In Fee-Shifting Cases, Represented Party Cannot Settle Without
Lawyer's Knowledge
By Joe Forward, Legal Writer,
State Bar of Wisconsin
Oct.
16, 2012 – In general, a party represented by a lawyer can settle
a case without the presence or consent of counsel, but not in cases
alleging violations of fee-shifting statutes that create attorney fee
claims, according to a recent state appeals court decision.
Wisconsin’s fee-shifting statutes, which generally protect
consumers, allow prevailing parties to collect reasonable attorney fees
against losing defendants. Fee-shifting statutes generally incentivize
lawyers to take on small money cases knowing legal fees can be recouped
from defendants.
Under state legislation enacted in 2011, reasonable attorney fees are
now presumptively capped at three times the amount of damages.
Plaintiff Randy Betz bought a 1999 Cadillac Escalade from Diamond
Jim’s Auto Sales for about $8,000. But the car had problems, and
Betz eventually hired attorney Vince Megna to pursue claims that the
dealership made fraudulent misrepresentations about the car before
selling it.
Specifically, the suit alleged a violation of Wis. Stat. section 100.18,
a fee-shifting provision. Megna's retainer agreement with Betz set
out his right to pursue attorney fees against the defendant
under a settlement agreement.
In preliminary negotiations, both parties rejected an offer and
counter-offer to settle. Betz’s offer sought $10,750 in damages
and $5,900 in attorney fees. Diamond Jim’s counter offered to
repurchase the vehicle at the purchase price, less mileage, and pay
$2,000 in attorney fees.
Diamond Jim’s General Manager Thomas Letizia then settled the
case with Betz directly without any lawyer participation for $15,000,
nearly double what Betz paid for the vehicle. But the settlement did not
include a provision for payment of Betz’s attorney fees.
The circuit court upheld the settlement agreement, foreclosing the
possibility that Betz’s lawyers could collect attorney fees from
Diamond Jim’s. In other words, Betz’s attorneys could only
pursue Betz for a possibility of payment for legal services
rendered.
On appeal, Betz’s lawyers argued that “a claim for attorney
fees under a fee shifting statute cannot be settled without the
attorneys’ knowledge or consent.” They pointed out that Betz
agreed to receive $15,000, but the settlement could not cover both
damages and attorney fees.
“It is grossly inequitable to allow wrongdoers, like Diamond
Jim’s, to avoid payment of attorney fees intended as a penalty for
their statutory violations and reap the benefit of a windfall obtained
through settlement directly with a represented plaintiff,”
Betz’s lawyers argued.
In Betz
v. Diamond Jim’s Auto Sales, 2012AP183 (Oct. 16, 2012),
the District I Wisconsin Court of Appeals reversed the circuit court,
concluding that the settlement agreement was void.
“Although, generally, nothing forbids a party from settling with
a represented party without the presence or consent of the represented
party’s lawyer, such settlements, like all contracts are
scrutinized in light of public policy interests,” wrote Appeals
Court Judge Ralph Fine.
“The legislature created fee shifting statutes to help persons
who might not otherwise get legal redress,” Judge Fine continued.
“To permit one side to go behind the backs of the other
side’s lawyers in order to get a settlement that removed the
fee-shifting incentives that prompted the lawyers to take the case,
would nullify the legislative fee-shifting scheme.”
On public policy grounds, the appeals court ruled that the circuit
court erroneously upheld the settlement agreement, meaning the parties
must now renegotiate settlement or go to trial.
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