IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 92,700
J. MICHELLE JOHNSON and
ALAN L. JOHNSON,
Plaintiffs/Garnishors/Appellees/Cross-Appellants,
v.
WESTHOFF SAND COMPANY, INC.,
Defendant,
v.
MID-CONTINENT CASUALTY COMPANY,
Garnishee/Appellant/Cross-Appellee.
SYLLABUS BY THE COURT
1. In Kansas, attorney fees cannot be awarded absent statutory authority or agreement.
2. One of the purposes of K.S.A. 40-256 is to award a plaintiff a reasonable sum as an attorney fee for services in an action against an insurance company that has been judicially determined to have refused without just cause or excuse to pay the full amount of an insured's adjudged loss.
3. The amount of an attorney fee award is within the sound discretion of the district court and will not be disturbed on appeal absent a showing that the district court abused that discretion. Discretion is abused only where no reasonable person would take the trial court's view. The burden is on the party alleging the abuse.
4. A district court is considered an expert on the issue of attorney fees. It may apply its own knowledge and professional experience in determining the value of services rendered.
5. Appellate courts are also experts on the reasonableness of attorney fees. However, an appellate court does not substitute its judgment for that of the district court on the amount of the fee unless in the interest of justice it disagrees with the district court.
6. In determining the reasonableness of an attorney fee, including those awarded under K.S.A. 40-256, the factors in Rule 1.5(a) (2005 Kan. Ct. R. Annot. 397) of the Kansas Rules of Professional Conduct should be considered.
7. There is no requirement under K.S.A. 40-256 that a party be made whole by being awarded the same amount of fees the party previously paid to his or her attorney.
8. There is no presumption that a contingent fee agreement approved by a court establishes a reasonable sum to be awarded under K.S.A. 40-256.
9. Among other things, the law of the case doctrine necessitates that where an appellate court has decided a particular issue, by explicit language or by necessary implication, the district court is foreclosed from reconsidering such an issue.
10. Attorney fees incurred litigating the amount of attorney fees to be awarded are recoverable under K.S.A. 40-256. An appellate court's standard of review of the amount is abuse of discretion.
11. It is not the function of the appellate court to reweigh the evidence.
12. As a general rule, issues not raised before the lower court cannot be raised for the first time on appeal.
13. The fee of an expert witness may not be charged to the losing party unless specifically authorized by statute.
14. The fundamental rule to which all other rules are subordinate is that the intent of the legislature governs if that intent can be ascertained, and when a statute is plain and unambiguous, the court must give effect to the intention of the legislature as expressed rather than determine what the law should or should not be. The legislature is presumed to have expressed its intent through the language of the statutory scheme it enacted.
Review of the judgment of the Court of Appeals in Johnson v. Westhoff Sand Co., No. 92,700, an unpublished opinion filed June 24, 2005. Appeal from Johnson district court; GERALD T. ELLIOTT, judge. Judgment of the Court of Appeals affirming the district court is affirmed in part and reversed in part. Judgment of the district court is affirmed in part and reversed in part. Opinion filed June 9, 2006.
James R. Borthwick, of Blackwell Sanders Peper Martin LLP, of Kansas City, Missouri, argued the cause, and Brian D. Martin, of the same firm, was with him on the briefs for appellant.
Rex A. Sharp, of Gunderson Sharp & Walke, L.L.P., of Prairie Village, argued the cause, and Barbara C. Frankland, of the same firm, was with him on the briefs for appellees.
The opinion of the court was delivered by
NUSS, J.: This case involves a dispute over the amount of attorney fees and expenses assessed against an insurance company under K.S.A. 40-256. The district court's assessment against Mid-Continent Casualty Company (Mid-Continent) in the underlying garnishment action was based in part upon the Johnsons' contingent fee agreement with their counsel which established fees of 33% of any amount recovered through a settlement or trial judgment. The court also made an assessment against Mid-Continent in the accompanying dispute over the specific amount of attorney fees for which the Johnsons asserted an entitlement, i.e., "fees for fees" were awarded the Johnsons.
