Wisconsin Lawyer
Vol. 85, No. 10, October 2012

• Sidebar: Wisconsin Statutes Containing Fee Shifts

On Dec. 6, 2011, Gov. Scott Walker signed into law Special Senate Bill 12, which creates a presumptive cap on attorney fees in cases in which a court determines a reasonable attorney fee award and lists factors a court must assess when making the award. The law affects consumer and civil rights cases, public records litigation, and many other areas of law.

This article first addresses fee-shifting provisions in general and the legislative policies behind them, then looks at how the new fee-shifting statute fits into that larger context. Finally, it explores how courts may interpret and apply the law, anticipating some continuity with prior court interpretations of statutes awarding reasonable attorney fees.

Prior Legal Framework of Fee-shifting Litigation

Wisconsin generally adheres to the "American Rule" of attorney fees, under which each party is responsible for paying its own attorney fees. Many Wisconsin statutes, however, deviate from the American Rule and make it possible for prevailing parties to recover attorney fees from the opposing side. The Wisconsin Supreme Court has articulated the policy reasons behind the fee-shifting provisions, namely, encouraging aggrieved parties to bring their cases, aiding the public interest by having private plaintiffs enforce their rights against predatory activities, and deterring bad actors from committing future harm.¹ Typically, when a statute gives a prevailing party the right to recover reasonable attorney fees, that party files a fee petition asking the court to award reasonable fees. After the opposing side has an opportunity to object to the fees requested, the court reviews the petition and awards any fees it deems reasonable.

New Fee-shifting Statute Rationale

Wisconsin Statutes section 814.045 arose from a special legislative session, dubbed "Back to Work Wisconsin," in which legislators stated an intention to focus on bills aimed at creating jobs.² Legislators who sponsored the new law explained they wished to increase "litigation certainty" for businesses.³ In the words of Gov. Walker, "Protecting job creators from excessive attorney fees will improve our business climate, and ultimately help create jobs in the private sector."⁴

The new statute codifies factors courts should consider when awarding fees and introduces a presumption that attorney fees should be not more than three times the damages awarded. There is no cap on attorney fees if the case does not involve compensatory damages; when the case involves only equitable relief, courts should use the factors listed in subsection 814.045(1) to determine the award (see accompanying sidebar). The original bill contained a firm cap of three times compensatory damages, but as enacted, the bill imposes a "presumptive" cap that can be overcome under certain circumstances.⁵

The law was introduced in response to a case involving violations of consumer protection laws in which attorney fees far exceeded the compensatory damages.⁶ The statute, however, does not specifically target consumer law cases. Rather, it states that it applies "in any action involving the award of attorney fees ... or involving a dispute over the reasonableness of attorney fees."⁷ These types of actions will involve consumer laws governing unfair trade practices, as it did in the case that gave rise to the bill, but the legislature has adopted the fee-shifting mechanism in a great variety of other areas, as well. Fee-shifting statutes are even used as a method of discouraging criminal and other behaviors by granting the right to recover attorney fees for victims of, for example, illegal pollution (section 283.91), securities fraud (section 551.509), gang activity (section 895.444), human trafficking (section 940.302), and passing bad checks (section 943.245).

There are several aspects to the law that raise doubts as to how the law would further the legislative goal of job creation. First, it is not clear how providing "litigation certainty" for human traffickers, gang members, or scam artists passing bad checks will further the stated legislative goal of job creation. Second, the law only protects persons and businesses who have been found by a court to have broken the law. This could prove detrimental to the business community by tarnishing an industry's reputation, when bad actors can break the law with relative impunity, and by creating an uneven playing field between law-breaking and law-abiding businesses. Third, it protects out-of-state law-breaking businesses that do nothing to create jobs in Wisconsin.

