November 21, 2011
In an Order dated November 4, 2011, the Michigan Supreme Court reversed in part, and affirmed in part, the Court of Appeals’ May 13, 2010 judgment in Miller v Citizens Insurance Company. The Court of Appeals decision affirmed the Circuit Court’s award of attorney fees to plaintiff’s attorneys and affirmed the Circuit Court’s decision that a portion of those fees be paid by one of plaintiff’s medical providers, DMC, ouT of the amount DMC recovered from plaintiff and the insurer for billed services arising out of injuries sustained by plaintiff’s ward in a motor vehicle accident.
On September 5, 2007, Ryan Scott Miller, a mentally and physically incapacitated adult, was involved in a rollover motor vehicle accident in which he sustained severe and permanent injuries. The vehicle involved in the accident was owned by Ryan’s father and insured by Citizens. On Ryan’s behalf, a claim for no-fault benefits was submitted to Citizens on September 13, 2007. Citizens then rescinded the insurance policy claiming that a representation had been made that the vehicle would not be used for business purposes and that representation was false. Plaintiff filed suit against Citizens on Ryan’s behalf, claiming Ryan’s entitlement to no-fault benefits.
On January 22, 2008, a stipulated order of dismissal pursuant to settlement was entered by the Circuit Court. The issue of attorney liens remained open for decision, however. A conference was held by the Court with plaintiffs, Citizen, and all lien holders to settle the matter of attorney liens. One medical provider, DMC, argued that it had not received notice of the litigation until after it was settled. The Court required further investigation into that issue, but ordered Citizens to make payment to all other providers subject to an attorney lien of 1/3 of their invoices.
An evidentiary hearing was conducted on March 14, 2008. The DMC representative testified that no lien was sought by plaintiff at the time Ryan was admitted to the hospital. A Medicaid application filled out by plaintiff did mention plaintiff’s attorneys, however. The DMC also knew that at the time Ryan was admitted, Citizens had denied coverage to Ryan and attorneys were pursuing the matter on Ryan’s behalf. The DMC did not provide a lien notice to Citizens, nor did it advise Citizens to pay the DMC directly or not to pay plaintiff’s attorneys when the DMC sent its bills to Citizens.
Based upon this information, the Circuit Court found that DMC had abundant notice that Ryan had counsel who was pursuing his claims against Citizens. The DMC simply failed to take action to inform Ryan’s attorneys that DMC did not want them to perform any actions on behalf of DMC. The Court awarded DMC its full bill, totaling $150,660.51, but held that plaintiff’s attorneys were entitled to 1/3 of the DMC’s recovery.
The DMC then appealed. The Court of Appeals held that plaintiff’s attorneys were entitled to fees for legal services provided on behalf of plaintiff as a consequence of the contingency fee agreement that existed between plaintiff and her attorneys. The Court found that DMC had never advised plaintiff’s attorneys not to pursue insurance proceeds for the payment of its medical services and that requiring all providers, including DMC, to pay 1/3 of their recovery from Citizens as a contingency fee to plaintiff’s attorneys was fair in light of the fact that, as a result of the work performed by plaintiff’s attorneys, the providers were able to recover payment for their services without having to engage in litigation of their own.
The Court of Appeals further held that, with regard to the payment of plaintiff’s attorney’s fees, an equitable common-law exception to the American rule applies. This exception – the “common-fund exception” – only applies when a prevailing party creates or protects a common fund that benefits himself and others. In this case, DMC was one of several beneficiaries of the settlement that plaintiff’s attorneys secured from Citizens. DMC did not pursue a direct claim on Ryan’s behalf, nor did DMC direct plaintiff’s attorneys not to pursue payment for its services on behalf of DMC. Thus, the Court of Appeals found it would be unfair to allow DMC to benefit from the efforts of plaintiff’s attorneys without contributing to the costs incurred in securing insurance proceeds and the common fund.
DMC then filed an Application for Leave to Appeal in the Michigan Supreme Court, which was granted. After oral argument, the Michigan Supreme Court reversed the Court of Appeals’ decision in part, and affirmed it in part. The Supreme Court found that the DMC is not responsible for payment of plaintiffs’ attorney fees pursuant to the No-Fault Act. Instead, plaintiff is responsible for payment of her own attorney fees, pursuant to the contingency fee agreement into which she entered with her attorneys. MCL 500.3112, upon which plaintiff relied for support of her arguments, permits equitable apportionment of personal protection insurance benefits among payees but does not encompass an award of attorney fees to an insured’s counsel. Moreover, the Court of Appeals’ reliance on the common-fund exception to the American Rule was in error because no common fund was created in this case. Finally, the settlement between plaintiff, Citizens and plaintiff’s attorneys did nothing to extinguish DMC’s rights to collect the remainder of its bill from plaintiff. In other words, DMC is entitled to recover the full amount of its bills from plaintiff, and is not required to pay 1/3 of that amount to plaintiff’s attorneys.