Mid-Continent appeals the Court of Appeals' decision affirming the district court on these and other issues. The Johnsons appeal the Court of Appeals' rejection of their argument that they were entitled to attorney fees of 40% from Mid-Continent, as contemplated by their fee agreement's appeal provision.
The issues on appeal, and this court's accompanying holdings, are as follows:
1. Did the district court abuse its discretion in determining the amount of attorney fees awarded for the underlying garnishment action? No.
2. Did the district court err under the "law of the case" doctrine in considering the contingent fee agreement? No.
3. Did the district court abuse its discretion in the amount of attorney fees awarded for the attorney fee litigation, i.e., fees for fees? No.
4. Did the district court err in awarding expert witnesses' fees and expenses under K.S.A. 40-256? Yes.
Accordingly, we affirm in part and reverse in part.
FACTS
In June 1992, Michelle Johnson, her husband Alan Johnson, and their children (the Johnsons) were involved in an automobile accident with a semi-tractor trailer in a construction zone. Michelle lost her dominant right arm below the elbow as a result. Thereafter, the Johnsons retained counsel to file a personal injury lawsuit under a contingent fee agreement in which they agreed to pay their attorney 33% of any recovery through settlement or trial judgment and 40% in the event of an appeal.
The Johnsons filed suit against several parties, including Westhoff Sand Company (Westhoff). Although Westhoff was personally served, it did not inform its insurance carrier, Mid-Continent Casualty Company, of the lawsuit. The Johnsons' attorney notified Mid-Continent by telephone when he discovered that it insured Westhoff.
Despite numerous attempts, Mid-Continent was unsuccessful in contacting Westhoff. Ultimately, Mid-Continent failed to defend Westhoff in the lawsuit. After all the other defendants settled, the Johnsons obtained a default judgment against Westhoff on February 1, 1995, in the principal amount of $2,268,784.52.
The Johnsons contended that Westhoff's insurance policy with Mid-Continent provided coverage and sought to recover the full amount of the default judgment and attorney fees from Mid-Continent. In February 1997, 2 years after obtaining their default judgment against Westhoff, they instituted a garnishment action against Mid-Continent to collect on their judgment. Mid-Continent denied coverage because of Westhoff's failure to give notice and failure to cooperate with Mid-Continent in the proceedings.
After discovery, a court trial, and reconsideration, Mid-Continent was found liable and its coverage defense was held to be "without just cause or excuse" under K.S.A. 40-256. In August 2001, the district court concluded that the Johnsons were entitled to collect from Mid-Continent the entire amount of the default judgment: approximately $3.6 million in principal and interest. The district court also awarded attorney fees in the amount of $1,202,336.65, which was approximately 33 1/3% of the judgment.
Mid-Continent appealed. On February 7, 2003, the Court of Appeals affirmed the default judgment, but remanded for the district court to conduct a full hearing and consider all factors listed in KRPC 1.5(a) (2005 Kan. Ct. R. Annot. 397) to determine the appropriate amount of attorney fees. Johnson v. Westhoff Sand Co. (Johnson I), 31 Kan. App. 2d 259, 275, 62 P.3d 685, rev. denied 275 Kan. 964 (2003). On February 5, 2003, it also awarded the Johnsons $12,000 in attorney fees and $282.96 in expenses they incurred on appeal.
After the parties' petitions for review and Mid-Continent's request to stay execution were denied, the district court entered a journal entry of judgment after appeal of $3,993,066.91 – the amount of the judgment affirmed by the Court of Appeals, plus interest. Mid-Continent paid the judgment on June 6, 2003.
On November 3, 2003, the Johnsons filed a motion with the district court to determine the amount of attorney fees awarded under K.S.A. 40-256. The court held an evidentiary hearing at which experts testified, exhibits were submitted, and counsel presented oral argument. The trial testimony generally reflected that as the complexity of the case increased, so would the contingent fee percentage or hourly rate, depending on the fee agreement.
The Johnsons submitted the following evidence to the district court.
