Title: Anthony R. Anderson v. MSI Preferred Insurance Company

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2005 WI 62 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2003AP1880 
COMPLETE TITLE: 
 
 
Anthony R. Anderson and Naomi Anderson,  
          Plaintiffs-Appellants-Petitioners, 
 
     v. 
 
MSI Preferred Insurance Company,  
          Defendant, 
 
Accident Fund Company,  
          Defendant-Respondent. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  271 Wis. 2d 820, 677 N.W.2d 733 
(Ct. App. 2004-Unpublished) 
 
 
OPINION FILED: 
June 2, 2005   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
December 13, 2004   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Barron   
 
JUDGE: 
James C. Babler   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
BRADLEY, J. concurs (opinion filed).   
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiffs-appellants-petitioner there were briefs 
by C.M. Bye, Tracy N. Tool, and Bye, Goff & Rohde, Ltd., River 
Falls, and oral argument by Tracy N. Tool. 
 
For 
the 
defendant-respondent 
there 
was 
a 
brief 
by 
Christopher D. Walther and Walther Law Offices, S.C., Milwaukee, 
and oral argument by Christopher D. Walther. 
 
 
2005 WI 62 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2003AP1880  
(L.C. No. 
02CV257) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Anthony R. Anderson and Naomi Anderson,  
 
          Plaintiffs-Appellants- 
          Petitioners, 
 
     v. 
 
MSI Preferred Insurance Company,  
 
          Defendant, 
 
Accident Fund Company,  
 
          Defendant-Respondent. 
 
FILED 
JUN 2, 2005 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
cause remanded. 
 
¶1 
LOUIS B. BUTLER, JR., J.   Anthony and Naomi Anderson 
("Anderson") seek review of an unpublished court of appeals 
decision that concluded the circuit court properly exercised its 
discretion by awarding Accident Fund Insurance Company nearly 
$7,500 in attorney fees and costs as part of the reasonable 
costs of collection in a third-party settlement distribution 
No. 
2003AP1880   
 
2 
 
under 
Wis. Stat. § 102.29(1) 
(2001-02).1 
 
Anderson 
v. 
MSI 
Preferred Ins. Co., No. 2003AP1880, unpublished slip op. (Wis. 
                                                 
1 Wisconsin Stat. § 102.29(1) reads in full: 
102.29  Third party liability.  (1) The making of a 
claim 
for 
compensation 
against 
an 
employer 
or 
compensation insurer for the injury or death of an 
employee shall not affect the right of the employee, 
the 
employee's 
personal 
representative, 
or 
other 
person entitled to bring action, to make claim or 
maintain an action in tort against any other party for 
such injury or death, hereinafter referred to as a 3rd 
party; nor shall the making of a claim by any such 
person against a 3rd party for damages by reason of an 
injury to which ss. 102.03 to 102.64 are applicable, 
or the adjustment of any such claim, affect the right 
of the injured employee or the employee's dependents 
to recover compensation.  The employer or compensation 
insurer who shall have paid or is obligated to pay a 
lawful claim under this chapter shall have the same 
right to make claim or maintain an action in tort 
against any other party for such injury or death.  If 
the department pays or is obligated to pay a claim 
under s. 102.81 (1), the department shall also have 
the right to maintain an action in tort against any 
other party for the employee's injury or death.  
However, each shall give to the other reasonable 
notice and opportunity to join in the making of such 
claim or the instituting of an action and to be 
represented by counsel.  If a party entitled to notice 
cannot be found, the department shall become the agent 
of such party for the giving of a notice as required 
in this subsection and the notice, when given to the 
department, shall include an affidavit setting forth 
the facts, including the steps taken to locate such 
party.  Each shall have an equal voice in the 
prosecution of said claim, and any disputes arising 
shall be passed upon by the court before whom the case 
is pending, and if no action is pending, then by a 
court of record or by the department.  If notice is 
given as provided in this subsection, the liability of 
the tort-feasor shall be determined as to all parties 
having a right to make claim, and irrespective of 
whether or not all parties join in prosecuting such 
No. 
2003AP1880   
 
3 
 
Ct. App. Feb. 10, 2004).2  Anderson argues this court should 
reverse the court of appeals' decision on either of two grounds:  
(1) conclude that for a worker's compensation carrier's attorney 
to join in the pressing of the claim against the third-party 
tortfeasor requires the attorney to demonstrate that his or her 
                                                                                                                                                             
claim, the proceeds of such claim shall be divided as 
follows: 
After deducting 
the reasonable 
cost of 
collection, one-third of the remainder shall in any 
event 
be 
paid 
to 
the 
injured 
employee 
or 
the 
employee's personal representative or other person 
entitled to bring action.  Out of the balance 
remaining, the employer, insurance carrier or, if 
applicable, 
uninsured 
employers 
fund 
shall 
be 
reimbursed for all payments made by it, or which it 
may be obligated to make in the future, under this 
chapter, except that it shall not be reimbursed for 
any payments of increased compensation made or to be 
made under s. 102.18 (1) (bp), 102.22, 102.35 (3), 
102.57 or 102.60.  Any balance remaining shall be paid 
to 
the 
employee 
or 
the 
employee's 
personal 
representative or other person entitled to bring 
action.  If both the employee or the employee's 
personal representative or other person entitled to 
bring action, and the employer, compensation insurer 
or department, join in the pressing of said claim and 
are 
represented by 
counsel, 
the 
attorneys' 
fees 
allowed as a part of the costs of collection shall be, 
unless otherwise agreed upon, divided between such 
attorneys 
as 
directed 
by 
the 
court 
or 
by 
the 
department.  A settlement of any 3rd party claim shall 
be void unless said settlement and the distribution of 
the proceeds thereof is approved by the court before 
whom the action is pending and if no action is 
pending, then by a court of record or by the 
department. 
 
