories if the evidence
supports them.'"35
C. Judicial Notice
K&R asked the trial court to give SJI2d 3.13,36 an instruction entitled "Fact Judicially
Noticed," which simply states, "In this case, you [the jury] must accept it as fact that ______."
Under the blank, in parentheses, SJI2d 3.13 informs the trial court to "[i]dentify fact judicially
noticed." K&R wanted the trial court to inform the jury that Judge Schnelz had issued the order
permitting the firm to withdraw from representing the Bithells. In other words, K&R wanted the
trial court to inform the jury that it should accept as fact that the firm had withdrawn properly
from the underlying action. At issue was K&R's argument, which the trial court had rejected,
that collateral estoppel barred the Bithells from relitigating this issue because Judge Schnelz had
already decided that it was proper for the firm to withdraw from the underlying action.
As this Court explained in Porter v Royal Oak,37 the doctrine of collateral estoppel
prevents "relitigation of an issue in a subsequent, different cause of action between the same
parties when the prior proceeding culminated in a valid final judgment and the issue was actually
and necessarily determined in the prior proceeding." This doctrine is strictly applied in that
"[t]he issues [in both cases] must be identical, and not merely similar . . . ."38 The previous
litigation must have presented a "full and fair" opportunity to litigate the issue presented in the
subsequent case.39 Furthermore, collateral estoppel includes an element of mutuality, requiring
the previous litigation of the issue to have had a preclusive effect on the party asserting collateral
estoppel as a defense.40 By preventing relitigation, this doctrine attempts "to relieve parties of
multiple litigation, conserve judicial resources, and, by preventing inconsistent decisions,
encourage reliance on adjudication."41
When moving to withdraw from its representation of the Bithells in the underlying action,
K&R articulated appropriate grounds for withdrawal. As MRPC 1.16(b) indicates, unless
ordered to continue to represent a client, an attorney42 "may withdraw from representing a client
if withdrawal can be accomplished without material adverse effect on the interests of the client,"
35
Id., quoting Case, supra at 6.
36
Now M Civ JI 3.13.
37
Porter v Royal Oak, 214 Mich App 478, 485; 542 NW2d 905 (1995).
38
Eaton Co Bd of Co Rd Comm'rs v Schultz, 205 Mich App 371, 376; 521 NW2d 847 (1994).
39
Arim v Gen Motors Corp, 206 Mich App 178, 194-195; 520 NW2d 695 (1994).
40
Lichon v American Universal Ins Co, 435 Mich 408, 427-428; 459 NW2d 288 (1990).
41
Dearborn Heights School Dist No 7 v Wayne Co MEA/NEA, 233 Mich App 120, 124; 592
NW2d 408 (1998).
42
In this case, a firm. See MCR 2.117(B)(3)(b).
-22-
"the representation will result in an unreasonable financial burden on the lawyer or has been
rendered unreasonably difficult by the client,"43 or if "other good cause for withdrawal exists."44
K&R alleged that its withdrawal would not harm the Bithells because Wulfmeier
remained their attorney and that it was otherwise entitled to withdraw because the Bithells had
not paid their fees or costs, amounting to an unreasonable financial burden. The Bithells, of
course, disputed K&R's allegations. Judge Schnelz, thus, had a full opportunity to address the
very issue that the Bithells asserted as an affirmative defense in this case, namely whether the
firm had proper grounds to withdraw. Judge Schnelz, considering the affidavits and arguments,
had to conclude that K&R had demonstrated the proper grounds for withdrawal in order for him
to permit K&R to withdraw.
