Fair Housing Center of Metropolitan Detroit v. Iron Street Properties, L.L.C. et al

Filing 91

OPINION AND ORDER OF DISTRIBUTION of Attorney Fees re 85 MOTION for Attorney Fees Second Statement of Karega filed by Fair Housing Center of Metropolitan Detroit. Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
FAIR HOUSING CENTER OF
METROPOLITAN DETROIT,
And DAR’SHA L. HARDY,
Plaintiffs,
Case No. 16-CV-12140
vs.
HON. GEORGE CARAM STEEH
IRON STREET PROPERTIES, LLC.,
d/b/a RIVER PARK LOFTS,
BOYDELL DEVELOPMENT, INC.,
and DENNIS KEFALLINOS,
Defendants.
_____________________________/
OPINION AND ORDER REGARDING
DISTRIBUTION OF ATTORNEY FEES
This matter came before the court for an evidentiary hearing to
determine the distribution of attorney fees among two attorneys who
represented plaintiff Fair Housing Center of Metropolitan Detroit
(“FHCMD”). The issue arises due to a dispute between attorneys Stephen
Thomas and Chui Karega as to attorney fees of $99,632.49, generated
from the $300,000 settlement of the underlying case on November 13,
2018 in favor of FHCMD.

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FACTUAL BACKGROUND
Attorney Stephen Thomas was retained by plaintiff Dar’Sha Hardy on
July 24, 2015, to represent her in a Fair Housing Case involving an alleged
familial status violation. Thomas attended the “tester” interviews with the
Michigan Department of Civil Rights, and then filed a housing
discrimination action on behalf of Hardy on February 22, 2016. The
complaint alleged that Hardy had been discriminated against when she was
denied an apartment because she had children under 18 years of age, in
violation of the Fair Housing Act of 1988. The complaint also asserted a
race discrimination claim.
FHCMD requested that Thomas represent it in its own action against
the same defendants. On March 29, 2016, Thomas entered a written
contingency fee retainer agreement with FHCMD. Thomas filed a
complaint on behalf of FHCMD on June 10, 2016. The two cases
proceeded independently and were eventually consolidated on April 19,
2017.
Thomas participated in three Rule 26(f) conferences, served initial
disclosures, filed witness lists, served interrogatories, requests for
admission and requests for production of documents. When proper

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responses were not filed, Thomas filed a motion to compel. Defendants
moved to dismiss Hardy’s racial discrimination claim, which plaintiff
stipulated to based on a lack of evidence. The familial status claim
remained.
Thomas took the depositions of defendant Dennis Kefallinos and
leasing manager Liz Telegadas, who both denied that defendants had any
policy against leasing to families with children. Thomas met with the
Department of Justice (“DOJ”) and they decided to assist in the FHCMD
case. The DOJ participated in the investigation and discovered a recorded
telephone message and admission against interest by Liz Telegadas.
Thomas interviewed and took the depositions of plaintiff Hardy; FHCMD
Executive Director Margaret Brown; FHCMD Coordinator of Systemic
Investigations and Testing, Engela Bertolini; four of the testers; and two
independent witnesses. Motions for summary judgment were filed by both
sides, with briefing for plaintiffs undertaken by Thomas.
On September 26, 2017, Ms. Brown requested that Thomas call her.
Brown informed Thomas that she did not think the case would settle.
Thomas agreed and, given the admission against interest of Liz Teledadas,
he said he believed he would obtain a good result at trial. Then Brown