Moreover, it is not clear how courts should interpret the new statute in conjunction with fee-shifting statutes that anticipate little or no actual damages. For example, a statute protecting patient confidentiality rights (section 51.61) provides for an attorney fee award but specifically states that there is no requirement of actual (or even threatened) damages.⁸ In the consumer law arena, the Federal Trade Commission estimates that approximately 96 percent of consumer fraud complaints involve less than $5,000, with the median amount of reported loss calculated at $537.⁹ Wisconsin courts have repeatedly emphasized that the award of attorney fees under fee-shifting statutes does not bear any relation to the amount of money involved in the litigation, because otherwise litigants would be unable to enforce small-dollar-value claims.¹⁰ It is not clear to what extent the new statute overrules, abrogates, or even addresses these stated public policies described in the case law for the last 30 years. The new statute, however, contains no statement suggesting any change to or repeal of the policies behind the actual statutes containing fee-shifting provisions. The normal rule of statutory interpretation is that courts should not interpret one statute as repealing another by implication; such repeal must be explicit.¹¹

Statutory Interpretation of the New Statute Within the Context of Existing Fee-shifting Case Law

While the above suggests some uncertainty regarding the new fee-shifting statute, prior case law may help provide answers to at least some questions about its application. This section addresses how courts might interpret the statute with respect to some issues that are likely to arise in response to a prevailing party's fee petition, namely 1) the mechanics of calculating the presumptive cap, 2) applying the factors, and 3) how and when a prevailing party may overcome the presumptive cap.

Calculating the Presumptive Cap

The first step in applying the new statute is calculating the amount of the presumptive cap, when applicable. The statute provides that "the court shall presume that reasonable attorney fees do not exceed 3 times the amount of compensatory damages awarded."¹² But a judge must make several different decisions before multiplying the compensatory damages to calculate the presumptive cap: 1) whether to apply a damages multiplier before or after trebling the compensatory damages to calculate the presumptive cap; 2) whether to offset the compensatory damages against any successful counterclaims brought by the defendant; and 3) how to account for a prevailing plaintiff who has both fee-shifting and non-fee-shifting causes of action. Prior case law indicates how courts might address each of these issues under the new statute.

The first possible issue regarding the calculation is that the statute is silent as to whether "the amount of compensatory damages awarded" should be based on the compensatory damages before or after applying any statutory damage multipliers, for example, section 100.20(5) (double damages) or section 133.18(1)(a) (treble damages). Many fee-shifting statutes, however, do not use the term "compensatory damages." Section 100.20(5), for example, awards the prevailing consumer twice the amount of the consumer's "pecuniary loss," while section 133.18(1)(a) awards the prevailing party "threefold the damages sustained." The plain language of section 814.045(2)(a) is therefore ambiguous as to whether the court should apply the damages multiplier first, then treble that amount under the presumptive cap, or only treble the original amount.

Cases discussing how pecuniary loss is determined will help in obtaining a base figure for the compensatory damages. Case law indicates that a court should consider only the actual pecuniary loss or damages before applying a statutory multiplier when calculating the presumptive cap. In John Mohr & Sons Inc. v. Jahnke,¹³ the Wisconsin Supreme Court found that "a statute creating a cause of action for treble damages is punitive in nature to the extent damages above the actual damages in a case are recovered." The pecuniary loss, however, should consist of the entire purchase price of the good or service, rather than any diminution in fair market value or other method leading to a reduced recovery.¹⁴ In other words, a car dealership that misrepresents a vehicle as being four-wheel drive when it is actually just front-wheel drive would be liable for the entire purchase price of the vehicle, rather than the price difference between a four-wheel and two-wheel drive vehicle. Case law also indicates pecuniary loss consists of both amounts paid in cash and as debt taken on as financing.¹⁵ Turning back to the vehicle example, if the consumer paid $5,000 down, and financed another $10,000, the entire $15,000 purchase price would be the consumer's pecuniary loss.

A second issue in calculating the presumptive cap is the consideration of a defendant's successful counterclaim (assuming the plaintiff is the party with the fee-shifting claim). In doing so, a court must determine whether the plaintiff's defense against the counterclaim was "inextricably intertwined" with the prosecution of the plaintiff's affirmative case.¹⁶ It follows that if the counterclaim is inextricably intertwined with the affirmative claim, then the two amounts should be netted against one another when calculating the compensatory damages. But if the counterclaim and the affirmative claim are distinct, then they should not be netted against one another, although the prevailing plaintiff would not be eligible to recover any attorney fees attributable solely to defending the counterclaim.¹⁷