All references to the Wisconsin Statutes are to the 2001-02 
version unless otherwise indicated. 
2 The court of appeals also concluded that Anderson's appeal 
was not frivolous.  That issue is not before us. 
No. 
2003AP1880   
 
4 
 
activities substantially contributed to obtaining recovery from 
the third party; or (2) agree that Accident Fund's failure to 
produce any evidence of hours worked and rate charged requires 
overturning the circuit court's exercise of discretion.3 
¶2 
We decline Anderson's invitation to alter the existing 
law for what is required to join in the pressing of a claim 
against a third party.  In short, because the worker's 
compensation carrier has the same right to bring, and an equal 
voice in prosecuting, a third-party claim, and because the 
worker's compensation carrier's attorney does not represent the 
employee, the attorney is entitled to recover reasonable 
attorney fees and costs associated with representing the 
worker's compensation carrier as part of the reasonable costs of 
collection under Wis. Stat. § 102.29(1).   
¶3 
However, 
we 
conclude 
that 
the 
circuit 
court 
erroneously exercised its discretion by failing to determine 
whether $17,700 in total fees and costs on a $25,000 settlement 
constitutes the reasonable costs of collection in this case.  
Therefore, we reverse the court of appeals' decision and remand 
this matter to the circuit court for a hearing to determine what 
                                                 
3 Anderson also advances a third argument, that it is 
unreasonable for Accident Fund to spend over $7,400 to collect 
an $8,700 worker's compensation lien based on a claim against a 
tortfeasor with a $25,000 policy.  We do not reach this issue 
because we conclude that the circuit court erroneously exercised 
its discretion by concluding that it was required to approve 
Accident Fund's represented attorney fees without assessing 
their reasonableness or the reasonableness of the total costs of 
collection. 
No. 
2003AP1880   
 
5 
 
the reasonable costs of collection are and how those costs are 
to be apportioned between the attorneys.  
I 
¶4 
On October 15, 2001, Anderson was injured in a motor 
vehicle accident caused by Shawn Jones.  It is undisputed that 
Anderson was in the course of his employment at the time of the 
accident and that his injuries arose out of his employment.  
Jones was insured by Acceptance Insurance Co. and had a policy 
limit of $25,000.  Accident Fund paid worker's compensation 
benefits and medical expenses totaling $8,711.98. 
¶5 
In March 2002, Accident Fund referred the case to 
Walther Law Offices, SC, to seek reimbursement for the payments 
it made to Anderson.4  See Wis. Stat. § 102.29(1).5  On July 11, 
2002, Accident Fund directed Walther to take an active role in 
managing the claim to protect its reimbursement interest.   
¶6 
On July 23, 2002, Anderson commenced a third-party 
tort action against Jones, Acceptance Insurance Co., and MSI 
Preferred Insurance Co. (Jones' underinsured motorist carrier), 
pursuant to Wis. Stat. § 102.29(1).  However, Anderson did not 
name Accident Fund as a party, even though § 102.29(1) gives 
both the employee and the worker's compensation carrier the same 
                                                 
4 Hereafter, and unless otherwise indicated, "Accident Fund" 
includes Accident Fund's attorney.   
5 See also Campion v. Montgomery Elevator Co., 172 Wis. 2d 
405, 410-13, 493 N.W.2d 244 (Ct. App. 1992) (concluding 
Wis. Stat. § 102.29(1) provides worker's compensation carrier 
with a direct cause of action against third-party tortfeasor for 
payments the carrier made). 
No. 
2003AP1880   
 
6 
 
right to make the third-party claim and requires each to "give 
to the other reasonable notice and opportunity to join in the 
making of such claim . . . ."   
¶7 
In August 2002, Accident Fund began searching for 
Jones' insurer.  After learning Jones' insurer was Acceptance 
Insurance, Accident Fund also learned that Anderson commenced a 
Wis. Stat. § 102.29(1) claim.  Concerned with whether Anderson 
would protect its interests, Accident Fund prepared a motion to 
intervene, but Anderson voluntarily joined Accident Fund as a 
party on October 9, 2002. 
 
¶8 
The claim against Jones was mediated on March 3, 2003, 
and Acceptance Insurance Co. offered its policy limits of 
$25,000.  The parties did not resolve the distribution of the 
proceeds under Wis. Stat. § 102.29(1).   
 
¶9 
Just over one month later, on April 17, Anderson filed 
a motion to approve the settlement and distribution of the 
proceeds.  The motion listed Accident Funds' costs of collection 
as $3,547.13, a figure Anderson received from Accident Fund a 
month earlier during the mediation.  Accident Fund opposed the 
distribution, asking that the court award it $7,472.97 in costs 
of collection.  The parties filed briefs in support of their 
positions.  On May 20, the Barron County Circuit Court, 
Honorable James C. Babler, approved the $25,000 settlement but 
set a hearing for a determination on the distribution of the 
proceeds.  The court required the parties to submit affidavits 
and any other necessary documents to support their fees and 
costs. 
No. 
2003AP1880   
 
7 
 
¶10 Anderson submitted an affidavit that stated Accident 
Fund indicated its costs of collection were only $3,547.13 at 
the mediation.  Anderson also attached a copy of the attorney's 
contingency fee agreement, which provided for a one-third 
recovery plus out-of-pocket expenses.6  The affidavit expressed 
Anderson's belief that its contingency fee was reasonable and 
then generally listed the activities taken in pursuing this 
claim.7   
¶11 Accident Fund also submitted an affidavit.  It  
contested 
Anderson's 
assertion 
regarding 
its 
costs 
of 
collection, claiming that it never suggested its costs were 
actually $3,547.13.  Accident Fund stated that that amount was a 
settlement offer to resolve its costs of collection, an offer 
Anderson rejected.  Accident Fund further stated that the 
mediation and settlement occurred as a result of its persistence 
on having, and its argument during, mediation.  As was the case 
with Anderson's affidavit, Accident Fund's submissions cursorily 
describe the legal work done and did not contain the numbers of 
hours worked or the fee charged.  Accident Fund did not include 
an itemized billing of costs. 
                                                 
6 The fee agreement also contained escalating percentages of 
recovery depending on whether appeals were taken.  Anderson's 
attorney has represented to both the court of appeals and to 
this court that he will not charge his client any additional 
fees for pursuing appeals.  Accordingly, we limit our discussion 
to the one-third recovery. 
7 The affidavit also contained assertions and exhibits 
relating to disputed medical expenses, an issue that apparently 
has since been resolved. 
No. 
2003AP1880   
 