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allegedly told Thomas, “I do not think that you have the experience and
background to try the case. I am basing this on the way you handled my
deposition last week.” Brown allegedly indicated she was contacting
attorney Chui Karega to take over the case. Brown allegedly told Thomas
that FHCMD “will pay you for the work you have done” and that Karega
would contact Thomas to enter into a substitution of attorney.
Thomas believed he was being discharged. Thomas denies that
Brown requested that he stay on as “second chair” or in any other capacity.
The first time this suggestion was made in writing was in Karega’s
Statement Regarding Attorney Fees on December 14, 2018. ECF No. 67,
PageID 1175, 1176, 1182. Thomas waited 24 hours, but Karega did not
contact him or provide him with the substitution paperwork. On September
27, 2017 Thomas filed his motion to withdraw as counsel for FHCMD due
to “a breakdown in the attorney client relationship.” ECF No. 46. Thomas
also filed a Charging Lien. ECF No. 47. A stipulated order of attorney
substitution was entered by the court on November 1, 2017. Discovery
ended on November 2, 2017.
On January 24, 2018, Thomas argued the motion for summary
judgment on behalf of both plaintiffs. Thomas did so even though Karega

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now represented FHMCD and was present at the hearing. Judge O’Meara
issued an opinion denying the motion on March 19, 2018.
The matter was referred for settlement conference before Magistrate
Judge Grand on February 16, 2018. Thomas settled Ms. Hardy’s claim at
the conference. Karega did not settle FHCMD’s claim. The FHCMD case
was eventually referred for a settlement conference before Magistrate
Judge Majzoub on October 22, 2018. A settlement was entered on the
record on November 13, 2019. The case settled for $300,000 and a
Consent Order was filed on January 10, 2019. ECF No. 71.
The matter is before the court on the attorney fee dispute between
attorneys Thomas and Karega. Of the settlement amount, $99,632.49 was
set aside as attorney fees and was deposited in the court’s registry in an
interest-bearing account. ECF No. 79. Thomas and Karega appeared
before the court for an evidentiary hearing on September 26, 2019.
Thomas argues that he is entitled to a fee based on quantum meruit
because he was not discharged for cause and in fact he had a reasonable
basis for withdrawing. Thomas’ retainer agreement provides:
8. DISCHARGE AND WITHDRAWAL. FHCMD may discharge
STEPHEN A. THOMAS, PLC, at any time, upon written notice
to STEPHEN A. THOMAS, PLC. Such a discharge does not,
however, relieve FHCMD of the obligation to pay any and all

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costs, disbursements, and litigation expenses Incurred prior to
such termination, and STEPHEN A. THOMAS, PLC, has the
right to recover from FHCMD the reasonable value of
STEPHEN A. THOMAS: PLC,' legal services in accordance
with the terms of their Agreement from the effective date of this
Agreement to the date of discharge. STEPHEN A. THOMAS,
PLC, may withdraw from representation of FHCMD if, among
other things, FHCMD does not honor the terms of the
Agreement, fails to cooperate with STEPHEN A. THOMAS,
PLC, or upon the occurrence of any fact, circumstance or
reason that provides a reasonable basis for withdrawal.
(underlining added).
Mr. Karega argues that Thomas quit as counsel without cause when
he was advised the legal team of FHCMD would be expanded and
therefore forfeited his right to an attorney fee. According to Karega, even if
FHCMD had discharged Thomas, it would have been with cause. This is
because Thomas engaged in multiple acts without the authorization of his
client. The only act identified by Karega is that Thomas asserted a race
discrimination claim without authorization and did not dismiss it when he
was directed to do so by Ms. Brown. The claim was voluntarily dismissed
by Thomas after a motion to dismiss was filed because he agreed there
was a lack of evidence. Karega argues that by bringing the claim Thomas
exposed FHCMD to Rule 11 sanctions and this exposure gave FHCMD
cause to discharge Thomas if it had chosen to do so.

