Attorney fees must actually be incurred for award

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Hon. Ted E. Wedemeyer

Although an attorney successfully represents a homebuyer suing the seller for intentional misrepresentation, where he agreed to fees on a contingency basis, the court cannot award a greater amount using a reasonable hourly basis, the Wisconsin Court of Appeals held on Jan. 14.

James H. Horst and Georgia J. Edwards listed their residence for sale for two years, but were unable to sell it. The Real Estate Condition Report stated that there was water seepage in the basement, and water emanating from a spring under the front lawn.

Their agent informed them that the leaky basement was the reason the home was not selling, and Horst and Edwards hired a new agent, Fritz Roth. They then executed a new condition report, which did not disclose the water problems. George T. & Jill J. Stathus purchased the home.

After discovering the problems, they retained an attorney on a contingency basis, and brought suit against the sellers. After a bench trial, Milwaukee County Circuit Court Judge Stanley A. Miller concluded that Horst and Edwards intentionally misrepresented the condition of the house that they sold to the Stathuses.

Miller awarded the Stathuses $5,000 in compensatory damages, and $3,000 in attorney’s fees, and both sets of parties appealed. On appeal, the court of appeals affirmed the finding that the sellers made a material misrepresentation, but ordered that the award of damages and attorney’s fees be reconsidered.

On remand, the case was transferred to Judge Thomas R. Cooper, who trebled the damages to $15,000, pursuant to sec. 895.80(3)(a), and awarded $22,000 in attorney’s fees, pursuant to subsec. (3)(b), using an hourly formula.

Horst and Edwards appealed again. This time, in a decision by Judge Ted E. Wedemeyer, the court of appeals affirmed trebling the damages, but reversed the award of attorney’s fees.

Treble Damages

The court held that Judge Cooper properly exercised his discretion in awarding treble damages."

The court reasoned, "Because Horst and Edwards knew the reasons why the house was not selling, they chose not to disclose the water problems in the new condition report. … The [trial] court concluded that the willful concealment was of such a nature to warrant trebling the damages. There is both a basis in the record, and sound logic in the court’s analysis. Thus, the trial court did not erroneously exercise its discretion in following the intent of our remand order."

Attorney’s Fees

However, the court held that Judge Cooper lacked authority to award attorney’s fees based on an hourly rate that the Stathuses did not actually incur pursuant to the contingency fee agreement.

Section 895.80(3) provides, "If the plaintiff prevails in a civil action under sub. (1), he or she may recover all of the following: (a) Treble damages. (b) All costs of investigation and litigation that were reasonably incurred."

From this, the court concluded that the statute expressly limits attorney’s fees to those that are both reasonable and actually incurred.

Here, the agreement between the Stathuses and their attorney provided that the attorney would recover 33 1/3% of the gross settlement or judgment as payment for services rendered. In the event of appeal, the percentage would be increased to 40%. The agreement further provided that the Stathuses understood they could have retained counsel on an hourly basis, but that they declined that option.

The court distinguished two Wisconsin cases permitting attorney’s fees in excess of those provided by a contingency agreement: Thompson v. Village of Hales Corners, 115 Wis. 2d 289, 340 N.W.2d 704 (1983); and First Wisconsin National Bank v. Nicolaou, 113 Wis. 2d 524, 335 N.W.2d 390 (1983).

The court noted that Thompson applied the fee-shifting provisions of the federal Civil Rights Act, 42 U.S.C. 1988, which provided that courts may in their discretion, allow a prevailing plaintiff reasonable attorney’s fees as part of costs.

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Likewise, First Wisconsin National Bank applied the Wisconsin Consumer Act, which allows a prevailing consumer to recover "a reasonable amount for attorney fees."

Distinguishing the two, the court noted, "The common element existing in all of these cases that distinguishes them from the claim of error proffered by Horst and Edwards is that the provision for reasonable fees was not restricted by the statutory limitation involved here of what was "incurred."

Instead, the court looked to a federal case from the Fifth Circuit, Marre v. United States, 38 F.3d 823 (5th Cir. 1994), in which fees were governed by the Internal Revenue Code, 26 U.S.C. 7430(a)(2), which provides that "the prevailing party may be awarded a judgment … for reasonable litigation costs incurred."

The Fifth Circuit limited attorney’s fees to those actually incurred or actually obligated.

Calling the analysis in Marre "compelling," the court of appeals reversed the award of fees, and remanded the case, directing that "the award must be based on the attorney’s fees that were actually incurred and that amount must be reasonable."

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David Ziemer can be reached by email.