8 
 
 
¶12 At the hearing on June 26, Anderson claimed it was 
unreasonable for Accident Fund to claim an additional $3,000 in 
fees that were apparently incurred from the mediation to the 
filing of the affidavits.  Anderson took issue with Accident 
Funds' failure to supply the court with any proof regarding the 
number of hours billed, an itemization of what work was done, 
when it was done, and the hourly rate at which it was done.  
Finally, Anderson argued that it was unreasonable for Accident 
Fund to claim over $7,000 as costs of collection to secure an 
$8,711.98 reimbursement interest. 
¶13 Accident Fund reiterated that it simply offered to 
settle the fees and costs at the mediation for $3,547.13, a 
figure that represented the fees and costs incurred prior to 
attending the mediation session.  Although Accident Fund knew 
that there could be additional costs associated with attending 
the mediation, it stated it was willing to compromise and not 
claim those additional amounts.  From the close of the mediation 
to the date of the hearing, Accident Fund averred it now had 
incurred $7,472.97 in total fees and costs. 
¶14 Accident Fund further explained that some of its fees 
were incurred because Anderson did not provide it with notice of 
the suit as required by Wis. Stat. § 102.29(1).  Accident Fund 
indicated it was suspicious of Anderson following this failure 
and did not trust him to protect its interest.  What those fees 
and costs were, however, was not developed. 
¶15 The circuit court found that Anderson's failure to 
join Accident Fund from the beginning was not intentional or 
No. 
2003AP1880   
 
9 
 
based on bad faith, but did result in Accident Fund becoming 
distrustful of Anderson and how the case was to be handled.  The 
court then concluded it was required to approve Accident Fund's 
fees of $7,472.97.  The court expressed regret at having to do 
so, but stated the high costs were associated with Anderson's 
handling of the case from the beginning.   
¶16 Anderson appealed, arguing that the court erred by 
concluding it was required to award Accident Fund's fees and 
costs, 
as 
opposed 
to 
awarding 
the 
reasonable 
costs 
of 
collection, and that there was an insufficient factual basis to 
sustain that award.  The court of appeals affirmed.  The court 
noted that the circuit court requested affidavits detailing the 
basis for each party's costs and read the affidavits at least 
three times.  Anderson, No. 2003AP1880, unpublished slip op., 
¶12.   
¶17 Because the circuit court indicated it read the 
affidavits multiple times, the court of appeals concluded that 
the circuit court implicitly based its decision on them.  Id., 
¶18.  The court of appeals then turned to the relevant factors 
in SCR 20:1.5(a) and evaluated them in light of the record.  
Id., ¶¶19-24.  The court concluded the record revealed a 
rational basis for the circuit court's conclusion that Accident 
Fund's fees were reasonable.  Id., ¶24.  Therefore, the court 
concluded the award was not the product of an erroneous exercise 
of discretion.  Id.  We accepted Anderson's petition for review, 
and we reverse.  
 
No. 
2003AP1880   
 
10 
 
II 
 
¶18 This 
case 
requires 
us 
to 
interpret 
Wis. Stat. § 102.29(1).  Statutory interpretation presents a 
question of law we review de novo.  German v. DOT, 2000 WI 62, 
¶7, 235 Wis. 2d 576, 612 N.W.2d 50.  Our goal is to discern the 
intent of the legislature.  Id.  The purpose of statutory 
interpretation is to determine what a statute means so that it 
may be given its full, proper, and intended effect.  State ex 
rel. Kalal v. Circuit Court for Dane County, 2004 WI 58, ¶44, 
271 Wis. 2d 633, 681 N.W.2d 110.  We begin with the statute's 
language because we assume that the legislature’s intent is 
expressed within the words it used.  Id., ¶45.  Generally, 
language is given its common, ordinary, and accepted meaning.  
Id.  If the statute's meaning is plain, we ordinarily stop the 
inquiry.  Id.   
 
¶19 Our review of the circuit court's value of reasonable 
attorney fees and costs is limited to whether the circuit court 
properly exercised its discretion.  See Meyer v. Michigan Mut. 
Ins. Co., 2000 WI App 53, ¶11, 233 Wis. 2d 493, 609 N.W.2d 167.  
A proper exercise of discretion requires the circuit court to 
employ "a logical rationale based on the appropriate legal 
principles and facts of record."  Id. (citation and quotation 
omitted).  As this court recently recognized, "We give deference 
to the circuit court's decision because the circuit court is 
familiar with local billing norms and will likely have witnessed 
first-hand the quality of the service rendered by counsel."  
Kolupar v. Wilde Pontiac Cadillac, Inc., 2004 WI 112, ¶22, 275 
No. 
2003AP1880   
 
11 
 
Wis. 2d 1, 683 N.W.2d 58.  We will uphold the circuit court’s 
determination unless it erroneously exercised its discretion.  
Id. 
 
"If 
the 
circuit 
court 
proceeds 
on 
an 
erroneous 
interpretation of the law, the exercise of discretion is 
erroneous."  Theis v. Midwest Sec. Ins. Co., 2000 WI 15, ¶8, 232 
Wis. 2d 749, 606 N.W.2d 162.   
III 
¶20 Wisconsin Stat. § 102.29(1) "was enacted to direct the 
courts in the distribution of proceeds of third-party tort 
actions."  Nelson v. Rothering, 174 Wis. 2d 296, 303, 496 N.W.2d 
87 
(1993). 
 
