Settlement Case Analysis

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The decision could not be clearer as to what an attorney’s obligations are if the case ends in settlement: even if the settlement fails to account for the medical bills, the attorney must commence a declaratory judgment action before shorting a medical provider on his bill.

The result is the same even if the underlying case is litigated, and the bills are determined to be unreasonable. Even then, the attorney is obligated to hold the money pending a separate action, because the medical provider would not have been a party to the underlying action and could not be deemed in privity with any party. Thus, issue preclusion could not be invoked to bar the provider from arguing that its bill is reasonable.

Attorneys should also be on notice of some rather unfortunate language in the decision that is best considered a bastardization of the judicial estoppel doctrine.

The court observed, “the [circuit] court stated it found it troubling that the Warshafsky law firm, at the time it was representing Krieg against the insurance company, took the position that Riegleman’s chiropractic charges were reasonable and necessary and that all of the medical expenses were appropriately payable to Krieg and then, after the settlement, it took the opposite position. … Finally, the court noted that an attorney has an ethical obligation not to advance a claim if the attorney knows it is not supportable by the evidence; therefore, the court said, if it was clear to the Warshafsky law firm that Krieg was being over-treated, no claim should have been made for those charges in the underlying personal injury case. The court stated, ‘Clearly, Mr. Krieg wants to have it both ways. He wants the money from the insurance company, but he does not want to pay for the services that he received.”

The circuit court’s reasoning, and the appeals court’s apparent adoption of it, is misplaced, however, for several reasons. First and foremost, Krieg never got the money from the insurance company; despite having a prominent personal injury attorney, he was unable to convince the company that the bill was reasonable. To say he “wants to have it both ways” is a misstatement.

Second, there is nothing “troubling” about the change in the Warshafsky firm’s change in positions; in fact, it was ethically required.

In the underlying action, the Warshafsky firm had two chiropractic experts who could maintain that the bills were reasonable, and thus, an ethical obligation to attempt to convince the insurance company to pay the bills in their entirety.

However, once the insurance company could not be convinced to do so, and the firm and client decided it was better to settle for less, the firm then had an ethical obligation to argue they were excessive, as the expert medical doctor maintained. The two courts’ suggestion of some impropriety grossly misunderstands the attorney’s obligations.

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The doctrine of judicial estoppel is an equitable doctrine that precludes a party from taking inconsistent positions in legal proceedings and thereby playing “fast and loose” with the courts. State v. Petty, 201 Wis.2d 337, 346-347, 548 N.W.2d 817 (1996).

The three prerequisites for invocation of the doctrine are: (1) the party against whom judicial estoppel is sought must assert a position that is clearly inconsistent with an earlier position; (2) the facts at issue are the same in both cases; and (3) the party must have persuaded the first court to adopt its position. Id., 201 Wis.2d at 348.

The first two criteria are clearly met. The third, however, is not. Therefore, there is no reason why the Warshafsky firm, having been unable to convince the insurance company that the full bill was reasonable, should be precluded from arguing the bill was excessive in a later proceeding.

The court’s inclusion of language suggesting the contrary is highly unfortunate, especially in a decision recommended for publication.

Fortunately, it can be disregarded. The court explicitly states that, if there is a dispute over the propriety of a bill, the attorney should bring a declaratory judgment action. Where the attorney was unable to obtain a settlement or judgment that wholly accounts for the bill, judicial estoppel cannot be invoked against the attorney.

– David Ziemer

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David Ziemer can be reached by email.