Recovery of Litigation Expenses in Wisconsin and a Landowner Attorney Gaming the System

July 8, 2014

Based on anecdotal evidence I have acquired over the years, and certainly not any rigorous research, I have concluded that Wisconsin has a fairly generous statutory scheme for compensating landowner attorneys if they meet the threshold for recovering litigation expenses. Again, solely based on personal observation, it is not uncommon for attorneys representing landowners to “game” the system to maximize the possibility of such recovery. It is rare, however, for a court to recognize an attorney is doing so, and hold it against the attorney. This case is one of those rare occurrences. 

The Village of Hobart in Brown County had a need to condemn property owned by David Lewis for a highway project. After negotiations, the Village offered Lewis $98,000 for the property in its final written offer. That offer was refused, so the Village served a Jurisdictional Offer in the amount of $74,600, which was similarly refused. The case was tried to the Court. On the first day of the trial, the parties stipulated to an award of $90,000, but the stipulation allowed Lewis to petition to recover litigation expenses under §32.28 of the Wisconsin Statutes. §32.28 allows a landowner to recover litigation expenses (including actual attorney and expert fees) if the verdict exceeds the jurisdictional offer or the highest written offer prior to the jurisdictional offer by at least $700 and at least 15 percent.

Lewis petitioned the court to recover approximately $77,000 in attorney fees. The Village took the position that the request was unreasonable. It argued that § 814.045 limited Lewis’ recovery of attorney fees to three times the amount of compensatory damages, which were $15,400, the difference between the stipulated verdict and the amount of the jurisdictional offer.

Section 814.045 became effective December 21, 2011. It gives a long list of considerations a court should use to determine if an attorney fees request is reasonable, but it also creates a presumption that attorney fees cannot exceed three times the amount of compensatory damages awarded. The application of this statute in the condemnation setting is significant because it is commonplace for attorney fees to far exceed three times the compensatory damages received by the landowner (if one defines compensatory damages as the difference between the jury/court verdict and the highest written offer or jurisdictional offer given to the landowner prior to condemnation). The trial court found that the statute applied even though the case was filed prior to the effective date of the statute. The court reasoned this was a procedural statute and, therefore, could be applied retroactively.

Gaming the System?

Having decided that §814.045 applies, the trial court then applied all of the factors in that statute to determine whether the attorney fees requested were reasonable. It is clear from reading the trial court’s written decision that the court was significantly influenced on this issue by its belief that the landowner’s attorney purposely maneuvered the litigation to maximize the potential for recovery of attorney fees. The fee agreement he had with Lewis was not unusual: if the amount recovered was insufficient to trigger § 32.28, Lewis’ attorney would recover one-third of the amount recovered. However, if § 32.28 was triggered, the attorney fees would be calculated at an hourly rate of $400 and $4,000 per day or partial day for an appearance at court or an evidentiary hearing. After summarizing the fee agreement, this is what the trial court said on pp. 15-16 of its decision about the reasonableness of the hourly rate:

…Lewis’ attorneys have further guaranteed that they will obtain the highest possible benefit by adding in the Fee Agreement that if one-third of the recovery happens to be greater than fees charged at an hourly rate, they will take the one-third instead.

The problem with this type of fee arrangement is that the rate is significantly higher if the defendant has to pay. It is hard for the Court to find the rate reasonable when such rate would likely only be paid by the defendant, not the plaintiff who entered into the fee agreement. This type of fee agreement undermines the integrity of the reasonableness of the fees charged by Lewis’ attorney.

The purpose of section 32.28 is to “make the owner ‘whole,’ through compensating the owner for the value of the property taken and for the attorney fees incurred in attempting to obtain this value.” Standard Theatres, 118 Wis. 2d at 744-45. Here, Lewis would likely not have to pay the hourly rate that his attorneys are seeking from the Village. Even more concerning is that the structure in the Fee Agreement creates conflicts between what most benefits the client and what most benefits the attorney. Generally, when an attorney charges a contingency fee, he is motivated to obtain the highest possible outcome for his client because the attorney fee increases when the client’s award increases. In that type of situation, the goals are not at odds. Under the Fee Agreement entered into between Lewis and Biersdorf & Associates, however, that is not necessarily the case. Lewis’ attorneys benefit more by pushing the case to trial and agreeing to a lower number that is considered a “verdict” so that they are able to collect fees from the Village at their higher hourly rate than by resolving the matter earlier in the process and collecting a smaller contingency fee. (Emphasis added.)

The Village argued Lewis’ conduct was not reasonable because he refused the Village’s highest and best offer of $98,000 before litigation ever started. Although the Court stated Lewis’ refusal to accept that offer did not affect the Court’s analysis, it went on to say on p. 18:

The allegation that Lewis—or rather, Lewis’ attorneys—failed to mediate in good faith is concerning as there is an appearance that Lewis’ attorneys had an interest wholly separate from Lewis’ interest at the mediation table: they need to get to a verdict in order to be able to collect their higher hourly rate from the Village. It is extremely concerning if Lewis’ attorneys demanded an amount higher than even their own expert opined the property was worth at mediation, but then were willing to compromise once the amount would be considered a verdict that would entitle them to collect their fees from the Village. If the aim of the statute providing for recovery of attorney fees is to make Lewis “whole” by ensuring that he obtains the full value of the property, that aim is not furthered by attorneys who may be motivated to be concerned about what point the fee-shifting statute kicks in rather than negotiating the highest value possible for their client.

Court of Appeals Decision

On appeal the Wisconsin Court of Appeals affirmed the trial court in every respect, without commenting on the motivations of Lewis’ attorneys. Here is the written decision. Significantly, Lewis argued on appeal that § 814.045 did not apply to eminent domain cases because such cases “do not involve compensatory damages.” The court of appeals decided not to address this argument because it was not raised in the trial court. The court expressly stated its opinion did not address this issue. Thus, that argument is reserved for the next litigant.

Reading between the lines of the Court of Appeals decision, it appears to me the Court did not necessarily agree that § 814.045 should apply in eminent domain actions, but it could not so hold based on the arguments asserted by Lewis. Why else would the Court not recommend publication of the first decision to address the issue of the application of § 814.045 to eminent domain cases? The last paragraph of the Court of Appeals’ decision reads:

¶30  In sum, we conclude WIS. STAT. § 814.045 is applicable in this action. We reject the only arguments Lewis adequately preserved for appeal: that the statute conflicts with WIS. STAT. § 32.28, and that it cannot apply retroactively. Accordingly, we affirm. (Emphasis added.)

Whether this statute applies in condemnation cases is far from settled.