The 
division 
of 
settlement 
proceeds 
under 
§ 102.29(1) is legislatively mandated and may be deviated from 
only with the consent of both parties.  Id. at 303-04.  The 
proceeds recovered on any third-party tort claim are distributed 
as follows: 
After deducting the reasonable cost of collection, 
one-third of the remainder shall in any event be paid 
to the injured employee or the employee's personal 
representative or other person entitled to bring 
action.  Out of the balance remaining, the employer, 
insurance 
carrier 
or, 
if 
applicable, 
uninsured 
employers fund shall be reimbursed for all payments 
made by it, or which it may be obligated to make in 
the future, under this chapter, except that it shall 
not be reimbursed for any payments of increased 
compensation made or to be made under s. 102.18 (1) 
(bp), 102.22, 102.35 (3), 102.57 or 102.60.  Any 
balance remaining shall be paid to the employee or the 
employee's personal representative or other person 
entitled to bring action. . . .If both the employee or 
the employee’s personal representative or other person 
entitled 
to 
bring 
action, 
and 
the 
employer, 
compensation insurer 
or 
department, join 
in the 
pressing of said claim and are represented by counsel, 
the attorneys’ fees allowed as a part of the costs of 
No. 
2003AP1880   
 
12 
 
collection shall be, unless otherwise agreed upon, 
divided between such attorneys as directed by the 
court or by the department. 
§ 102.29(1).  Thus, the reasonable costs of collection are first 
deducted from any recovery.  These costs include both the 
employee's and the worker's compensation carrier's attorneys' 
fees and costs if both attorneys "join in the pressing" of the 
claim.  Id. 
¶21 Anderson argues that to join in the pressing of the 
claim requires the worker's compensation carrier to demonstrate 
that its attorney's activities substantially contributed to 
making the third party pay.  He asserts that the worker's 
compensation carrier should not recover reasonable attorney fees 
for activities that merely duplicate the activities of the 
injured party's attorney, or merely document the amount of its 
lien interest, and are not effective or necessary in procuring a 
recovery from the third party.   
¶22 In advancing this argument, Anderson recognizes that 
the court of appeals held to the contrary in Zentgraf v. The 
Hanover Insurance Co., 2002 WI App 13, ¶14, 250 Wis. 2d 281, 640 
N.W.2d 171.  Because we agree with and adopt that reasoning, we 
see no reason to depart from that precedent. 
A 
¶23 We begin with Wis. Stat. § 102.29(1).  That section 
recognizes an employee's right to maintain a tort claim against 
a third party who caused the underlying worker's compensation 
injury, but it gives worker's compensation carriers "the same 
right."  Perhaps most importantly, § 102.29(1) explains that 
No. 
2003AP1880   
 
13 
 
both the employee and the worker's compensation carrier "shall 
have an equal voice in the prosecution of said claim . . .." 
¶24 If both the employee and the worker's compensation 
carrier "join in the pressing" of the third-party tort claim and 
"are represented by counsel, the attorneys' fees allowed as a 
part of the costs of collection shall be, unless otherwise 
agreed upon, divided between such attorneys as directed by the 
court or by the department."  Id.   
B 
 
¶25 This court first considered what it meant to join in 
the pressing of the claim in Diedrick v. Hartford Accident & 
Indemnity Co., 62 Wis. 2d 759, 216 N.W.2d 193 (1974).  In 
Diedrick, 
this 
court 
affirmed 
that 
Wis. Stat. § 102.29(1) 
contemplates but one "reasonable cost of collection" if both the 
employee and the worker's compensation carrier "join in the 
pressing" of the third-party claim.  Diedrick, 62 Wis. 2d at 
766-67.  Finding § 102.29(1) plain and unambiguous, this court 
stated, "[t]he statute specifically requires the court approving 
the settlement to determine the attorneys' fees to be allowed 
where both the injured party and the compensation carrier joined 
in bringing the claim to court, and then requires the trial 
court to divide the fees allowed 'between such attorneys.'"  Id. 
at 763-64 (citations omitted).   
 
¶26 In bringing a claim to court, the Diedrick court 
recognized that the services the worker's compensation carrier's 
attorney performed are recoverable even if not completed "at the 
request of or on behalf of the employee."  Id. at 767.  This 
No. 
2003AP1880   
 
14 
 
court 
determined 
that 
the 
statute 
allows 
the 
worker's 
compensation carrier's attorneys to recover a "reasonable fee 
based on services performed for and on behalf of the carrier."  
Id.  "[I]t is immaterial," this court concluded, "whether 
efforts of the carrier's counsel contributed to the employee's 
recovery."  Id. at 766.  Examples of those efforts that were 
recoverable included the carrier's counsel drafting required 
legal 
papers, 
handling 
the 
advance 
depositions, 
and 
participating in the negotiations for settlement.  Id. at 767. 
 
¶27 The court of appeals expanded on what it means to 
press the claim against the third party in Zentgraf, 250 Wis. 2d 
281.  Following a third-party settlement approval, American, the 
worker's compensation carrier, argued the circuit court erred by 
not awarding it its attorney fees as a cost of collection under 
Wis. Stat. § 102.29(1).  Zentgraf, the employee, argued that 
none of American's activities constituted legal efforts "to 
prepare the case for trial or to reach a settlement."  Id., ¶15.  
Zentgraf contended that absent active participation in the 
pressing of the principal third-party claim, which he claimed 
was contributing services toward the successful result, American 
was not entitled to attorney fees as part of the reasonable cost 
of collection.  Id.  The court of appeals disagreed. 
 
¶28 The court of appeals turned to ordinary dictionary 
definitions of "press" to understand what it means to join in 
the pressing of the claim.  Id., ¶18.  The court observed that 
press meant "to follow through (a course of action)," "to seek 
to influence, as by insistent arguments; entreat insistently," 
No. 
2003AP1880   
 