Substantively, this dispute over the motion to withdraw was the sort of full and fair
opportunity to litigate an issue that collateral estoppel requires.45 Further, this withdrawal issue
raised in the underlying action was literally identical to the withdrawal question that the trial
court submitted to the jury in this case.46 Whether K&R withdrew improperly was an integral
part of the Bithells' theory that they did not owe the firm anything for their services because there
was a contingent fee agreement and the firm withdrew before the case was resolved.47 Yet, the
trial court expressly gave the jury permission to reexamine the facts surrounding K&R's
withdrawal to determine for itself whether the withdrawal met the criteria in MRPC 1.16, even
though Judge Schnelz had already determined that the firm had met those criteria. This is the
sort of double litigation of a single issue and opportunity for inconsistent factual determinations
that the collateral estoppel doctrine is supposed to prevent.48
Still, the Bithells have hit upon language describing the collateral estoppel doctrine that
gives us reason to pause before deciding whether collateral estoppel barred the jury from
considering this defense. As the Bithells note, the case law explaining collateral estoppel refers
to raising the issue in the "pleadings" and having the first case result in a "final judgment."49 Just
43
MRPC 1.16(b)(5).
44
MRPC 1.16(b)(6).
45
See Arim, supra at 194-195.
46
Eaton Co Bd of Co Rd Comm'rs, supra at 376.
47
See Plunkett & Cooney, PC v Capitol Bancorp, Ltd, 212 Mich App 325, 329-330; 536 NW2d
886 (1995) ("Where an attorney's employment is prematurely terminated before completing
services contracted for under a contingency fee agreement, the attorney is entitled to
compensation for the reasonable value of his services on the basis of quantum meruit, and not on
the basis of the contract, provided that his discharge was wrongful or his withdrawal was for
good cause.") (emphasis added).
48
See Dearborn Heights, supra at 124.
49
See Ditmore v Michalik, 244 Mich 569, 577; 625 NW2d 462 (2001) ("Collateral estoppel, or
issue preclusion, precludes relitigation of an issue in a subsequent, different cause of action
between the same parties or their privies when the prior proceeding culminated in a valid final
judgment and the issue was actually and necessarily determined in the prior proceeding.")
(continued…)
-23-
as the Bithells claim, MCR 2.110(A) defines a "pleading" exclusively as "a complaint," "a crossclaim," "a counterclaim," "a third-party complaint," "an answer to a complaint, cross-claim,
counterclaim, or third-party complaint," and "a reply to an answer." Though the court rules
occasionally treat motions in the same manner as pleadings,50 technically, there is no question
that a motion falls outside the definition of a pleading.51 Nor did Judge Schnelz' order resolving
this motion to withdraw precisely fit the definition of a final judgment because, in the underlying
action, the order permitting K&R to withdraw "adjudicated fewer than all the claims" and failed
to resolve the "rights and liabilities" of all the parties, even though the order signaled the
complete end to K&R's representation of the Bithells in the case.52
Irrespective of whether these technical misfits between the collateral estoppel doctrine
and the facts of this case would merit ignoring the duplicative nature of presenting the
withdrawal question to the jury, they point to the true problem in this case: K&R was not a party
to the underlying proceedings. Porter refers to applying collateral estoppel when the same
parties participate in the first and subsequent actions.53 Without the same parties in the first and
subsequent action, mutuality of estoppel is difficult to prove.54 K&R was not a party to the
underlying action, at least not when looking at the formal pleadings rather than the narrow
context of the motion to withdraw. K&R and the Bithells did not even occupy adverse interests
in the underlying action.55 Rather, the Bithells and K&R were aligned as clients and attorneys
against defendants Bloomfield Township, the Club, and Korzon.
The court rules fail to provide a mechanism by which K&R and the Bithells could have
become named opponents for the purpose of a dispute over whether to withdraw. K&R certainly
could not file a separate civil action in the same circuit asking to withdraw because MCR
2.117(C)(2) instructs that "[a]n attorney who has entered an appearance may withdraw from the
(…continued)
(emphasis added); VanDeventer v Michigan Nat'l Bank, 172 Mich App 456, 463; 432 NW2d 338
(1988) ("Collateral estoppel conclusively bars only issues 'actually litigated' in the first action. A
question has not been actually litigated until put into issue by the pleadings, submitted to the trier
of fact for a determination, and thereafter determined.") (emphasis added).
50
See MCR 2.113(A).
51
See, generally, Huntington Woods v Ajax Paving Industries, Inc (On Rehearing), 179 Mich
App 600, 601; 446 NW2d 331 (1989) (applying plain language in MCR 2.110[A] to conclude
that motion for summary disposition was not a "pleading").