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ANALYSIS
I. Contingency Fee Agreements
Michigan Court Rule 8.121(F) provides that “[c]ontingent fee
arrangements made by an attorney with a client must be in writing and a
copy provided to the client.” Michigan Rule of Professional Conduct
(MRPC) 1.5(c) also requires that “[a] contingent fee agreement shall be in
writing and shall state the method by which the fee is to be determined.”
The Michigan Court of Appeals held that the trial court abused its
discretion in enforcing a charging lien based on an alleged contingency fee
contract since both MCR 8.121(F) and MRPC 1.5(c) require such contracts
be in writing. Toma v. St. Peter Medical Center, Case No. 330585, 2017
WL 1418082 (Mich. App., April 20, 2017) (unpublished). The court further
held that the attorney would not be entitled to his claimed fees under a
quantum meruit theory because “a party who comes into equity must come
with clean hands.” Id. at * 5 (citation omitted).
Karega acknowledged on the record that he did not enter a written
contingency fee agreement when he was retained by FHCMD. In support
of his fee agreement, Karega submits the affidavit of Ms. Brown, which
states:

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When I retained Attorney Karega, it was on a contingent fee
basis. Attorney Karega was to receive a fee of 33 1/3 of the net
settlement recovery. With so many years of working with the
Fair Housing Center, the fee agreement with attorney did not
have to be, and was not reduced to writing.
ECF No. 67, Ex. A, para. 6. The fact that the client orally agreed to the
terms of a contingency fee contract does not supersede the law requiring
that all contingency fee agreements be in writing. Taking this position in an
equitable proceeding arguably gives Karega unclean hands such that he is
not entitled to an award on a quantum meruit basis. See id.; Gillis v., Wells
Fargo Bank, N.A., Case No. 12-10734, 2014 U.S. Dist. LEXIS 145499, * 3
(E.D. Mich. Oct. 13, 2014).
Almost two years after Karega first appeared in this case, on August
12, 2019, he and FHCMD entered a contact for legal representation,
purporting to obligate FHCMD to pay a one-third attorney fee from the
settlement funds at issue. In the agreement, FHCMD purports to retain
Karega for future legal services to be provided concerning the
implementation and enforcement of the Consent Order that was entered on
January 10, 2019. In return for such future work, the FHCMD agrees to
pay Karega 33 13% of the past recovery, less any amount awarded to prior
counsel Thomas.

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Under this new contingent fee agreement, the legal services to be
rendered entail negligible risk and no “outcome” for the fee to be contingent
upon. This is because the outcome and the contingency have already
occurred. The fund to pay attorney fees was created upon the settlement
of the case, which occurred almost a year ago. The August 12, 2019
contingent fee agreement is clearly an attempt by Karega to remedy the
fact that he did not have a written agreement with FHCMD as required.
Overall, the court is taken by the sloppiness of Karega’s legal engagement,
but stops short of finding bad faith.
Mr. Thomas, on the other hand, did have a written fee agreement
with FHCMD. If “an attorney’s employment is prematurely terminated
before completing services contracted for under a contingency fee
agreement, the attorney is entitled to compensation for the reasonable
value of his services on the basis of quantum meruit, and not on the basis
of the contract, provided that his discharge was wrongful or his withdrawal
was for good cause.” Cristini v. City of Warren, 30 F.Supp.3d 665, 669-70
(E.D. Mich. 2014) (citations omitted). This is “because a client has an
absolute right to discharge an attorney and is therefore not liable under the
contract for exercising that right.” Reynolds v. Polen, 222 Mich.App. 20, 25

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(1997). However, “quantum meruit recovery of attorney fees is barred
when an attorney engages in misconduct that results in representation that
falls below the standard required of an attorney (e.g., disciplinable
misconduct under the Michigan Rules of Professional Conduct) or when
such recovery would otherwise be contrary to public policy.” Id. at 26.
The court finds there is no credible evidence of misconduct by Mr.
Thomas in this case. Furthermore, the court finds that Thomas was
reasonable in withdrawing from representation where the facts support his
conclusion that his client had lost confidence in him. Therefore, Mr.
Thomas is entitled to recover his reasonable attorney fee under a quantum
meruit theory of recovery.
Courts apply the lodestar approach by determining the number of
hours reasonably expended on the litigation multiplied by a reasonable
hourly rate. The fee is then adjusted by considering a number of factors
such as attorney experience, skill and time involved, results achieved and
difficulty of the case. Id.
II. Fee Calculation
Applying the lodestar method, Thomas’s time records through
January 24, 2018, when he argued the summary judgment motions on

