In Kennedy v. Robert Lee Auto Sales, No. 322523, the Michigan Court of Appeals held that the trial court erred when it arbitrarily ordered attorney fees and costs and failed to follow the framework established by the Michigan Supreme Court in Smith v. Khouri, 481 Mich. 519 (2008). The Court of Appeals concluded that, the framework should be followed by the trial court in its determination of awarding attorney fees and costs to parties under the fee-shifting statutes involved in this particular case, namely, the Magnuson-Moss Warranty Act (“MMWA”) and Michigan Consumer Protection Act (“MCPA”). The Court of Appeals further noted that the Smith framework needed “some fine-tuning” and provided guidelines for the trial court to follow in its determination on remand.
In 2012, Kennedy purchased a used vehicle from Robert Lee Auto Sales (“RLAS”), by first making a down payment of $2,200 and entering into a retail installment contract for the remaining balance. RLAS then assigned the contract to Consumer Portfolio Services, Inc. (“CPSI”). Kennedy defaulted on the contract after only making two payments and CPSI filed suit against her for breach of contract and possession of the vehicle. In response, Kennedy filed an answer, counterclaim, and a third-party complaint. CPSI and Kennedy reached a settlement and the case continued between Kennedy and RLAS. Subsequently, Kennedy and RLAS reached a settlement for $2,675.18—the amount of the down payment and two payments made by Kennedy. In regards to statutory attorney fees sought by Kennedy, under the MMWA and MCPA, the parties could not reach an agreement and allowed the trial court to determine the amount of fees to be awarded. The trial court awarded Kennedy $1,000 in attorney fees and costs. Kennedy then appealed, as of right, to the Court of Appeals.
On appeal, Kennedy argued that the trial court abused its discretion by awarding attorney fees and costs arbitrarily and without considering the framework for determining such fees as provided in Smith. In Smith, the Michigan Supreme Court detailed factors traditionally considered by courts in assessing the reasonableness of requested attorney fees. In its analysis, the Court of Appeals found that, the Supreme Court’s rule established in Smith was to be applied to Michigan’s various fee-shifting rules and statutes, and “was intended to provide guidance for ‘Michigan courts that are asked to impose ‘reasonable attorney fees’ under our fee-shifting rules and statutes.” The Court further noted the discord amongst various panels of the Court in the application of Smith in its cases on this issue. In light of this dissension, the Court of Appeals stated that, while it believes Smith has a broader application, its holding is “simply that the Smith framework applies in this particular type of case.”
The Court of Appeals vacated the order of the trial court and remanded the case for further proceedings. It instructed the trial court to:
[F]irst determine the fee customarily charged in the locality for similar legal services. In general, the court shall make this determination using reliable surveys or other credible evidence. Then, the court should multiply that amount by the reasonable number of hours expended in the case. The court may consider making adjustments up or down to this base number in light of the other factors listed in Wood and MRPC 1.5(a). In order to aid appellate review, the court should briefly indicate its view of each of the factors. [Smith, 481 Mich. At 537.]