(1) a work history summary of the case from the time of default judgment to the time of collection, February 1, 1995, through June 6, 2003;
(2) an August 12, 2003 letter from Rex Sharp (Johnsons' counsel) to James Borthwick (defense counsel) stating the approximate time spent on the garnishment action through the appeal, showing a total of 748.5 hours before the appeal, and another 270 hours on appeal until collection;
(3) the July 16, 1992 contingent fee agreement between the Johnsons and their counsel showing a 33% fee at or before trial and 40% on appeal, plus expenses;
(4) the executed summary sheet by the Johnsons' counsel detailing expenses and net fees incurred on the judgment collected from Mid-Continent, showing the Johnsons paid their counsel pursuant to the contingent fee agreement $1,595,080.21 in fees, i.e., 40% of the judgment, and $5,360.38 in expenses, totaling $1,600,440.59.
(5) an affidavit from the Johnsons' counsel affirming the exhibits entered and stating that attorney liens and reimbursement agreements to all prior law firms had been satisfied in full;
(6) expert affidavits from attorneys David Morris, Jacob Graybill, David Rebein, Lee Thompson, W. Greg Wright, Grant Shellenberger, Fritz Edmunds, Jr., and Michael Whitsitt in support of the reasonableness of the contingent fee agreement and the resulting fee in the case;
(7) an expert fee invoice of witness David Morris, totaling $5,423.60;
(8) an expert fee invoice of witness Jacob Graybill, totaling $4,712.50;
(9) additional time and expenses incurred by Johnsons' counsel through March 26, 2004, totaling 130.9 hours, and $6,005.07 in expenses; and
(10) the supplemental time and expenses incurred at trial.
The evidence indicated that as a contingency fee case, the Johnsons' counsel did not keep detailed time records during a portion of the suit. Therefore, some of the time spent on the case was estimated. For other times, however, detailed records were kept.
In response, Mid-Continent submitted stipulations from Johnsons' counsel, expert affidavits from attorneys Douglas Lancaster and Lee Smithyman, and an annotation of K.S.A. 40-256 cases prepared by Smithyman. In his affidavit, Lancaster asserted, based upon his extensive commercial litigation experience, that a total of $111,480.00 in attorney fees was appropriate based on hourly rate computations:
"(a)For lead counsel Rex Sharp: 439 hours at $200 per hour$ $87,800.00
"(b)Associates time: 140 hours at $150 per hour $21,000.00
"(c)Paralegal time: 28 at $60 per hour $ 1,680.00
"Total Attorneys' fees to be awarded: $111,480.00"
Similarly, Smithyman's affidavit suggested that based on a local hourly rate for attorneys of Sharp's skill and experience, appropriate attorney fees would be between $85,000 and $102,600.
On May 21, 2004, the district court awarded the Johnsons $1,329,233.51 in attorney fees and $5,360.38 for expenses incurred in litigating the original garnishment action. The district court's award is 33 1/3% of the judgment entered on remand ($3,993,061 - $5,360.38 in expenses.)
The district court also awarded the Johnsons an additional $51,580.00 in attorney fees plus $13,802.78 for expenses incurred in their having to litigate the specific amount of attorney fees to be awarded on remand (eventually $1.3 million). In other words, it awarded "fees for fees." The court rejected the Johnsons' version of fees for fees: $533,000, i.e., approximately one-third (pre-appeal) of the $1.6 million in attorney fees to which they argued they were entitled pursuant to their contingent fee agreement – and which they had paid to their counsel – on the garnishment action.
Finally, the district court denied the Johnsons' separate request for fees and expenses they incurred for appellate work in Johnson I, effectively holding that the Court of Appeals had already compensated them with the award of $12,000 in fees and $282.96 expenses.
Mid-Continent appealed the amount of the awards to the Court of Appeals, and the Johnsons cross-appealed, both asserting that the district court abused its discretion in assessing attorney fees and expenses. The Court of Appeals affirmed the district court's decision on both the appeal and cross-appeal. Johnson v. Westhoff Sand Co. (Johnson II), No. 92,700, unpublished opinion filed June 24, 2005. It later denied the Johnsons' request for attorney fees and expenses incurred for their appellate work in Johnson II.
We granted both parties' petitions for review. After oral arguments to this court, the Johnsons filed a motion for attorney fees and expenses they incurred for all appellate work in Johnson II, i.e., to the Court of Appeals and to this court.