15 
 
and "to attempt to force to action; urge on."  Id. (citations 
and quotations omitted).  Under any of these definitions, the 
court concluded, American joined in the pressing of the claim 
against the third party.  As examples of American's pressing 
activities, the court offered: 
In addition to repeatedly notifying the circuit 
court of the amount of its lien claim and its intent 
to participate in the prosecution of the claim against 
Duame [the third party tortfeasor] and his insurer, 
counsel for American:  (1) was in frequent contact 
with attorneys for the other parties; (2) responded to 
requests from both defense counsel and plaintiffs' 
counsel to produce documents; (3) requested, received, 
and reviewed medical records from multiple medical 
institutions; (4) spent time preparing for the final 
pretrial conference; (5) frequently reviewed the case 
file 
to 
determine 
the 
status 
of 
discovery 
and 
investigation; 
(6) 
prepared 
for 
and 
attended 
a 
mediation conference; (7) analyzed Wis. Stat. § 102.29 
implications 
for 
settlement 
and 
repeatedly 
communicated with the Zentgrafs' attorney regarding 
distribution of the settlement proceeds; (8) prepared 
a motion to postpone the hearing on the Zentgrafs' 
motion to approve the settlement and distribution of 
its proceeds as outlined in their proposed order; (9) 
prepared a letter brief and affidavit with supporting 
documentation; and (10) prepared for and attended the 
motion hearing. Although the Zentgrafs emphasize that 
the action was settled in April 2000, substantial 
issues regarding distribution of the settlement funds 
remained until the circuit court signed the Zentgrafs' 
proposed order on January 11, 2001. 
Id., ¶19.  Ultimately, the court of appeals remanded the case 
for further proceedings to determine the attorney fees due.  
Id., ¶20. 
¶29 We see no reason to supplant the interpretations given 
to 
Wis. Stat. § 102.29(1) 
in 
Diedrick 
and 
Zentgraf 
with 
Anderson's substantial contribution test.  Both decisions are 
No. 
2003AP1880   
 
16 
 
consistent with Wis. Stat. § 102.29(1)'s grant that both the 
injured employee and the worker's compensation carrier have "the 
same right" to maintain the third-party claim and "an equal 
voice in the prosecution of said claim."  Both decisions also 
recognize that the attorneys represent different parties, which 
may have unaligned interests.  Thus, any activities that the 
attorney takes to bring the claim to court on behalf of his or 
her client, as expanded in Zentgraf, constitute a cost of 
collection amenable to recovery under § 102.29(1).   
¶30 To conclude that a worker's compensation carrier 
cannot recover attorney fees for work that "merely duplicate[s]" 
the employee's attorney's actions or "simply document the amount 
of the lien" ignores that this work is performed on behalf of 
the client, the worker's compensation carrier.8  As Zentgraf 
illustrated, 
there 
can 
be 
a 
laundry 
list 
of 
activities 
undertaken as part of normal advocacy in bringing a claim to 
court that has little to do with "substantially contributing to 
making the third-party pay."  Therefore, we will not depart 
§ 102.29(1)'s prior precedent. 
 
 
                                                 
8 That is not to say that all activities the worker's 
compensation carrier's or the employee's attorney undertakes are 
recoverable.  Wisconsin Stat. § 102.29(1) allows the recovery of 
only the "reasonable costs of collection."  Through the exercise 
of its discretion, the circuit court may conclude that it would 
be unreasonable to award duplicative costs and therefore divide 
the attorneys' fees as it deems appropriate as a "reasonable 
cost of collection".   
No. 
2003AP1880   
 
17 
 
IV 
¶31 Anderson's second argument is that Accident Fund 
failed to establish the reasonableness of its claimed costs of 
collection.  In particular, Anderson notes that Accident Fund 
did not file proof of the hours worked, the rate billed, or an 
itemization of disbursements.  
¶32 Accident Fund responds by criticizing Anderson for the 
same shortcomings.  Although Anderson's fee was based on a one-
third contingency fee agreement, Accident Fund notes that 
Anderson has provided no basis upon which to conclude that his 
fee and costs were reasonable.  On this issue, we agree with 
both parties. 
¶33 As 
mentioned 
above, 
Wis. Stat. § 102.29(1) 
contemplates a deduction for costs of collection, and that 
deduction must be reasonable.  Diedrick, 62 Wis. 2d at 766-67.  
In this case, the circuit court awarded $17,730.12 as the 
reasonable 
cost 
of 
collection 
on 
a 
$25,000 
settlement; 
$10,257.15 
to 
Anderson's 
attorney 
($8,333.33 
one-third 
contingent fee and $1,923.82 in costs), and $7,472.97 to 
Accident Fund for attorney fees and costs.   
¶34 While the award of attorney fees is a matter left to 
the circuit court's discretion and is entitled to deference, the 
circuit court in this case did not consider the reasonableness 
of the aggregate fees and costs, let alone the reasonableness of 
the individual fees in the first instance.  Instead, the circuit 
court concluded that it was required to approve Accident Fund's 
attorney fees.  This was an erroneous interpretation of the law, 
No. 
2003AP1880   
 
18 
 
and thus an erroneous exercise of discretion.  See Theis, 232 
Wis. 2d 749, ¶8.  Considering the lack of information the 
circuit court had to work from, our review of the record cannot 
salvage the circuit court's order.  
¶35 On remand, the circuit court must first determine what 
constitutes the reasonable cost of collection.  Although 
seemingly simple, this task is complicated here since Anderson's 
attorney is working on a contingency fee basis while Accident 
Fund is working on an hourly basis.  To determine what the 
reasonable cost of collection is, the circuit court will have to 
manage alternate tests to gauge the reasonableness of the 
different attorney fees, while bearing in mind that the 
aggregate of reasonable attorneys' fees may not result in a 
reasonable cost of collection.9  We discuss each test in turn.  
A 
¶36 In Meyer, the court of appeals was confronted with 
whether the circuit court properly exercised its discretion by 
awarding an employee's attorney a one-third contingent fee 
(resulting in a $333,333.33 fee) as part of the reasonable cost 
of collection under Wis. Stat. § 102.29(1).  Meyer, 233 Wis. 2d 
493, ¶¶1, 9.  For guidance, the court of appeals turned to 
Village of Shorewood v. Steinberg, 174 Wis. 2d 191, 204, 496 
                                                 
9  Although we caution that the aggregate of reasonable 
attorney fees and costs does not necessarily translate into the 
reasonable costs of collection, we acknowledge that through the 
circuit court's proper exercise of discretion it might.  Thus, 
it is appropriate for the court to first determine the 
reasonable value of each party's attorney's fees. 
No. 
2003AP1880   
 
