Attorney Referral Fee Case Was ‘Prematurely’ Dismissed

Summary disposition was prematurely granted to the defendant in this dispute over attorney referral fees because discovery “had not begun in earnest,” the Michigan Court of Appeals has ruled.

In Babi v Estate of Herman, et al. (Docket No. 364375), the plaintiff maintained he had a professional relationship with attorney Gregg E. Herman, whereby the plaintiff would send Herman client referrals in exchange for a referral fee. The plaintiff claimed that, in 2018, he met with a woman named Terri Poplichak who wanted to file a medical-malpractice claim. On or about the same day as that meeting, the plaintiff said he referred Poplichak to Herman. Poplichak ultimately settled her lawsuit.

The plaintiff alleges that he did not receive his referral fee and filed this lawsuit in Oakland County Circuit Court, claiming Herman and his law firm breached the agreement. The defendants filed a motion for summary disposition, arguing that based on Poplichak’s testimony during the settlement hearing (in which she objected to the sharing of the fee), any agreement was unenforceable under MRPC 1.5(e). That rule states:

“(e) A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the client is advised of and does not object to the participation of all the lawyers involved; and

(2) the total fee is reasonable.”

The plaintiff, however, asserted the defendants were relying on evidence outside the pleadings and any decision would be premature because discovery had not begun in earnest. The plaintiff also argued that Poplichak’s objection was untimely.

The Oakland County trial court held that, without a written retainer agreement in which Poplichak agreed to the fee, there was no genuine issue of material fact that Poplichak objected to the fee and that “no further discovery can reveal a different result ….”

The plaintiff appealed, arguing the trial court prematurely granted summary disposition because discovery had a “reasonable chance” of uncovering relevant information to the plaintiff’s claim. The plaintiff also argued the trial court erred to the extent it considered Poplichak’s untimely objection, which was made four years after the referral. (Note: Herman died while the plaintiff’s appeal was pending. Therefore, his estate and personal representative were substituted as parties in the case.)

The Court of Appeals reversed the trial court’s decision, finding it “should have denied” the defendants’ motion for summary disposition.

“The evidence submitted by plaintiff was sufficient to rebut Poplichak’s testimony and create an issue of fact, which necessitated denying the motion under MCR 2.116(C)(10),” the Court of Appeals wrote.

Judges Colleen A. O’Brien, Kirsten Frank Kelly and Michael J. Kelly were on the appellate panel that issued the unpublished opinion.

Premature & Prejudicial

In its opinion, the Court of Appeals first noted that the plaintiff “was not misled” by the defendants’ motion for summary disposition. “In response to defendants’ arguments, plaintiff asserted that defendants’ motion was one brought under MCR 2.116(C)(10), and that the court should deny it because discovery had not yet begun in earnest.”

The inquiry, however, “does not end there,” the Court of Appeals said, noting it also had to consider whether the plaintiff was prejudiced by the trial court’s decision.

“In the trial court’s opinion granting defendants’ motion for summary disposition, the court acknowledged the potential existence of evidence that would be relevant to rebut defendants’ claim that Poplichak did not agree to the referral fee – the existence of a written agreement in which she agreed to the fee,” the Court of Appeals explained. “Because plaintiff was not able to produce that agreement in response to defendants’ motion, filed in lieu of answer and before discovery was complete, the court concluded there was no dispute of fact, but perplexingly also concluded that no evidence could dispute Poplichak’s testimony. These conclusions by the trial court are at odds with one another: on the one hand, the court stated that Poplichak’s testimony could be rebutted by some other evidence, such as a written agreement. On the other hand, however, the court stated that no further discovery would be necessary because ‘no further discovery can reveal a different result in the Court’s mind.’”

The trial court improperly granted summary disposition to the defendants because a decision under MCR 2.116(C)(10) “was premature and prejudiced plaintiff,” the Court of Appeals said. “Defendants based their motion on testimony that contradicted allegations in plaintiff’s complaint that plaintiff did not have an opportunity to challenge. As the trial court recognized, there was a potential that further discovery could reveal evidence that would rebut Poplichak’s testimony, such as written evidence of her agreeing to plaintiff’s fee. Indeed, such a document was in defendants’ possession but was not produced to plaintiff, despite being the subject of a document request before plaintiff filed his response brief. Once the trial court recognized this fact, it should have denied defendants’ motion under MCR 2.116(C)(10).”

The trial court also erred by concluding that Poplichak’s objection to the referral fee was timely, the Court of Appeals said, citing MRPC 1.5(e). “Although the trial court did not directly address Law Offices of Jeffrey Sherbow, PC v Fieger & Fieger, PC, 326 Mich App 684 … (2019), aff’d in part and rev’d in part, 507 Mich 272 … (2021), the court did conclude that Poplichak’s testimony was dispositive, inferring that the trial court rejected Sherbow’s holding.

Contrary to defendants’ argument, the Michigan Supreme Court’s decision in that case did not render the relevant portion of this Court’s analysis as dicta, and this Court is bound to follow Sherbow.”

The Court of Appeals explained that, in Sherbow, the Michigan Supreme Court reversed the Court of Appeals holding that MRPC 1.5(e) does not require an attorney-client relationship between the referring attorney and the client. The justices in Sherbow ruled that “attorneys cannot obtain referral fees under MRPC 1.5(e) without entering into an attorney-client relationship with the individual being referred,” the appeals court pointed out. “The Supreme Court otherwise affirmed this Court’s opinion, but did not directly address the statement by this Court concerning the timing of the objection.”

In the present case, the defendants argued that, as a result of Sherbow, the Court of Appeals ruling in that case concerning when an objection must be made is dicta. “We disagree,” the Court of Appeals stated. “Defendants are correct that if the Michigan Supreme Court reverses a case in its entirety, statements from this Court that are not explicitly rejected are considered dicta. … However, as the Court has explained, ‘an overruled proposition in a case is no reason to ignore all other holdings in the case.’ … The Supreme Court’s decision in Sherbow to reverse this Court was limited to the determination that an attorney-client relationship was not required under MRPC 1.5(e). Accordingly, because the Supreme Court did not reverse Sherbow in its entirety, the remaining portions of that opinion remain good law and are controlling.”

Here, the communications between the plaintiff and the defendants “raise a genuine issue of material fact whether Poplichak actually met plaintiff and consulted with him regarding the malpractice claim in 2018, which she stated she did not do during her hearing in 2022,” the Court of Appeals said. “Poplichak’s testimony was sufficiently undermined by the documentary evidence presented by plaintiff as to raise a question whether she testified accurately during that hearing. The evidence submitted by plaintiff was sufficient to rebut Poplichak’s testimony and create an issue of fact, which necessitated denying the motion under MCR 2.116(C)(10).”

Accordingly, “we are bound to follow Sherbow’s holding that ‘the clients must have objected at the time they were informed of the agreement in order for there to be a violation of MRPC 1.5(e),’” the Court of Appeals concluded. “While Poplichak’s objection at the settlement hearing was not completely irrelevant, it was not sufficient to render the purported referral fee agreement unenforceable under MRPC 1.5(e), and we reverse the trial court’s order granting defendants’ motion for summary disposition.”