ANALYSIS
Because of the quantity, and sometimes inconsistency, of numbers appearing throughout this litigation, an overview is helpful before discussion. The contingent fee agreement states in relevant part:
"3. The following percentage of the amount recovered after deducting expenses is to be paid by the clients . . . to the attorney as reasonable compensation for the legal services rendered:
33% of all amounts recovered by compromise or settlement or by any judgment resulting from a trial; 40% if the case is appealed or retried.
4. . . . Attorney will advance all expenses to clients, and, if a recovery is made, deduct the expenses from the total recovery first before calculating the legal fee.
5. If the case is tried to a jury or court (or appealed) and attorneys' fees are finally awarded in addition to damages, the attorneys' fees awarded will be used to pay the amount owed by the clients under paragraph three and four. Any shortfall shall be paid by the clients and any overage shall be paid to the client, if permitted by law."
Although the agreement states 33%, the Johnsons often substitute 33 1/3% in their arguments, presumably from calculation of the district court's award.
The parties' positions are summarized as follows:
1. Attorney fees for the underlying garnishment proceeding:
For the Johnsons' trial and pretrial work, Mid-Continent argues the district court's May 21, 2004, award of $1,329,233.51 in attorney fees for litigating the underlying garnishment action is too high and should be reduced to approximately $95,000.
The Johnsons respond that the award should be affirmed because it follows the contingent fee agreement for recovery through a trial judgment, 33 1/3%.
For the Johnsons' appellate work, Mid-Continent argues that the Court of Appeals on February 5, 2003, has already awarded $12,000 in fees for the underlying garnishment action, i.e., Johnson I.
The Johnsons respond that the Court of Appeals' $12,000 award should be reversed and this court should instead award fees of $266,666.67 for their appellate work in the garnishment action. Their fee figure is the product obtained by multiplying the default judgment amount (approximately $4 million in principal and interest) times 6 2/3% – the difference between their purported entitlement under the fee agreement of 33 1/3% of the amount of recovery through trial judgment (which the district court awarded) and their 40% purported entitlement after appeal, i.e., through their work in Johnson I.
Under the Johnsons' arguments, properly awarded fees and expenses would approach $1.6 million, the amount they actually paid their counsel pursuant to their fee agreement. Accordingly, they claim that their resolution will "make them whole" on the issue of attorney fees and expenses for all trial and appellate work arising out of the garnishment action.
2. Fees for fees:
For the Johnsons' trial and pretrial work in litigating the amount of attorney fees, Mid-Continent argues that the district court's May 21, 2004, award of $51,580 in fees is too high and should be reduced to approximately $20,000.
The Johnsons respond that the district court award is too low; this court should reverse and award fees of $375,000. Their fee figure is the product obtained by multiplying two figures. First, the "attorney fee judgment amount" (the $1.5 million "at risk" – the difference between the $1.6 million which the Johnsons claim is their fee entitlement under the fee agreement and the approximate $100,000 Mid-Continent argues is a reasonable fee for the garnishment action). Second, 25%, instead of the fee agreement's 33 1/3% of the amount of recovery through trial judgment. The Johnsons are willing to accept this discount because of their acknowledged "reduced risk" on the attorney fees litigation.
For the Johnsons' appellate work in the attorney fee litigation, Mid-Continent argues the Court of Appeals correctly denied attorney fees after its decision in Johnson II.
The Johnsons respond that the Court of Appeals' denial of their appellate fees for litigating the amount of attorney fees should be reversed. They argue this court should instead award fees of $100,000 for all of their appellate work on the fees issue. Their figure is the product obtained by multiplying two figures. First, the "attorney fee judgment amount" (the $1.5 million "at risk"). Second, 6 2/3%; once again, the fee agreement's stated differential between the percentage of the amount of recovery through trial judgment (33 1/3) and the percentage of the amount of recovery through appeal (40).
3. Expert witnesses' fees and expenses:
Mid-Continent argues that the district court's May 21, 2004, expense award to Johnsons for litigating the amount of attorney fees at trial, $13,802.78, is too high and should be reduced by the amount paid to expert witnesses – $10,136.10. The Johnsons argue the full amount was properly awarded.