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behalf of both defendants, show he worked 304.30 hours at his standard
hourly rate of $325, for a total of $98,897.50. Thomas argues it is
appropriate to include his work on the Hardy matter because it was
beneficial and supportive of both cases, and not duplicative. In support,
Thomas refers to Judge O’Meara’s order consolidating the two cases
because they involve nearly identical law and facts. ECF No. 23.1 The
court agrees that legal work done on each case would provide a benefit to
the other case while Mr. Thomas was representing both plaintiffs. It is also
true that work done on Ms. Hardy’s case prior to representing FHCMD
provided a benefit to both clients.

However, once Mr. Thomas withdrew

as counsel for FHCMD and Mr. Karega took over the representation, Mr.
Thomas had no further expectation of recovering for legal work going
forward.
The court next turns to the factors appropriately considered in
determining whether an attorney’s fee is reasonable. These may include
(1) the professional standing and experience of the attorney; (2) the skill,
time and labor involved; (3) the amount in question and the results
achieved; (4) the difficulty of the case; (5) the expenses incurred; and (6)
1

This case was originally assigned to Hon. John Corbett O’Meara and was reassigned
to this court on July 3, 2018.
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the nature and length of the professional relationship with the client. In
addition, the court may consider the degree of risk undertaken by an
attorney who was prematurely discharged. Reynolds, 222 Mich. App. at 29
(citation omitted).
Mr. Thomas has practiced law in Michigan for 28 years, primarily in
consumer bankruptcy and consumer rights litigation. He has attended
several fair housing seminars and training sessions, including one at the
direction of Ms. Brown while he was representing FHCMD. Thomas’s
involvement in this case included over two years of investigation and
litigation. He conducted extensive discovery and filed pleadings on several
motions, including dispositive motions. Thomas provided detailed time
records, made contemporaneously with the work he did on the case. The
eventual settlement of $300,000 was a good result for FHCMD. While Mr.
Karega participated in the conference that resulted in the settlement, Mr.
Thomas was primarily responsible for building the case on behalf of
FHCMD. The court also acknowledges that Mr. Thomas undertook a high
degree of risk in representing two clients for a lengthy period under
contingency fee agreements.

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In contrast to Mr. Thomas, Karega admitted that his involvement in
the case was principally limited to attending two settlement conferences
over three separate days. (Responses to Requests for Admissions, ECF
No. 86-4) Karega did not submit any time records when requested by the
court, but did offer an “Estimated Activities Log” as an exhibit at the
evidentiary hearing. (Hearing Ex. 2)
The court finds that Mr. Thomas did the bulk of the legal work on
behalf of FHCMD. The fees he seeks are reasonable in view of his
experience, time and effort spent on the case and degree of risk
undertaken in handling the case on a contingency fee basis. While Mr.
Karega did expend some time and effort on behalf of FHCMD, his work
consisted mostly of participating in settlement conferences. In addition, he
neglected to procure a written fee agreement as required and failed to keep
contemporaneous time records. Under the circumstances presented, the
court determines the following distribution of attorney fees:
Mr. Thomas shall receive $89,669.24 from the principal deposited
with the court, plus 90% of accumulated interest. Mr. Thomas’ address is
645 Griswold Street, Suite 1630, Detroit, Michigan 48226.

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Mr. Karega shall receive $9,963.25 from the principal deposited with
the court, plus 10% of accumulated interest. Mr. Karega’s address is
19771 James Couzens Highway, Detroit, Michigan 48235-1937.
IT IS HEREBY ORDERED that Mr. Thomas and Mr. Karega shall
provide their employer identification numbers via email to
[e-mail] so they can receive payment in accordance
with this opinion and order.
IT IS HEREBY FURTHER ORDERED that the Clerk shall distribute
the moneys held in the court’s registry in accordance with this opinion and
order.
Dated: November 5, 2019
s/George Caram Steeh___________
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
November 5, 2019, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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