A third possible issue in calculating the presumptive cap might arise when a prevailing plaintiff has both fee-shifting and non-fee-shifting claims. A court would need to decide whether to treble the entire damages award or apportion some measure of it to the non-fee-shifting claims. The answer depends on the relationship between the fee-shifting and non-fee-shifting claims. In Stuart v. Weisflog's Showroom Gallery Inc.,¹⁸ a consumer sued a home remodeling company for negligent workmanship and for misrepresenting that the design work would be performed by licensed architects. The jury awarded separate damages for the two claims – misrepresentation (fee-shifting claim) and the negligent work (non-fee-shifting claim) – which raised the question as to whether the circuit court should apply the fee-shifting damages multiplier to the entire amount and double all of the awarded damages or should double only the amount specifically related to the fee-shifting claim.¹⁹ The Wisconsin Supreme Court held that the entire amount, including the damages attributable to both the negligence and the misrepresentation claims, should be doubled pursuant to Wis. Stat section 100.20(5).²⁰

The court explained that doubling the entire damages award would "1) encourage those who were injured by unfair trade practices that violated administrative regulations to bring suit; 2) encourage individuals to become 'private attorney generals' in enforcing their own rights, with the aggregate effect operating to enforce the rights of the public; 3) deter impermissible conduct that violated administrative regulations by subjecting violators to double damages, an attorney fee award, and costs; and 4) augment the Wisconsin Department of Justice's enforcement of administrative regulations."²¹ Therefore, if there is a common causal nexus between the fee-shifting and non-fee-shifting claims, a court will likely include all the damages when determining compensatory damages under Wis. Stat. section 814.045(2).

After determining the proper amount of compensatory damages to include in the calculation, the court would then multiply that figure by three to calculate the presumptive cap.

Applying the Factors

In cases in which there are no compensatory damages, a court will proceed directly to factors listed in section 145.045(1) to determine the attorney fees award. (See sidebar, "Attorney Fee Factors in New Wisconsin Statutes Section 814.045.") Despite the fact that remedies at equity typically are not favored, a litigant may be in a better position if it seeks only injunctive relief and has no compensatory damages. In these situations, there is no presumption that attorney fees should be capped at any amount.

In cases in which there are compensatory damages, a court will first determine what the presumptive cap should be, as described above. Once the court calculates the presumptive cap, the statute directs it to consider the factors listed in subsection (1) to determine whether "a greater amount is reasonable."²²

One important difference between the Supreme Court Rule factors and the factors included in the statute is that the supreme court was concerned with the amount an attorney could ethically charge a client. Moreover, certain factors will be more relevant than others in a particular case, and a court will need to make a determination as to which factors are most pertinent to the case at hand.

In every case, however, a court will likely wish to consider the attorney's reasonable number of hours billed to the case and the attorney's reasonable hourly rate. The Wisconsin Supreme Court explained that the reasonable hourly rate and reasonable number of hours billed "are relevant in every case in which a court determines reasonable attorney fees under a fee-shifting statute ... while other factors listed in SCR 20:1.5(a) are not always relevant."²³ Moreover, the statute's factors point in this direction: many of the factors seem to relate primarily to the court's consideration of the reasonable number of hours the attorney has billed to the case, that is, factors (a), (b), (c), (g), (h), and (l), while several of the other factors primarily point to the court's consideration of the attorney's reasonable hourly rates (factors (e), (j), and (m)). In other words, the court would still conduct the lodestar calculation – multiplying a reasonable number of hours by a reasonable hourly rate – but as the second step of the new process, rather than the first step.

To determine the reasonable number of hours, the court will likely examine the attorney's billing records and compare them with what the judge, using her experience and expertise, would consider reasonably necessary in bringing and prosecuting the case. When deciding the reasonable hourly rate, the court will likely consider affidavits of other attorneys concerning the reasonableness of the hourly rates and consider generally what other attorneys charge as an hourly rate in the relevant community.²⁴

Weighing the Presumptive Cap Against the Factors

After the court has calculated the presumptive cap, calculated the reasonable hourly rate, determined the reasonable number of hours spent on the case, and considered the other factors set forth in section one of the statute, it will need to decide whether to apply the presumptive cap or to award a larger amount of reasonable fees. No Wisconsin cases weighing the factors against the presumptive cap have been decided. Moreover, there are not even any cases in which a court weighs the supreme court factors against the lodestar calculation (reasonable number of hours times reasonable rate).²⁵ There are, however, several additional issues courts may wish to consider when considering the presumptive cap in relation to the factors.