19 
 
N.W.2d 57 (1993), an eminent domain case involving awarding 
attorneys' fees.  The court of appeals noted that in Village of 
Shorewood, 
this 
court 
determined 
that 
a 
contingency 
fee 
agreement was to be used only as a guide when calculating 
reasonable attorney fees; it is not controlling.  Meyer, 233 
Wis. 2d 493, ¶13.  The court of appeals further observed that 
the Village of Shorewood court held that the circuit court must 
consider all of the circumstances to determine whether a 
contingency fee figure is reasonable and looked to the factors 
in SCR 20:1.5(a) to help steer that determination.  Meyer, 233 
Wis. 2d 493, ¶13.  Using that framework, the court of appeals 
determined that the circuit court properly exercised its 
discretion by awarding the employee's attorney a one-third 
contingency fee.  Id., ¶23. 
¶37 As in Meyer, the circuit court in this case must 
evaluate Anderson's one-third contingency fee in light of all 
the circumstances.  The court must not simply enforce the 
contingency fee agreement.  Supreme Court Rule 20:1.5(a) lists 
factors that help determine the reasonableness of an attorney's 
fee, which are: 
(1) the time and labor required, the novelty and 
difficulty of the questions involved, and the skill 
requisite to perform the legal service properly;  
(2) the likelihood, if apparent to the client, that 
the acceptance of the particular employment will 
preclude other employment by the lawyer;  
(3) the fee customarily charged in the locality for 
similar legal services;  
No. 
2003AP1880   
 
20 
 
(4) the amount involved and the results obtained;  
(5) the time limitations imposed by the client or by 
the circumstances;  
(6) 
the 
nature 
and 
length 
of 
the 
professional 
relationship with the client;  
(7) the experience, reputation, and ability of the 
lawyer or lawyers performing the services; and  
(8) whether the fee is fixed or contingent. 
Id.  Although each factor need not be examined, the circuit 
court must consider "all the circumstances of the case to 
determine whether the contingency fee amount is a just and 
reasonable figure."  Village of Shorewood, 174 Wis. 2d at 204.     
¶38 We pause to note that we do not question the propriety 
of a contingency fee in a third-party tort claim.  We recognize 
that contingency fees play a vital role in ensuring that certain 
claimants get access to the courts by providing attorneys with a 
sufficient incentive that outweighs the risks of litigating 
uncertain claims.  We further recognize that contingent fees 
also counterbalance prior gambles the attorney took that 
returned 
little 
or 
nothing 
in 
terms 
of 
compensation.  
Nevertheless, 
assessing 
the 
reasonableness 
of 
Anderson's 
contingency fee is necessary here as it is the first step in 
determining 
the 
reasonable 
costs 
of 
collection 
under 
Wis. Stat. § 102.29(1).  See infra Part IV.C. 
B 
 
¶39 Scrutinizing Accident Fund's attorney fees requires a 
different analysis because Accident Fund's attorney is working 
on an hourly basis.  To determine the reasonableness of Accident 
No. 
2003AP1880   
 
21 
 
Fund's attorney's fees, all parties concede that the circuit 
court must follow this court's recent decision in Kolupar, 275 
Wis. 2d 1.  In Kolupar, this court adopted the lodestar approach 
for 
determining 
reasonable 
attorney 
fees 
in 
fee-shifting 
statutes.  Under this analysis, the circuit court must first 
multiply the reasonable hours expended by a reasonable rate.  
Id., ¶29.  The circuit court may then make adjustments using the 
SCR 20:1.5(a) factors.  Id., ¶¶29-30.  
C 
 
¶40 After 
determining 
the reasonable 
value 
for 
each 
party's fees and costs, the circuit court's inquiry does not 
end. 
 
Wisconsin Stat. § 102.29(1) 
requires 
deducting 
the 
reasonable cost of collection from third-party claim proceeds.  
The sum of the attorneys' reasonable fees and costs may, but 
need not, equal a reasonable cost of collection.  The circuit 
court must evaluate the total cost of collection and determine 
whether that sum is reasonable, in light of, among other things, 
the recovery.  SCR 20:1.5(a)(4).10   
¶41 As in evaluating the reasonableness of the contingency 
fee and hourly fee, the circuit court has wide discretion here.  
Examples of factors to consider as highlighted in this case 
include the quality and quantity of services provided (to weed 
out costs and fees that are merely duplicative, needless, or 
unreasonable with regard to pressing the claim), the amount 
                                                 
10 The trial court should consider "the amount involved and 
the results obtained". 
No. 
2003AP1880   
 
22 
 
recovered from the third party, and the posture of the case (to 
take into account whether additional litigation was necessitated 
by the lack of notice and the need for appellate litigation.  
See Pagel v. Kees, 23 Wis. 2d 462, 472, 127 N.W.2d 816 (1964)).   
 
¶42  And finally, after determining the reasonable costs of 
collection, the court must direct, unless otherwise agreed, how 
the attorneys' fees are to be divided between the attorneys. 
V 
 
¶43 To foreclose an issue that will arise on remand, we 
address a question that emerged during oral argument.  On 
November 16, 2003, Anderson arbitrated his underinsured motorist 
(UIM) claim and he received $85,000, with a $25,000 reduction 
for the prior settlement.  Accident Fund contends that the 
circuit court's determination of what constitutes reasonable 
costs of collection should take into account the UIM claim 
proceeds, as it suggests that much (if not all) of the 
groundwork for the UIM claim was laid during the third-party 
tort claim.  
 
¶44 We cannot reconcile Accident Fund's contention with 
Wis. Stat. § 102.29(1).  That section specifically deals with 
third-party liability, specifically  "an action in tort against 
any other party for such injury or death."  Id.  The worker's 
compensation carrier has "the same right to make claim or 
maintain an action in tort against any other party for such 
injury or death."  Id.  Out of the proceeds of "said claim," the 
worker's compensation carrier is entitled to the reasonable 
costs of collection.  A UIM claim, however, is not a third-party 
No. 
2003AP1880   
 
23 
 
tort claim.  As is an uninsured motorist claim, a UIM claim is a 
first-party contract claim.  See Berna-Mork v. Jones, 174 
Wis. 2d 645, 
651, 
498 
N.W.2d 
221 
(1993) 
("[U]nder 
sec. 
102.29(1), Stats., an employer or compensation insurer has no 
right 
to 
subrogation 
against 
uninsured 
motorist 
benefits 
available to the employee because an action for uninsured 
motorist benefits is based on contract not tort."); Danner v. 
Auto-Owners Ins., 2001 WI 90, ¶51, 245 Wis. 2d 49, 629 N.W.2d 
159 ("Underinsured 
motorist 
coverage 
provides 
first 
party 
coverage that affords compensation for injured persons whenever 
a tortfeasor is inadequately insured." (citation and quotation 
omitted)).  Thus, we see no basis upon which to conclude that 
the worker's compensation carrier obtains the benefit of having 
its fees and costs artificially enlarged by inflating the 
recovery the injured employee ultimately obtains. 
VI 
 