52
See MCR 2.604(A).
53
Porter, supra at 485.
54
See, generally, Minicuci v Scientific Data Mgt, Inc, 243 Mich App 28, 37; 620 NW2d 657
(2000).
55
Collateral estoppel does not require adversity, and we do not intend to suggest that we have
incorporated adversity as an element of the doctrine. In this case, adversity is a useful analytical
tool because it helps us focus on the identity of the "parties" to the previous action and whether
those parties litigated the withdrawal issue fully.
-24-
action or be substituted for only on order of the court."56 Logically, this court rule suggests that
the judge presiding over the case has the authority to control whether an attorney, or in this case
an entire law firm, can withdraw from representing a client. Indeed, because MRPC 1.16 sets out
fact-based criteria that largely require a knowledge of the parties and attorneys, the judge
presiding over the case has an important role in determining whether withdrawal is proper. A
judge in a separate action would likely not have this insight, much less the authority to intervene
in the other suit in order to allow the firm to withdraw. Consequently, K&R took the only steps
available to withdraw from the underlying action, though those steps did not involve a formal
"pleading" or "final judgment." In deciding whether the collateral estoppel doctrine tolerates the
absence of a formal pleading and final judgment when an issue is very clearly being relitigated,
we see a useful analogy in case law that stems from the criminal context.
The Sixth Amendment of the United States Constitution and Const 1963, art 1, § 20, both
afford a criminal defendant the right to effective assistance of counsel.57 Criminal defendants, if
convicted, often claim to have been denied this right to effective assistance of counsel, though
they face a difficult task in proving such a claim.58 There are a small number of cases in which
criminal defendants, in addition to seeking a remedy for the denial of this constitutional right in
the form of a new criminal trial, also seek civil damages by suing their attorneys for malpractice.
The best known examples are Barrow v Pritchard,59 in which the defendant attorney and law
firm in the malpractice action represented the plaintiff in a federal tax prosecution; Schlumm v
Terrence J O'Hagan, PC,60 in which the defendant law firm in the malpractice action had been
hired to represent one of the plaintiffs in a criminal sexual conduct prosecution; and Knoblauch v
Kenyon,61 in which the defendant attorney in the malpractice action had represented the plaintiff
in state court prosecution for criminal sexual conduct. In these cases, the former clients who had
been criminal defendants asserted that the same conduct that constituted ineffective assistance of
counsel also constituted legal malpractice.62 In each malpractice case, the former attorney
asserted collateral estoppel as a defense.63 Despite any legal differences between ineffective
assistance of counsel and legal malpractice claims, this Court applied the collateral estoppel
doctrine, effectively barring the malpractice claims in each case.64 As this Court explained in
56
Emphasis added.
57
See, generally, People v Pickens, 446 Mich 298, 308-309; 521 NW2d 797 (1994).
58
See People v Watkins, 247 Mich App 14, 30; 634 NW2d 370 (2001) (With respect to a claim
of ineffective assistance of counsel, "[t]his Court presumes that counsel's conduct fell within a
wide range of reasonable professional assistance, and the defendant bears a heavy burden to
overcome this presumption.").
59
Barrow v Pritchard, 235 Mich App 478, 479; 597 NW2d 853 (1999).
60
Schlumm v Terrence J O'Hagan, PC, 173 Mich App 345, 348-352; 433 NW2d 839 (1988).
61
Knoblauch v Kenyon, 163 Mich App 712, 713-714; 415 NW2d 286 (1987).
62
See Barrow, supra at 485; Schlumm, supra at 351-352; Knoblauch, supra at 715.
63
See Barrow, supra at 479; Schlumm, supra at 352; Knoblauch, supra at 725.
64
See Barrow, supra at 485; Schlumm, supra at 356; Knoblauch, supra at 715.