First, the case's procedural history may shed light as to whether a prevailing party can overcome the presumptive cap. If, for example, a defendant has rejected an early settlement offer in which the plaintiff agreed to accept less than the amount eventually awarded at trial, it would seem difficult to dispute that the additional time required to litigate the case was not reasonably necessary to securing the result. On the other hand, if the defendant made an early settlement offer that was for an amount equal to or greater than the amount recovered by the plaintiff, then it would seem difficult to argue that the additional fees should be awarded.²⁶ Statutory settlement offers under Wis. Stat. section 801.07 may be of particular interest in this regard. The court may also wish to examine whether one side unnecessarily increased the costs of litigation, by filing unnecessary motions, taking superfluous discovery, or refusing to stipulate to basic facts that could not be reasonably disputed.

Second, the court will likely compare the prevailing plaintiff's billing records to those of the defendant. If the defendant's attorney billed a comparable amount of fees to the case as those billed by the prevailing plaintiff's attorney, it would seem difficult to argue that the plaintiff's fees should be capped at a lesser amount.²⁷ Capping the prevailing party's fees at a lesser amount than the opposing counsel's fees would imply that the prevailing party should have less ability to enforce its rights than the party that was found to have violated the law, which would undermine the legislative intent behind creating the fee shift in many substantive statutes, as expressed in the Shands case and other decisions. If the defendant refuses to turn over his or her attorney's billing records, then the court may presume that the billed fees exceed those sought by the prevailing plaintiff.²⁸

Third, when examining the billing records, a judge may consider whether an attorney could have reasonably litigated the case within limits imposed by the presumptive cap. A useful comparison would be imagining what sort of representation the client would have received if the attorney refused to provide any services beyond the presumptive cap.

Comment 5 to SCR 20:1.5 counsels against such retainer agreements: "An agreement may not be made whose terms might induce the lawyer to improperly curtail services for the client or perform them in a way contrary to the client's interest." If it would be unethical and unreasonable for a hypothetical attorney to attempt to litigate a case under the presumptive cap's restrictions, it would not seem to be a fair proxy for "reasonable" attorney fees. Moreover, enforcing the cap in that circumstance "will discourage rather than encourage attorneys to take meritorious [fee-shifting] cases."²⁹ It would also undermine the legislative intent of fee-shifting consumer statutes, by which a plaintiff acts as a "private attorney general" who "enforces the public's rights."³⁰

Conclusion

The new statute creates a revised framework for courts in fee-shifting litigation. While it remains to be seen exactly how courts will interpret the statute and presumptive cap, many of the factors previously identified by courts as being relevant, namely an analysis of the reasonable number of hours and reasonable hourly rate, will still play an important role. It is unlikely that courts will ignore the original legislative policies behind the fee-shifting statutes themselves, which were not explicitly repealed by the new procedure for determining reasonable attorney fees.

A significant tangible and immediate effect of the new law, however, is that it creates a new level of uncertainty in fee-shifting cases. As a result, attorneys representing injured consumers or other plaintiffs under fee-shifting statutes might be – and perhaps should be – more hesitant to take on cases involving a relatively small amount of compensatory damages regardless of the case's strength on the merits.

Endnotes

¹ See, e.g., Shands v. Castrovinci, 115 Wis. 2d 352, 357-59, 340 N.W.2d 506 (1983).

² Alyssa Smith, Walker to Legislature: Get Wisconsin Back to Work, WisconsinReporter.com, Sept. 28, 2011, www.wisconsinreporter.com/walker-to-legislature-get-wisconsin-back-to-work.

³ See, e.g., Judy Wiff, GOP Lawmakers Say Back to Work Session Needed; Democrats Say Stick to Creating Jobs, Rivertowns.net, Oct. 6, 2011, www.rivertowns.net/event/article/id/234019/.

⁴ Linsey L. Fiori, Vos's Attorney Fees Bill Becomes Law, TheJournalTimes.com, Dec. 7, 2011, www.journaltimes.com/article_e7996964-212a-11e1-9a4e-001871e3ce6c.html.

⁵ 2011 Special Session S.B. 12.

⁶ Kaskin v. John Lynch Chevrolet-Pontiac Sales Inc., 2009 WI App 65, 318 Wis. 2d 802, 767 N.W.2d 394; see also Steven Elbow, "Attorneys warn that bill to limit their fees will stick it to consumers," The Capital Times, Oct. 30, 2011.

⁷ Wis. Stat. § 814.045.

⁸ Wis. Stat. § 51.61(7)(b) ("It is not a prerequisite to an action under this paragraph that the plaintiff suffer or be threatened with actual damages.").