Issue 1: Did the district court abuse its discretion in determining the amount of attorney fees awarded for the underlying garnishment action?
Greatly summarized, Mid-Continent argues that the district court should have considered the Johnsons' fee agreement only for the purpose of establishing employment of their counsel and the reasons why counsel was employed. It appears to argue alternatively that if the agreement is to be considered in the fee determination, then the amount computed under the agreement can prevail only if it is reasonable; a reasonable fee is determined by calculating a reasonable number of hours at a reasonable rate. Based upon its own calculations, a reasonable attorney fee is approximately $95,000.
On the Johnsons' cross-appeal, also greatly summarized, they argue that the amount of fees should be awarded in accordance with their fee agreement, i.e., 40% of the nearly $4 million judgment because the garnishment judgment was appealed. They claim entitlement to approximately $1.6 million – the amount they paid their counsel – and they want to be made whole.
Standard of review
Mid-Continent argues that resolution of the issue necessitates statutory interpretation and that de novo review is appropriate. However, it argued to the Court of Appeals that an abuse of discretion standard applied. Johnsons submit that the latter standard applies.
We agree that in Kansas, attorney fees cannot be awarded absent statutory authority or agreement. Gaslight Villa, Inc. v. City of Lansing, 213 Kan. 862, 873, 518 P.2d 410 (1974). Here, authority is provided under K.S.A. 40-256:
"That in all actions hereafter commenced, in which judgment is rendered against any insurance company as defined in K.S.A. 40-201 . . . if it appear[s] from the evidence that such company . . . has refused without just cause or excuse to pay the full amount of such loss, the court in rendering such judgment shall allow the plaintiff a reasonable sum as an attorney's fee for services in such action, including proceeding upon appeal, to be recovered and collected as a part of the costs." (Emphasis added.)
While the awarding of attorney fees is mandatory, the amount of such an award is within the sound discretion of the district court and will not be disturbed on appeal absent a showing that the district court abused that discretion. Link, Inc. v. City of Hays, 268 Kan. 372, 381, 997 P.2d 697 (2000). Discretion is abused only where no reasonable person would take the trial court's view. State ex rel. Stovall v. Alivio, 275 Kan. 169, 173, 61 P.3d 687 (2003). The burden is on the party alleging the abuse. State v. Sanchez-Cazares, 276 Kan. 451, 454, 78 P.3d 55 (2003).
We additionally observe that a district court is considered an expert on the issue of attorney fees. Link, Inc., 268 Kan. at 382. It "may apply its own knowledge and professional experience in determining the value of services rendered. [Citation omitted.]" Service v. Pyramid Life Ins. Co., 201 Kan. 196, 221-22, 440 P.2d 944 (1968). Moreover, "[a]ppellate courts are also experts on the reasonableness of attorney fees. However, we do not substitute our judgment for that of the district court on the amount of the fee unless 'in the interest of justice' we disagree with the district court. [Citations omitted]." Link, Inc., 268 Kan. at 383.
Discussion
In determining the reasonableness of an attorney fee, e.g., as set forth in K.S.A. 40-256, the factors in Rule 1.5(a) (2005 Kan. Ct. R. Annot. 397) of the Kansas Rules of Professional Conduct should be considered. City of Wichita v. BG Products, Inc., 252 Kan. 367, 374, 845 P.2d 649 (1993). The rule provides:
"(a) A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent." (2005 Kan. Ct. R. Annot. 397.) (Emphasis added.)
In awarding attorney fees under K.S.A. 40-256 on remand for the garnishment action, the district court examined these factors and stated:
"The first factor is 'the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.' Counsel for plaintiff - garnishor points out he spent 1,018.5 hours on the garnishment process whereas counsel for the garnishee points out 170 of those hours related to the appeal and that the garnishor moved for allowance of a fee on appeal and was awarded $12,000. Under the circumstances it appears more reasonable and better practice to omit factors on appeal from consideration.