-25-
Barrow, "[T]he standards [for legal malpractice and ineffective assistance of counsel] are
sufficiently similar in substance to support the application of the defense of collateral estoppel."65
Thus, once an appellate court has rejected an ineffective assistance of counsel claim in an appeal
from the criminal prosecution,66 or the trial court in the criminal prosecution rejects an
ineffective assistance of counsel claim and the defendant does not appeal,67 the criminal
defendant may not challenge the attorney's conduct in a subsequent legal malpractice action.
This conclusion that collateral estoppel applies to a subsequent legal malpractice claim
can be reached even though there was no formal pleadings between the parties in the underlying
criminal prosecution and the criminal defendants and their attorneys were not adverse parties in
the underlying criminal prosecution. This precedent suggests that there are times when the
formalities surrounding a previous action bend to the unalterable reality that the parties have
already disputed an issue to the fullest extent possible and the trial court deciding the previous
dispute resolved the issue as formally as the court rules permit. As the Michigan Supreme Court
has said:
[L]ack of mutuality does not always preclude the application of collateral
estoppel. There are several well-established exceptions to the mutuality
requirement, such as when an indemnitor seeks to assert in its defense a judgment
in favor of its indemnitee, or where a master defends by asserting a judgment for a
servant. The Court of Appeals has [also] recognized that there may be other
situations in which the mutuality requirement is relaxed. [68]
There are definite parallels between a criminal defendant who attempts to relitigate his
attorney's conduct in the underlying criminal action when suing the attorney for malpractice and
the Bithells' attempt to relitigate K&R's ability to withdraw in the trial in this case. In both cases,
there have been definitive factual findings paired with the legal conclusions that flow from those
findings. In neither example is it possible for the attorney and the client, in the underlying action,
to have truly adverse interests, even if the client in both cases is ultimately displeased with the
attorney's conduct. Neither the attorney in the criminal case nor K&R in the Bithells' civil suit
against the Club, Bloomfield Township, and Korzon were named parties. Applying collateral
estoppel in the criminal defendant's malpractice claim against the trial attorney certainly meets
the doctrinal goal of preventing "multiple litigation, conserv[ing] judicial resources, and, by
preventing inconsistent decisions, encourag[ing] reliance on adjudication."69 Applying the
collateral estoppel doctrine in this case would serve the very same goals.
65
Barrow, supra at 484-485.
66
See Schlumm, supra at 351; Knoblauch, supra at 714.
67
See Barrow, supra at 479.
68
Lichon, supra at 428, n 16 (citations omitted).
69
Dearborn Heights, supra at 124.
-26-
There are two obvious distinctions between this suit and the malpractice cases. The first
distinction is that this suit involves two civil actions, not a criminal case preceding a civil action.
However, in searching the case law, we found no reason to believe that a case must have what is
called a "cross-over" 70 element for collateral estoppel to apply. For instance, in Alterman v
Provizer, Eisenberg, Lichtenstein & Pearlman, PC,71 this Court considered whether the trial
court erroneously granted summary disposition to the defendant law firm in the malpractice
action, which concerned the firm's representation of the plaintiff in a federal civil suit against his
employer for a work-related injury. The plaintiff and his employer settled, but after the
settlement the plaintiff obtained new counsel and moved to set aside the settlement, claiming that
he was not competent at the time he entered into it.72 The plaintiff refused to let his former
attorney and the attorney's staff waive the attorney-client privilege at the evidentiary hearing
regarding the motion to set aside the settlement.73 When the federal court denied the motion to
set aside the settlement, the plaintiff did not appeal.74 Rather, the plaintiff filed a lawsuit against
his former attorney and the attorney's firm alleging that they had committed malpractice when
they allowed him "to settle his federal case while mentally incompetent."75
On appeal in Alterman, the plaintiff in the malpractice action evidently argued that the
trial court had erred in granting summary disposition on the basis of collateral estoppel because
the defendant lawyer and firm had not been parties to the underlying action, and therefore
mutuality of estoppel did not exist.76 Though this Court was unwilling to hold that mutuality had
become irrelevant, as the defendants urged, it nevertheless examined and applied the collateral
estoppel doctrine as explained in Knoblauch and Schlumm.77 Observing that the competency
issue had been litigated fully in the federal court and was the very issue disputed in the
malpractice claim, the Alterman Court held that the "plaintiff is collaterally estopped from
relitigating the issue, even though the parties are not identical, no mutuality exists, and no
traditional exceptions apply."78 Clearly, the fact that the collateral estoppel doctrine was being
invoked in a case that lacked a cross-over element had no bearing on the Court's approach in
Alterman. In comparison to this case, Alterman also presents a less compelling set of facts
favoring collateral estoppel. In Alterman, the hearing to set aside the settlement did not provide
the client and the former attorney the same motivation for litigating the competency issue fully
70
See Barrow, supra at 481.
