Sep. 4, 2018 – A state appeals court has ruled that a circuit court judge did not properly follow a statutory formula to determine attorney fees in a third-party liability lawsuit that settled after an injured employee received worker’s compensation from an insurer.

During the course of his employment, Jody Vande Corput was injured in a motor vehicle accident. Continental Western Insurance Company (Continental) ultimately paid Vande Corput about $337,000 as the worker’s compensation benefits insurer.

But Jody and his wife, Sherry, filed a third-party liability lawsuit against the other driver’s insurer, Pekin Insurance Company (Pekin), seeking liability damages under a statute, Wis. Stat. section 102.29, which allows such third-party liability lawsuits to be filed.

The complaint asserted a negligence claim on Jody’s behalf, and a loss of consortium claim on Sherry’s behalf. The law firm of Hupy & Abraham S.C. represented the couple in their lawsuit against Pekin, on a one-third contingency fee agreement.

Continental was an involuntary plaintiff, since Continental paid the worker’s compensation benefits. Ron Harmeyer Law Office LLC represented Continental.

Under a settlement agreement, Pekin agreed to pay $750,000 to settle the claims, which triggered a statutory formula, under section 102.29(1)(b), which determines how the proceeds of a third-party liability lawsuit settlement shall be divided.

First, the court must deduct the “reasonable cost of collection,” which includes attorney fees. After that deduction, one-third of the remainder is paid to the injured party who brought the action. Then the worker’s compensation insurer is reimbursed for claims that it paid to the employee. The injured employee receives any remaining balance.

The settlement attributed $125,000 to Sherry’s loss of consortium claim. The remaining $625,000 in settlement proceeds was subject to the statutory distribution formula.

Continental argued that the “reasonable cost of collection,” which includes attorney fees, was about $208,000, one-third of the settlement amount.

Further, Continental argued that the $208,000 should be divided among Hupy & Abraham and Ron Harmeyer Law Office, which represented Continental, on a pro rata basis, in proportion to their clients’ respective recoveries under the statutory formula. This argument assumed the respective firms would share one-third of the settlement.

That would mean the Harmeyer firm would receive $139,000 and the Hupy firm would receive about $69,000. The Vande Corputs’ disagreed, arguing Harmeyer was not entitled to one-third, pro rata, because it had no fee agreement with Continental.

Ultimately, the circuit court ruled that the law firms should equally split the reasonable cost of collection, each getting about $104,000 in attorney fees. The court approved that parties’ settlement agreement – awarding $125,000 to Sherry, $137,000 to Jody, and $274,000 to Continental, under the formula – and dismissed the lawsuit with prejudice.

In Vande Corput v. Pekin Ins. Co., 2017AP357 (Aug. 30, 2018), a three-judge panel for the District III Court of Appeals reversed, concluding “the circuit court erred in its determination regarding the amount and division of the reasonable costs of collection.”

Under a 2005 state supreme court decision, Anderson v. MSI Preferred Ins. Co., the panel noted, “our supreme court set forth a specific, three-step process a court must follow when determining and apportioning the reasonable costs of collection.”

The first step is to determine the reasonable value of the respective attorneys’ fees and costs. The panel concluded that the circuit court did not properly follow this first step.

“It instead began by declaring – without explanation – that the reasonable costs of collection were equal to one-third of the $625,000 settlement,” wrote Judge Mark Seidl. “The court erroneously exercised its discretion in that regard.”

“The second step of the Anderson analysis required the circuit court to determine whether the sum of both attorneys’ reasonable fees and costs was equal to the reasonable cost of collection. The court did not perform this analysis.”

The panel remanded the case to “recalculate the reasonable costs of collection, using the Anderson analysis, and to divide that amount between the parties attorneys.”

Amicus Brief Issue

The panel addressed an amicus brief, filed by the Wisconsin Association for Justice, arguing that Continental could not recover any attorney fees because contingency fee agreements require “a writing signed by the client,” under attorney ethics rules.

But the panel rejected that argument because it wasn’t a disciplinary matter and Continental produced evidence that there was a contract for services.

“The court’s finding that Continental and the Harmeyer firm had a ‘contract for services’ supports an award of attorney fees to the Harmeyer firm, even absent a contingency fee agreement,” wrote Judge Seidl, noting the statute contemplates shared recovery.

The panel also rejected the argument that the court should have determined the Harmeyer firm’s fees based on a quantum meruit theory, since Harmeyer did not have a written fee agreement with Continental, but did not rule it out on remand.

“[W]e simply observe that the court must exercise its discretion on remand to select an appropriate method for determining the reasonable value of the Harmeyer firm’s services, and employing a quantum meruit theory would be one appropriate method of making that determination,” Judge Seidl wrote for the three-judge panel.

Approval of the Settlement

The Vande Corputs’ argued that the circuit court could not compel them to settle because there were contingencies that were unfulfilled. For instance, the settlement was “contingent on the satisfactory division or allocation of the costs of collection.”

The panel did not agree, since the statute gives the court “clear authority to divide the costs of collection” unless otherwise agreed upon by the parties. On the costs of collection, the parties could not agree, and the circuit court divided the costs.

Thus, the panel preserved the settlement agreement but remanded to determine the attorney fee issued, based on the panel’s guidance to follow Anderson.