"This Court observes that substantial and significant labor was involved in this garnishment notwithstanding that the underlying action resulted in default judgment and notwithstanding that to a large extent this garnishment proceeded on stipulated facts. This was a coverage defense raising issues of non-cooperation, notice of loss, opportunity to investigate, failure to give timely notice of loss and whether the insurance company's refusal to pay was without just cause or excuse. These issues were fully developed and forcefully litigated on both sides and garnishee Mid-Continent was represented by a substantial law firm of great skill, experience and resources. It was the determination of the applicable law and its application to and legal effect on the stipulated facts which was the controversy and the focus of the resulting work.
"The questions were not novel, but they were difficult. The determination of the applicable legal principles and the results of the application were thoroughly and forcefully presented and controverted through out the proceedings.
"The skill requisite to perform the legal services was substantial. While garnishment is largely controlled by statute it does not follow that this garnishment proceeding did not require high professional skills and abilities. The garnishment procedure was not the issue, what was at issue were the inferences to be drawn and the legal conclusions relating to insurance coverage and the duty to defend together with the applicable principles of law. Federal cases, Kansas cases and cases from other jurisdictions were all relied on. The Court also notes the ongoing and continuing dedication and commitment required.
"The second factor to be considered is 'the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.' The Court does not believe this is a significantly applicable consideration. When the plaintiffs' counsel undertook the personal injury action that acceptance of employment may have precluded other employment but not likely the present garnishment. On the other hand it is common knowledge that the longer a case goes on the more other business it precludes. Farmco, Inc. v. Explosive Specialists, Inc., 9 Kan. App. 2d 509, 517, 684 P.2d 436 (1984). From that point of view it is appropriate to consider.
"The third consideration is the fee customarily charged in the locality for similar legal services. The Court notes a contingent fee contract is customary in this locality as well as others in garnishment actions. See, e.g. Farmco, Inc. v. Explosive Specialists, Inc., supra at 517. Likewise, it is fair and accurate to say that a fee of one-third is not only reasonable but customary in this locality as well as many others.
"The fourth consideration is the amount involved and the results obtained. It cannot be seriously questioned but that the amount involved is significant - almost four million dollars and the results obtained namely payment of the full judgment with interest is not only a substantial, but also an excellent, result. The stakes were high in terms of the amount involved, the physical injuries, and the end to be served with maximum recovery.
"The fifth consideration is the time limitation imposed by the client or by the circumstances. The Court does not believe that this is a significant factor in determining a reasonable sum as a fee.
"The sixth item is the nature and length of the professional relationship with the client. In terms of the garnishment proceeding which is before the Court this process is one step of a much longer professional relationship with the Johnsons and their attorney and one part of a professional relationship which calls upon the attorney to be available to counsel and advise on many aspects of health and financial problems experienced by a family tragically and significantly injured such as this.
"The seventh factor is the experience, reputation and ability of the lawyer or lawyers performing the services. The Court notes that counsel for the garnishor-judgment creditor is well known to the Court, enjoys an outstanding professional reputation, is rated in Martindale-Hubbell as a V and has been a civil trial and appellate lawyer for seventeen years. The Court notes Exhibit S, the Martindale-Hubbell listings of lawyers Sharp, Schimmel and Matula.
"The eighth factor is whether the fee is fixed or contingent. The agreed fee contracted for by plaintiff and their lawyer is contingent, not fixed. A contingent fee arrangement is customary in personal injury cases, as well as proceedings to collect the damages awarded. Although appropriate to consider, the fee arrangement is not controlling or dispositive in determining what is a reasonable sum under K.S.A. 40-256.
"The fee contract, Garnishor's Exhibit D, does not specify the work to be done by the attorney, but its paragraph 7 gives the attorney 'the exclusive right to take all legal steps to enforce said claim . . . .' The Court finds this anticipates efforts by the lawyer to collect the damages, including the use of garnishment, as a part of the lawyer's duty and service under the contract." (Emphasis added.)
After considering all of the applicable factors, and acknowledging that the fee arrangement is not controlling or dispositive in determining what is a reasonable sum under K.S.A. 40-256, the court awarded attorney fees for the trial and pretrial work in the garnishment action of $1,329,233.51.
In asserting the district court erred in its consideration of the contingent fee agreement