71
Alterman v Provizer, Eisenberg, Lichtenstein & Pearlman, PC, 195 Mich App 422, 423; 491
NW2d 868 (1992).
72
Id.
73
Id.
74
Id.
75
Id. at 423-424.
76
Id. at 424-425.
77
Alterman, supra at 425-427.
78
Id. at 427.
-27-
because they were not adverse in the same way that K&R and the Bithells had adverse interests
in the withdrawal proceeding. As a result, on the basis of the stronger facts in this case, we see
no problem in applying Barrow, Knoblauch, and Schlumm simply because this case lacks a
criminal component.
The second significant distinction between this case and the malpractice cases is that
K&R is using collateral estoppel offensively. The malpractice cases that provide such a useful
analogy for this case applied collateral estoppel defensively. As a result, those cases applied
mutuality of estoppel, a component of the collateral estoppel doctrine,79 much more loosely, if at
all.80 As this Court briefly mentioned in Knoblauch, mutuality is a critical prerequisite when
using collateral estoppel offensively.81
The Michigan Supreme Court's decision in Howell v Vito's Trucking & Excavating Co82
is, perhaps, the best known Michigan case that discusses mutuality. In Howell, a Vito's Trucking
vehicle struck and killed Hattie Howell and injured her daughter Anna Sue Collins, who was also
riding in the Howell vehicle.83 William Howell, evidently Hattie Howell's husband, filed a
wrongful death suit in Michigan against Vito's Trucking on behalf of Hattie Howell's estate,
himself, and as guardian for their son, James Howell.84 Before the case went to trial, Collins
obtained a judgment in federal court for the injuries she sustained in the accident. 85 This
prompted William Howell to move for partial summary disposition, arguing that Vito's Trucking
should not be allowed to relitigate its negligence.86 The trial court denied the motion as it
concerned William Howell, but granted it to the extent that Collins might be involved or have
interests in the Michigan suit as Hattie Howell's heir.87 This Court reversed the trial court's
decision and remanded the case with instructions for the trial court to reconsider whether
William Howell, in all his capacities, should have been granted partial summary disposition.88
This Court also indicated that "[t]he trial court had discretion to apply collateral estoppel against
defendant, mutuality not being a controlling factor."89
79
See Lichon, supra at 427-428.
80
See Alterman, supra at 427.
81
See Knoblauch, supra at 720.
82
Howell v Vito's Trucking & Excavating Co, 386 Mich 37; 191 NW2d 313 (1971).
83
Id. at 40.
84
Id.
85
Id.
86
Id. at 40-41.
87
Id. at 41.
88
Id.
89
Id.