⁹ The Federal Trade Commission's Annual Consumer Sentinel Network Data Book for January – December 2011, available at www.ftc.gov/sentinel/reports/sentinel-annual-reports/sentinel-cy2011.pdf.

¹⁰ See, e.g., Stuart v. Weisflog's Showroom Gallery Inc., 2008 WI 22, ¶ 21, 308 Wis. 2d 103, 746 N.W.2d 762; Kolupar v. Wilde Pontiac Cadillac Inc., 2007 WI 98, ¶¶ 34-37, 303 Wis. 2d 258, 735 N.W.2d 93; Baierl v. McTaggert, 2001 WI 107, ¶¶ 31-32, 245 Wis. 2d 632, 629 N.W.2d 277; First Wis. Nat'l Bank v. Nicolaou, 113 Wis. 2d 524, 355 N.W. 2d 390 (1983); Cook v. Public Storage Inc., 2008 WI App 155, ¶ 85, 314 Wis. 2d 426, 761 N.W.2d 645; Lynch v. Crossroads Counseling Ctr. Inc., 2004 WI App 144, ¶ 45, 275 Wis. 2d 171, 684 N.W.2d 141.

¹¹ See, e.g., Heaton v. Larsen, 97 Wis. 2d 379, 392-93, 294 N.W.2d 15 (1980) ("Repeals by implication are not favored in the law.").

¹² Wis. Stat. § 814.045(2)(a).

¹³ John Mohr & Sons Inc. v. Jahnke, 55 Wis. 2d 402, 411, 198 N.W.2d 363 (1972).

¹⁴ See Hughes v. Chrysler Motors Corp., 197 Wis. 2d 973, 982, 542 N.W.2d 148 (1996) ("[W]e conclude that the legislature intended to include the purchase price of the car as pecuniary damages."); accord Benkoski v. Flood, 2001 WI App 84, ¶¶ 24-32, 242 Wis. 2d 652, 626 N.W.2d 851 (applying the Hughes holding to the calculation of damages under Wis. Stat. section 100.20(5)).

¹⁵ Hughes, 197 Wis. 2d at 984.

¹⁶ Benkoski, 2001 WI App 84, ¶¶ 36-37, 242 Wis. 2d 652 (affirming circuit court's decision to award prevailing consumer plaintiff's reasonable attorney fees incurred in defending against counterclaim that was "inextricably intertwined" with the plaintiff's affirmative claim).

¹⁷ See Paulik v. Coombs, 120 Wis. 2d 431, 435, 355 N.W.2d 357 (Ct. App. 1984).

¹⁸ Stuart, 2008 WI 22, ¶ 5, 308 Wis. 2d 103.

¹⁹ Id. ¶ 20.

²⁰ Id. ¶ 4 ("[W]e are satisfied that Wis. Stat. sec. 100.20(5) authorizes the doubling of an entire damages award, even if a [fee-shifting] violation is combined with additional wrongdoing that contributes to the loss in question.").

²¹ Id. ¶ 22.

²² Wis. Stat. § 814.045(2)(a).

²³ See Lynch, 2004 WI App 114, ¶ 41, 275 Wis. 2d 171.

²⁴ See, e.g., id. ¶ 40.

²⁵ See id. ¶ 38 ("[W]e are not aware of any reported case that has addressed the relationship of the 'lodestar' approach to the application of SCR 20:1.5(a) when awarding reasonable attorney fees under a state fee-shifting statute.").

²⁶ Cf. id. ¶ 46 ("A rejected settlement offer that turns out to be the same as the amount recovered might also bear on the reasonableness of the hours expended.").

²⁷ See, e.g., Circle Y Constr. Inc. v. WRH Realty Servs. Inc., 721 F. Supp. 2d 1272, 1282 n.3 (N.D. Ga. 2010) ("The Court finds that under Georgia law, evidence of one party's attorney's fees can be used to demonstrate the reasonableness of the other party's attorney's fees.").

²⁸ Id. at 1282 (explaining that, when defendants failed to provide evidence of their own attorney fees, "[o]n this basis alone, the Court may reject Defendants' challenges to [the Plaintiffs'] fee application.").

²⁹ Lynch, 2004 WI App 114, ¶ 45, 275 Wis. 2d 171.

³⁰ Shands, 115 Wis. 2d at 358.

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