UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

JOHN P. HANKINS, No. 09-13395

Plaintiff, District Judge Arthur J. Tarnow

v. Magistrate Judge R. Steven Whalen

CITY OF INKSTER, ET AL.,

Defendants.

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REPORT AND RECOMMENDATION

Before the Court is Plaintiff’s Motion for Determination of Attorney Fees and

Costs [Doc. #109], which has been referred for a Report and Recommendation under 28

U.S.C. § 636(b)(1)(B). The case settled, and Plaintiff Hankins, who signed a one-third

contingent fee agreement first with Seifman & Guzall, P.C., and later with Raymond

Guzall, P.C., has received all the money he would be entitled to under the settlement.

Mr. Seifman has filed a lien on the attorney fees. One-third of the settlement amount has

been placed in an interest-bearing escrow account.

For the reasons discussed below, I recommend that the motion be GRANTED, and

that the attorney fee be divided between Mr. Seifman and Mr. Guzall, with Mr. Guzall

receiving 25% plus an additional $24,000.00, and Mr. Seifman receiving the remainder.

I. FACTS

A. Procedural History

Plaintiff was a police officer employed by the City of Inkster. On August 27,

2009, he filed a civil complaint in this Court that included allegations of employment

discrimination and retaliation [Doc. #1]. On April 10, 2010, he filed an amended

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complaint [Doc. #12]. Attorney Raymond Guzall III signed both the original and the

amended complaint on behalf of Seifman & Guzall, P.C., the firm that Mr. Hankins

retained to represent him in his case. On February 21, 2012, the case settled. The 1

present dispute over the attorney fee stems from the fact that before the settlement, Mr.

Guzall left Seifman & Guzall, P.C., and continued his representation of Mr. Hankins, at

Mr. Hankins’ request, through his own law firm, Raymond Guzall, P.C.

On April 26, 2012, Plaintiff filed the present Motion for Determination of

Attorney Fees [Doc. #109]. On May 2, 2012, the Court ordered the Defendant to remit

the funds representing the attorney fees to the Clerk of the Court “for deposit in an

interest-bearing escrow account in accordance [with] Local Rule 67.1.” [Doc. #112]. On

the same date, the Court granted Barry Seifman’s motion to intervene as a third party

plaintiff [Doc. #113], and denied Plaintiff Hankins’ motion to strike Mr. Seifman’s

motion to intervene [Doc. #112]. Mr. Seifman filed his third party complaint on May 4,

2012 [Doc. #115].

I held a status conference on October 2, 2012, at which a separate Oakland County

lawsuit between Mr. Guzall and Mr. Seifman was discussed. In my Order Regarding

Evidentiary Hearing [Doc. #132], I noted that “I would not permit testimony as to Mr.

Guzall’s allegations of pervasive wrongdoing by Mr. Seifman unrelated to this case,

allegations that form the basis of a separate lawsuit pending in the Oakland County

Circuit Court.” I added that “[w]e will not try the Oakland County lawsuit de facto in the

context of this evidentiary hearing on attorney fees.”

The settlement amount is subject to a confidentiality provision. 1

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On March 26, 2013, I held a settlement conference, but a resolution could not be

reached.

On March 27, 2013, the Court administratively terminated this motion and held it

in abeyance, permitting the motion to be reopened following the resolution of the

Oakland County Circuit Court case [Doc. #140]. The case was reopened on March 7,

2016 [Doc. #153].

B. Evidentiary Hearing Testimony

John Hankins, the Plaintiff, testified that he signed a retainer agreement with

Seifman & Guzall, P.C. around July of 2009 (Tr. 25-26). The agreement provided for a

1/3 contingency fee to be paid to that law firm (Tr. 13). From the beginning, he wanted

Mr. Guzall to handle his case (Tr. 40), and sometime before December of 2011 he

expressed to Mr. Guzall his dissatisfaction with Mr. Seifman (Tr. 31-32, 34). After Mr.

Seifman recommended accepting a settlement offer from the City of Inskter, Mr. Hankins,

finding the offer unacceptable, told Mr. Guzall that he did not want Mr. Seifman to

represent him (Tr. 22). Before Christmas of 2011, he and Mr. Guzall discussed the

possibility that Mr. Guzall would part company with Mr. Seifman and either start his own

law firm or join another firm (Tr. 29). Mr. Guzall initiated this conversation (Tr. 30).

When Mr. Hankins was informed that Mr. Guzall was starting his own firm, he told

Guzall that he wanted to stay with him (Tr. 34-35). This was about two months before

the scheduled trial, and Mr. Hankins did not want a new attorney to come in that late in

the game (Tr. 41). Mr. Hankins testified that he wanted Mr. Guzall to handle his case

regardless of whether he stayed with or left Seifman & Guzall (Tr. 40). He signed a

retainer agreement with the newly-formed Law Office of Raymond Guzall, III on

February 13, 2012 (Tr. 16-17). The agreement provided for a one-third contingency fee

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(Tr. 13, 25).