-28-
When the Howell case reached the Supreme Court, the Court thoroughly reviewed the
collateral estoppel doctrine and the mutuality requirement, though often mentioning res
judicata.90 The Court observed that, despite the familial relations and factual connections
between the federal suit and the action in Michigan's courts, William Howell in each of his three
roles in the suit (representative, individual, and guardian) and Collins were distinct legal
entities.91 The Court concluded that William Howell was not "bound" in the instant case by the
federal court decision, which precluded applying the federal court result concerning the alleged
negligence against Vito's Trucking.92 In other words, William Howell could not use the
determination in the federal proceeding to bar Vito's Trucking from challenging its negligence in
the state court action. Thus, Howell essentially prohibited nonmutual offensive collateral
estoppel.93
In reaching this result, the Howell Court acknowledged a compelling interest in balancing
two competing concerns: "that the litigant against whom the doctrine is asserted has had his day
in court; vis-à-vis that repetitious and needless litigation which burden our already overloaded
court dockets must be avoided."94 The Court, however, concluded that the need to give litigants
their day in court did not require it to "sacrifice a well-established and valuable rule to achieve
this balance."95 The risk of eliminating mutuality was no less than the risk that some litigants
might be denied their significant rights, such as the right to due process of law.96
In deciding whether Howell prevents collateral estoppel from applying in this case, we
consider four factors. First, the Supreme Court was not concerned as much about William
Howell's attempt to use collateral estoppel offensively,97 but by his attempt to rely on the doctrine
when not bound by the federal decision. That problem does not arise in this case. Judge Schnelz'
order equally bound K&R and the Bithells, regardless of the names of the parties in the pleadings
in the underlying action. Had the trial court reached the opposite decision, K&R would have
been obligated to continue to represent the Bithells in the underlying action. This is the essence
of mutuality.98
90
Id. at 41-51.
91
Id. at 44.
92
Id. at 46.
93
See Knoblauch, supra at 720.
94
Howell, supra at 48.
95
Id.; see id. at 51.
96
Id. at 49-50.
97
Subsequent case law suggests that collateral estoppel is not necessarily inappropriate when
used offensively in the noncriminal context. See, e.g., Nummer v Dep't of Treasury, 448 Mich
App 534, 548, n 14; 533 NW2d 250 (1995).
98
See Howell, supra at 45-46.
-29-
Second, the Supreme Court in Howell did not focus exclusively on the pleadings when
determining whether the parties bound by the federal court decision were participating in the
Michigan action. Rather, the Court also looked to the legal identities of the parties. Though the
Club, Bloomfield Township, and Korzon were parties to the underlying action, the withdrawal
order did not bind them in any respect because they had no interest in whether K&R was able to
withdraw and did not participate in the related proceedings at all. Their identity as parties in the
underlying action do not, practically or legally, complicate the identity of the participants in the
withdrawal proceeding in this case in the same way Collins' multiple interests as an injured
plaintiff and a potential heir of a decedent complicated Howell. In this case, the participants in
the motion for withdrawal proceeding, K&R and the Bithells, are not only bound by the order,
but are identical to the parties in this case. As a result, to the extent that the identity of the parties
shapes whether mutuality of estoppel exists,99 K&R's identity and the Bithells' identity are
sufficiently clear to conclude that this mutuality exists.
Third, the facts of this case do not conjure up fears about denial of due process or other
important rights identified in Howell. As indicated above, the Bithells had their day in Judge
Schnelz's court to dispute whether withdrawal was proper. This was the adversarial system
Howell held in such high esteem.100 Judge Schnelz simply disagreed with the Bithells'
viewpoint. This surely demonstrates that the equities of this case are aligned in favor of
collateral estoppel; collateral estoppel, which would have provided all the usual efficiencies had
the trial court applied it, would not have sacrificed the Bithells' interest in a full and fair
adjudication because they had already taken advantage of that opportunity in the underlying
action.101
Fourth and finally, failing to apply collateral estoppel in this case has consequences that
the Supreme Court did not consider in Howell. Applying collateral estoppel in this case will play
an important role in encouraging only proper withdrawal by counsel in future cases. If clients
could challenge a withdrawal after an attorney or law firm established the grounds to withdraw
identified in MRPC 1.16 and acquired permission to withdraw in the form of a court order, then
attorneys and law firms would have no incentive to go through this formal procedure. Stated
another way, if collateral estoppel did not apply in this situation, withdrawing under court order
would expose an attorney or law firm to exactly the same consequences as abandoning a client.
This exposure, in turn, would discourage law firms and attorneys from taking the time and
incurring the expense of obtaining permission from the court to withdraw, which is what MRPC
1.16, operating in conjunction with MCR 2.117(C), contemplates. Alternatively, failing to apply
collateral estoppel in this case may force some attorneys and law firms to remain counsel in cases
in which the attorney-client relationship has degraded to the point where it is no longer beneficial
to the client. Moreover, applying collateral estoppel in this way would have little effect on a
subsequent malpractice action. After an attorney or law firm withdraws, the client could still
99
See Knoblauch, supra at 720.