¶45 In sum, we conclude that Wis. Stat. § 102.29(1) does 
not require a worker's compensation attorney to demonstrate that 
his or her activities substantially contributed to obtaining 
recovery from the third party, or that the activities were taken 
on behalf of the employee, in order to join in the pressing of a 
claim.  However, the cost of collection must be reasonable.    
Because the circuit court did not consider whether the total 
costs of collection in this case were reasonable in light of the 
amount recovered, and because the court lacked sufficient 
information upon which to base its determination regarding 
attorneys' fees, we reverse the court of appeals' decision and 
No. 
2003AP1880   
 
24 
 
remand the matter to the circuit court for a determination of 
what the reasonable costs of collection are and how those costs 
are to be apportioned between the attorneys. 
 
By the Court.—Reversed and cause remanded for further 
proceedings consistent with this opinion.   
 
 
 
No.  2003AP1880.awb 
 
1 
 
 
¶46 ANN WALSH BRADLEY, J.   (concurring).  I agree with 
the majority that upon remand the circuit court must determine 
the reasonable cost of collection.  I also agree with the 
majority that the sum of reasonable attorney fees and costs does 
not necessarily equal the "reasonable costs of collection."  I 
write separately, however, to provide further context to the 
majority's contingent fee discussion. 
¶47 The majority aptly describes the statutory formula 
under Wis. Stat. § 102.29 for distribution of proceeds from a 
third-party recovery.  Citing Diedrick v. Hartford Accident & 
Indemnity Co., 62 Wis. 2d 759, 766-67, 216 N.W.2d 193 (1974), it 
notes that the statute contemplates a deduction for costs of 
collection, and that the deducted amount must be reasonable.  
Majority op., ¶33.  The majority also recognizes that the task 
to determine the reasonable cost of collection is made more 
complicated here because two firms are seeking attorney fees and 
because a determination of the reasonable cost of collection 
encompasses both an hourly fee and a contingent fee.  Id., ¶35.   
¶48 Last term in Kolupar v. Wilde Pontiac Cadillac, Inc., 
2004 WI 112, 275 Wis. 2d 1, 683 N.W.2d 58, we addressed the 
proper analytical framework for determining reasonableness of a 
fee when it is based on an hourly rate.  We adopted the lodestar 
method. 
 
Id., 
¶30. 
 
This 
court 
acknowledged 
that 
the 
underpinnings of the analysis include the assessment of the 
reasonable number of hours worked multiplied by a reasonable 
hourly rate.  Id., ¶29.  After determining that amount, we 
No.  2003AP1880.awb 
 
2 
 
observed that the application of the factors set forth in SCR 
20:1.5 may alter the result of the rate-X-hours equation.  See 
id., ¶33-35. 
¶49 The majority here fails to discuss the underpinnings 
of the contingent fee agreement and merely directs that the non- 
exhaustive list of factors set forth in SCR 20:1.5 are to be 
applied.  Majority op., ¶37.  The problem with the majority's 
approach is twofold:  (1) a discussion of the underpinnings of 
the contingent fee is necessary to provide the context for the 
reasonableness determination; and (2) most of the factors set 
forth in SCR 20:1.5 are not relevant to a contingent fee 
reasonableness determination. 
¶50 The underpinnings of the contingent fee are distinct 
from those of the hourly fee.11  The normal hourly fee purchases 
the services of an attorney at a predetermined rate.  Under a 
contingent fee, a client purchases more than just services.  The 
contingent fee also provides a form of financing.  When using an 
hourly rate, a client typically pays some amount at the 
beginning or is billed as the work progresses.  By its nature, 
the contingent fee is normally not collected until the case is 
finished.  As a result, the contingent fee attorney ends up 
financing the case. 
                                                 
11 For a more in-depth discussion of this topic, see Herbert 
M. Kritzer, The Wages of Risk:  The Returns of Contingency Fee 
Legal Practice, 47 DePaul L. Rev. 267 (Winter 1998). 
 
No.  2003AP1880.awb 
 
3 
 
¶51 The contingent fee may also provide a form of 
insurance.  That is, if no money is collected, then often the 
client is liable for nothing, not even the expenses.  The 
contingent fee agreement in this case serves as an example of 
this type of insurance.  The first sentence of the agreement 
states:  "If no amount is collected on your case, the attorney 
will be entitled to no fee for services and you will not be 
required 
to 
pay 
out-of-pocket 
expenses 
incurred 
by 
the 
attorney."  (Underlined in original.) 
¶52 The contingent fee plays a vital role in our civil 
litigation system.  It serves a gatekeeping function.  Cases 
with little merit will not be brought because they are not worth 
taking the risk.  Attorneys will screen out cases with a low 
probability of recovery.  It also serves, however, as an 
important tool for access to justice.  It opens the courthouse 
doors to people who could not otherwise afford to bring their 
cases.  
¶53 With the differences in background and function, there 
comes also a difference in the focus of the reasonableness 
analysis.  The focus of the reasonableness inquiry for the 
contingent fee is not so much tied to the individual hours or 
efforts spent on a particular case, but rather it encompasses a 
broader focus.  The basic idea behind use of the contingent fee 
is that in some individual tort cases the attorney may get what 
seems like a windfall, but in other cases the attorney can take 
the case through a long trial and appeal and get nothing.  
Sometimes the risk pays off, and sometimes it does not.  A 
No.  2003AP1880.awb 
 
