Bergeson v. Dilworth

Citations: 875 F. Supp. 733; 1995 U.S. Dist. LEXIS 1109; 1995 WL 33883Docket: Civ. A. 87-1579-FGT

Court: District Court, D. Kansas; January 23, 1995; Federal District Court

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This case involves a wrongful death action stemming from a collision between a homemade trailer towed by a pickup truck and the plaintiff's decedent. The defendants, Nathan O. Dilworth and Edward K. Dilworth, were insured by State Farm Mutual Automobile Insurance Company, which had a policy limit of $200,000. The plaintiff's settlement offer within this limit was rejected, leading to a jury trial that resulted in a verdict of $756,795.33 against the defendants, consisting of $256,795.33 in actual damages and $500,000 in punitive damages. 

After the verdict, State Farm initially posted a supersedeas bond for $200,000, but the court allowed the plaintiff to pursue garnishment for the excess amount after the defendants filed for bankruptcy. Eventually, State Farm posted a bond covering the entire judgment, which was affirmed by the Tenth Circuit Court of Appeals. Following this, State Farm paid the judgment amount plus interest and costs into court.

The remaining issue was the determination of attorney fees under K.S.A. 40-256. Key stipulations included the plaintiff's judgment amount, the insurance policy's coverage limits, the rejection of the settlement offer, and the theories under which the garnishment proceeded, including State Farm's alleged bad faith in failing to settle. State Farm has accepted responsibility for attorney fees in the garnishment action without contesting the bad faith claim.

State Farm disputes the plaintiff's attorney fees and the calculation method, arguing that since it conceded liability for attorney fees in the garnishment action, further discovery on bad faith refusal to settle is irrelevant. The plaintiff's contingency fee contract specified fees of 33 1/3%, 40%, or 50%, with the 50% provision being applicable. The plaintiff paid a total of $426,393.44 in fees and expenses, with $34,637.65 deducted for expenses before calculating the fees.

The plaintiff seeks to recover all fees and expenses related to amounts exceeding $200,000.00 in the garnishment action, including interest. If calculated on a time basis, he claims entitlement to reasonable fees for services related to obtaining and collecting the excess judgment, including tasks performed after a settlement offer was rejected. 

State Farm asserts that any reasonable attorney fees should be calculated using the lodestar method without enhancement, referencing K.S.A. 40-256, which allows for attorney fees when an insurance company refuses to pay a claim without just cause. The plaintiff claims at least $336,597.76 for fees under the contingency contract or alternatively $511,287.65 based on time spent and prevailing rates. 

In its motion for summary judgment, State Farm argues it should not be liable for the attorney fees paid by the plaintiff for the underlying litigation recovery, emphasizing that shifting such liability would not align with the intent of K.S.A. 40-256. State Farm contends that had it paid the claim initially, the plaintiff would not have incurred these attorney fees. The refusal to settle within policy limits necessitated the plaintiff's legal action against State Farm’s insureds, leading to additional attorney fees associated with the bad faith claim against State Farm.

State Farm contends that the plaintiff did not secure a judgment against it, as the judgment was rendered solely against the Dilworths, whose liability it insured. Although State Farm paid the judgment after it was affirmed on appeal, it was not a party to the original litigation and was only included as a named party post-judgment. Despite this, the court finds that K.S.A. 40-256 applies because State Farm's actions—specifically posting a supersedeas bond and paying the judgment—effectively constitute a settlement or confession of judgment, triggering attorney fee provisions. State Farm has conceded liability for attorney fees in the garnishment proceedings and cannot argue that no judgment was entered against it. 

Additionally, State Farm's claim that paying the policy limit would not have benefited the plaintiff is deemed irrelevant, as its refusal to settle led to unnecessary litigation, incurring additional fees. State Farm asserts that any fee award should be limited to services rendered in the garnishment action, estimating compensation for plaintiff’s counsel based on hours worked at specified hourly rates. State Farm’s expert suggests amounts for both lead counsel and another attorney based on time records, but notes the lack of contemporaneous records complicates fee determination. Nonetheless, State Farm has not requested a reduction in fees due to this documentation issue.

State Farm contends that only hours directly related to the garnishment action should be compensated. Post claims to have spent 550 hours from the rejection of the settlement offer to the trial, plus an additional 882 hours on post-trial matters, with 754 of those hours documented. While Post does not charge by the hour, he estimates a reasonable rate of $250 per hour. This results in a total requested fee of $358,000 for 1,432 hours. State Farm agrees to pay for 410 to 480 hours related to the garnishment action and does not dispute the hours claimed by co-counsel Schultz, who requests $150,650 for 753.40 hours at $200 per hour, agreeing to pay for 164.1 hours related to the garnishment.

The garnishment proceeds from a claim alleging State Farm's bad faith refusal to settle within policy limits, constituting a breach of contract under Kansas law. A plaintiff with an assigned bad faith claim can garnish the insurer for excess judgments. The attorney fee rights initially belonging to the insured transfer to the plaintiff through garnishment, allowing recovery of fees incurred in the garnishment action but not those from the original tort action. The plaintiff, stepping into the insured's position, is entitled to reasonable attorney fees for the garnishment action, as established by case law. If an insurer's negligence or bad faith results in an excess judgment, the insured could have claimed defense costs, and similarly, the plaintiff should receive no more favorable treatment.

State Farm contends that attorney fees awarded by the court should not be based on a contingent fee contract. Although some language from the Kansas Supreme Court implies limitations on this, there is no absolute prohibition. In Wolf v. Mutual Benefit Health. Accident Association, the court clarified that while the statute allows for a reasonable attorney fee, it excludes speculative or contingent fees but affirmed that the awarded fee was reasonable despite potential undue consideration of contingency. Similarly, in Service v. Pyramid Life Insurance Co., the court upheld an attorney fee award partially based on a contingent fee contract, noting that while the statute does not enforce the contract against the insurance company, the trial court can consider its terms in determining a reasonable fee. Recent Kansas case law supports the inclusion of the contingent nature of the fee contract as a factor in assessing reasonableness, though it cannot be the sole criterion. The trial court, viewed as an expert in attorney fees, exercises sound discretion in determining reasonable fees, which are not to be disturbed without evidence of abuse. The Kansas Supreme Court references Rule 1.5 of the Model Rules of Professional Conduct, listing factors to evaluate reasonableness, including time and labor, skill required, customary fees, results obtained, and whether the fee is fixed or contingent. Based on these factors, Mr. Schultz is awarded $32,820.00 for 164.1 hours at $200.00 per hour, and Mr. Post is awarded $125,000.00 for 500 hours at $250.00 per hour, totaling $157,820.00 in fees.

The garnishment action raised a unique legal issue regarding State Farm's responsibility for a supersedeas bond related to an excess judgment. The court recognized that the hourly rates charged by plaintiffs' counsel were consistent with those in the community for attorneys with similar experience and skills. While counsel dedicated significant effort to the case and achieved favorable outcomes, the court determined that the requested fee of $336,597.76, based on a contingent fee agreement, was excessive and unreasonable. The court awarded an adequate amount for the time and effort involved, specifically ordering State Farm to pay the plaintiff $157,820.00 in attorney fees. Additionally, the court granted in part and denied in part both the plaintiff's and garnishee's motions for summary judgment. The Clerk is instructed to enter judgment accordingly.