100
Howell, supra at 51.
101
Id. at 48, 51.
-30-
challenge the attorney or firm's conduct in the time preceding the withdrawal, which would not
have been necessarily litigated in the decision concerning a motion to withdraw. Thus, the value
of applying the collateral estoppel doctrine in this case is not only significant, it has few negative
effects.102
The trial court, therefore, erred when it refused to instruct the jury to accept as fact that
K&R had withdrawn properly in the underlying action. The trial court should have instructed the
jury that, if it found that K&R and the Bithells had a contingent fee agreement it had to accept as
fact that K&R did nothing wrong by withdrawing. As a result, the trial court should have also
informed the jury that it should only consider the reasonable value of the services K&R rendered
to the firm. Unlike in other cases,103 the failure to issue this instruction was prejudicial, not
harmless. The jury's communication with the trial court concerning what constituted proper
withdrawal suggests that it was contemplating this aspect of the Bithells' defense. This
communication, when coupled with the trial court's many instructions concerning the withdrawal,
leave little doubt that, absent the opportunity to decide anew the question whether K&R
withdrew properly, the jury would have returned a verdict in favor of K&R, even if the attendant
award was vastly lower than the $414,726.85 the firm claimed the Bithells owed it. A new trial
in which the trial court instructs the jury that it must accept it as fact that K&R withdrew properly
from the underlying action is the only viable remedy for this error.
D. Contract
The trial court instructed the jury that K&R had the burden of proof
with respect to any claim [f]or breach of contract on the hourly rate, plus
agreement between the parties on each of the following four propositions: 1) The
plaintiff [K&R] has to prove the existence of a valid contract; 2)Plaintiff has to
prove the terms of the contract; 3) Plaintiff has to prove the performance of things
to be performed by the plaintiff; and 4) The plaintiff has to prove nonperformance by the defendant [the Bithells].
Soon thereafter, the trial court informed the jury that the Bithells
have the burden of proof with respect to their claim that the fee agreement
between themselves and Keywell and Rosenfeld was changed through [the]
Contingent Fee Agreement. In order to find the agreement was changed to a
Contingent Fee Agreement you must find three things: 1) The existence of a valid
102
We wish to make clear that we are not holding that every decision permitting an attorney or
law firm to withdraw is subject to the collateral estoppel doctrine. Rather, when the record
supports the conclusion that the clients and their attorney or law firm have fully litigated
withdrawal using the appropriate procedures available under the court rules and rules of
professional conduct, then the usual collateral estoppel analysis applies, which may preclude
relitigating the issue.
103
See Hilgendorf, supra at 695-696.
-31-
agreement to change the fee agreement; 2) The terms of the Contingent Fee
Agreement; and 3) That Mr. Cleary had actual or apparent authority to change the
fee agreement interest [to] a Contingent Fee Agreement on behalf of Keywell and
Rosenfeld.
K&R does not contend that the Bithells had any burden of proof concerning the breach of
contract claim. Rather, it argues that the trial court erred in inserting the words "plaintiff has to
prove" in the instructions because those words do not appear in the model instruction. It claims
that this additional language had the effect of erroneously placing a higher burden of proof on
K&R than it was supposed to have. The language in both sets of instructions correctly allocated
each party's burden of proof though the instructions were not identical as concerned the burden.
Though not perfect, the instructions adequately informed the jury of which party had to prove
what elements of which claims.104 This was not error requiring reversal, although on remand the
trial court would be well-advised to adopt a more even-handed approach in describing the parties'
respective burdens of proof.
E. Quantum Meruit
When explaining the term quantum meruit to the jury, the trial court defined the term as
meaning "an amount of recovery as much as deserved," explaining that quantum meruit is "an
equitable principle that measures recovery under an implied contract to pay compensation as
reasonable value of services rendered." The trial court informed the jury that "among the factors
to consider is what percentage of total work has been completed by the attorney or attorneys
seeking fees to obtain results of the parties." K&R argues that this instruction was improper
because there was no evidence of the percentage of work completed on the underlying action.