4 
 
broader focus is important when assessing the reasonableness of 
the contingent fee. 
¶54 In a study of the financial risks attendant to the use 
of the contingent fee agreement, one commentator explained the 
broader focus as follows:  "The profits from contingency fee 
work come not from the individual case but from the portfolio of 
cases that a lawyer handles.  Some of the 'investments' in that 
portfolio do poorly (some are disasters), many do okay and a few 
do extremely well.  As with any type of investment strategy, one 
must look at the returns from the portfolio as a whole rather 
than focus on single investments (or cases)."  Herbert M. 
Kritzer, Investing in Cases:  Can You Profit From Contingency 
Fee Work?, 70 Wis. Lawyer 10, 45 (August 1997).   
¶55 Although 
the majority recognizes 
that 
there are 
differences between a contingent fee and an hourly fee, it fails 
to discuss the differences in the reasonableness analysis.  It 
instructs the circuit court to evaluate Anderson's fee by 
applying the factors set forth in SCR 20:1.5 and cites to Meyer 
v. Michigan Mutual 
Insurance Co., 
2000 WI 
App 53, 233 
Wis. 2d 493, 609 N.W.2d 167.    
¶56 The majority fails to observe that the court of 
appeals in the Meyer case struggled mightily in trying to fit a 
reasonableness of contingent fee analysis (a square peg) into 
SCR 20:1.5(a) (a round hole).  To accomplish this task, the 
Meyer court stated that courts did not have to consider all the 
factors, and determined that the trial court, in the exercise of 
its discretion, had considered three factors: (1) the time and 
No.  2003AP1880.awb 
 
5 
 
labor required; (2) the amount of money involved; and (3) the 
attendant risks.   Id., ¶16. 
¶57 The 
problem 
with 
the 
Meyer 
court 
discussion 
underscores the dilemma a court faces when relying on SCR 20:1.5 
to assess the reasonableness of a contingent fee.  The factors 
readily apply to an hourly fee determination, but provide little 
guidance for the determination of the reasonableness of the 
contingent fee.  
¶58 To begin, the "risk" factor which played a prominent 
role in the Meyer court's reasonableness determination does not 
even appear in the factors listed in SCR 20:1.5.  Like both the 
trial court and court of appeals in Meyer, I believe that a 
consideration of "risk" does and should play a prominent role in 
the reasonableness determination of a contingent fee. 
¶59 Next, the Meyer court recognized, as should this 
majority, that the "time and labor" factor does not always 
readily fit the contingent fee analysis.  See id., ¶18.  In an 
effort to make it fit, it had to redefine the "time and labor" 
factor. 
¶60 The Meyer court indicated that what it meant by the 
"time and labor" factor of SCR 20:1.5(a) did not focus on the 
"substantial hours and efforts expended by Meyer's attorneys" in 
this particular case, but in their "hundreds and hundreds of 
hours in litigation such as this and in worker's compensation." 
Id.  Thus, the court redefined the "time and labor" factor to 
mean the time and effort expended to acquire expertise in this 
area of practice. 
No.  2003AP1880.awb 
 
6 
 
¶61 Finally, the Meyer court emphasized that the trial 
court's determination of reasonableness of the contingent fee is 
not based on hours worked or time sheets, but on whether the 
terms of the contingent fee were reasonable.  It then quoted 
with approval the basis of the trial court's reasonableness 
determination:  
[T]he [§] 102.29 phraseology of reasonable costs of 
collection is not meant nor is it to be interpreted as 
that . . . attorney[s] must prove on an hourly basis 
or a work time sheet that they had put in that time 
and that effort to equal that amount that had been 
gained under the contingent fee contract.  Reasonable 
costs of collection for attorney fees includes whether 
the arrangement that had been made between the client 
and the lawyer was reasonable.   
And I can take judicial notice that it is reasonable 
to have a contingent fee agreement . . . . 
Id., ¶21. 
¶62 Given 
the 
underpinnings 
of 
the 
contingent 
fee 
agreement, I agree with the Meyer court that the reasonable 
costs of collection inquiry includes the threshold inquiry of 
whether the contingent fee arrangement between the attorney and 
client was reasonable.  Like the court in Meyer, I too conclude 
that it is reasonable to have a contingent fee here. 
¶63 Ultimately, I do not think that many of the factors of 
SCR 20:1.5(a) even apply to a reasonableness of contingent fee 
analysis.   The factors in SCR 20:1.5(a) are as follows: 
(1) the time and labor required, the novelty and 
difficulty of the questions involved, and the skill 
requisite to perform the legal service properly; 
(2) the likelihood, if apparent to the client, that 
the acceptance of the particular employment will 
preclude other employment by the lawyer; 
No.  2003AP1880.awb 
 
7 
 
(3) the fee customarily charged in the locality for 
similar legal services; 
(4) the amount involved and the results obtained; 
(5) the time limitations imposed by the client or by 
the circumstances; 
(6) 
the 
nature 
and 
length 
of 
the 
professional 
relationship with the client; 
(7) the experience, reputation, and ability of the 
lawyer or lawyers performing the services; and 
(8) whether the fee is fixed or contingent.12 
¶64 Although the listed factors seem relevant to a 
determination of the reasonableness of a fee based on an hourly 
rate, many seem irrelevant to the reasonableness inquiry for a 
contingent fee.  Except as redefined by the Meyer court, the 
reasonableness of a contingent fee does not normally depend on 
the time and labor required in a case, as set forth above in 
(1). 
¶65 Likewise, the (2) inquiry, which addresses whether the 
particular employment will preclude other employment by the 
lawyer, seems to have little or nothing to do with the 
reasonableness of a contingent fee.  The same can be said for 
the factors set forth in (5), (6), and probably (7). 
¶66 Upon remand, I think that SCR 20:1.5(a) will be of 
limited assistance to the circuit court in its reasonableness 
determination of the contingent fee.  Accordingly, although I 
                                                 
12 For further discussion of the eight factors set forth in 
the ABA Model Code Rule 1.5, which are identical to the eight 
factors set forth in SCR 20:1.5., see Ankur Parekh and Jay R. 
Pelkofer, Lawyers, Ethics, and Fees:  Getting Paid Under Model 
Rule 1.5, 16 Geo. J. Legal Ethics 767 (Summer 2003). 
No.  2003AP1880.awb 
 
8 
 
join the opinion of the majority, for the forgoing reasons I 
respectfully concur.    
  
No.  2003AP1880.awb 
 
 
 
1