K&R adds that this theory was inapplicable because, at the time of trial in this case, the
underlying action had yet to be completed.
This Court affirmed a trial court's decision to calculate quantum meruit as a percentage of
work completed in Morris v Detroit105 and approved that approach in Reynolds v Polen.106 Thus,
the trial court's quantum meruit instruction was not, per se, incorrect. However, this instruction
was of little value to the jury in light of the evidence that the underlying action had yet to be
resolved. Unlike in Morris107 and Reynolds,108 the underlying action in this case had not yet been
tried or settled, making it impossible to calculate quantum meruit as a percentage of the recovery
obtained as a result of a trial or settlement.
104
See Case, supra at 6 ("Even if somewhat imperfect, instructions do not create error requiring
reversal if, on balance, the theories of the parties and the applicable law are adequately and fairly
presented to the jury.").
105
Morris v Detroit, 189 Mich App 271, 280; 472 NW2d 43 (1991).
106
Reynolds v Polen, 222 Mich App 20, 29-31; 564 NW2d 467 (1997).
107
Morris, supra at 279-280.
108
Reynolds, supra at 23.
-32-
Nevertheless, as the Reynolds Court indicated, "[Q]uantum meruit is generally
determined by simply multiplying the number of hours worked by a reasonable hourly fee."109
The trial court properly defined quantum meruit, which does mean "as much as deserved."110
The trial court also instructed the jury on the factors relevant to reasonable attorney fees. Thus,
the trial court gave the jury an alternate and appropriate method for calculating quantum meruit.
Nevertheless, on retrial, the trial court should consider whether this method of calculating
damages is appropriate in light of the status of the underlying action.
F. Reasonable Value of Legal Services
The trial court instructed the jury consistently with SJI2d 180.03,111 which essentially
identifies the factors in MRPC 1.5 that are relevant to determining whether attorney fees are
reasonable, not excessive. The trial court added:
A lawyer is bound by the Michigan Rules of Professional Conduct. The
rule [MRPC 1.5] states that a lawyer shall not enter into an agreement for[,]
charge[,] or collect an illegal or clearly excessive fee. A fee is clearly excessive
when, after review of the facts, a lawyer of ordinary prudence would be left with a
definite and firm conviction that the fee is excessive of a reasonable fee. A lawyer
of ordinary prudence is just a lawyer who—he's not crazy or anything—but just a
lawyer acting reasonably.
K&R argues that the trial court erred in including this additional language about MRPC 1.5
because it raised the firm's burden of demonstrating that its fees were reasonable. Though
somewhat repetitive, the instructions were accurate and not confusing.112
K&R also contends that the trial court improperly left the jury to come to its own
understanding of a "lawyer of ordinary prudence." This was not the trial court's smoothest
instruction to the jury, but the trial court redeemed itself by defining a "lawyer of ordinary
prudence" as "a lawyer acting reasonably." "Prudence" means "[c]arefulness, precaution,
attentiveness, and good judgment, as applied to action or conduct. That degree of care required
by the exigencies or circumstances under which it is to be exercised." Reasonable action is a fair
explanation of the concept of prudence.113 K&R provides no authority, not even a dictionary
definition, to suggest that this instruction was erroneous.
109
Id. at 28.
110
Black's Law Dictionary (6th ed, 1990), p 1243.
111
Now M Civ JI 180.03.
112
See Morris, supra at 278-279, quoting Crawley v Schick, 48 Mich App 728, 737; 211 NW2d
217 (1973) (enumerating nonexhasutive list of factors relevant to reasonable attorney fees).
113
See Black's Law Dictionary, supra at 1226.
-33-
Reversed and remanded for further proceedings consistent with this opinion. K&R may
present all the claims and theories it originally pressed at the trial in this case in a new trial. We
do not retain jurisdiction.
/s/ William C. Whitbeck
/s/ David H. Sawyer
/s/ Kirsten Frank Kelly
-34-
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