Mr. Hankins testified that he never verbally told Mr. Seifman that he no longer

wanted the firm to represent him, but that he mailed a letter to that effect on January 12,

2012 (Tr. 22-24). The case settled in February of 2012, and Mr. Hankins has received all

of the settlement money he was entitled to (Tr. 29).

Raymond Guzall testified that he was a shareholder in Seifman & Guzall, P.C.

from 2006 until he left the firm on February 6, 2012 (Tr. 42). The first shareholder

agreement (Seifman Exhibit #3) gave Mr. Guzall a 5% ownership share. The agreement

provided for an annual salary of $100,000 for Mr. Guzall, and also stated:

“Division of any surplus above salaries may occur when, in the judgment of

Barry A. Seifman, adequate funds are available consistent with the

respective ownership interests.” (Tr. 54-55).

In addition, the agreement stated:

“In the event there appears in the judgment of Barry A. Seifman, a situation

wherein it appears that the owners cannot get along, or Raymond Guzall III

seeks to separate from the Company, he shall be paid the sum of Five

Dollars ($5.00) for his stock ownership and all files shall remain the

property of the Company.”

Over time, the agreement was amended to incrementally increase Mr. Guzall’s

ownership share, and before he left the firm, Mr. Guzall’s ownership had increased to

25% (Tr. 55-59, 66). Mr. Guzall testified that he did not interpret the shareholder

agreement as a “fee-splitting agreement,” although he sometimes got an extra payment,

on top of his salary, at the end of the year (Tr. 50-51).

Mr. Guzall testified that he contemplated leaving the Seifman & Guzall firm as

early as August or September, 2011 (Tr. 43), and made the decision to leave in November

of 2011 (Tr. 68). In December of 2011 he told Mr. Hankins he was thinking about

leaving the firm, and also told him that he could stay with Seifman, go to another firm, or

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come with Guzall (Tr. 43-45).

Mr. Guzall testified that February 5, 2012 was when he first gave notice to Mr.

Seifman that he was leaving. This was Super Bowl weekend, and Mr. Guzall left his

written notice, along with Mr. Hankins’ termination letter, on Mr. Seifman’s chair (Tr.

43, , 47, 70-73). This was also the first time he gave Mr. Seifman Mr. Hankins’ 2

termination letter (Tr. 70). He also removed a number of physical files, including Mr.

Hankins’ file that weekend. He had transferred electronic files a few weeks before that

(Tr. 88).

Mr. Guzall signed a lease on his new office on January 12, 2012 (Tr. 68). He

incorporated Raymond Guzall, P.C. on February 1, 2012 (Tr. 75). He signed a

contingent fee agreement with Mr. Hankins on February 13, 2012 (Tr. 46). The terms of

the ultimate settlement were placed on the record on February 21, 2012 (Tr. 93). Mr.

Guzall testified that all the time he spent on the case between the time Mr. Hankins

retained Seifman & Guzall and when he left the firm was work performed as a

shareholder and employee of Seifman & Guzall (Tr. 89).

Barry Seifman testified that by the time Mr. Guzall left the firm, he had risen to

the level of a 25% shareholder (Tr. 104). Contrary to Mr. Guzall’s testimony, Mr.

Seifman considered the shareholder agreement to be a fee-splitting agreement (Tr. 107-

108, 111). He testified that when a settlement or award was received in a contingent fee

case, and if there were sufficient funds to make a disbursement after expenses, he would

distribute according to the percentages in the shareholder agreement (Tr. 106-107). He

said that in general, the proportional distribution was not done on a case-by-case basis,

but based on firm’s the overall aggregate profit, although the fees (after expenses) would

Super Bowl XLVI was played on Sunday, February 5, 2012. 2

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be split earlier in the case of a large settlement (Tr. 124-126). He testified that both he

and Mr. Guzall received salaries and shared in profits (Tr. 117).

Mr. Seifman testified that he did not receive Mr. Hankins’ termination letter until

he found it on his chair on February 6, 2012, along with termination letters from other

clients (Tr. 105). This was the first time he learned that Mr. Guzall was leaving the firm,

and the first time that Mr. Hankins informed him that he was leaving the firm and taking

clients with him (Tr. 119).

II. DISCUSSION

Mr. Seifman contends that the distribution of the Hankins attorney fee should be

made according to the 75%-25% ownership shares in the law firm, arguing that the

shareholder agreement is an enforceable fee-splitting arrangement. Mr. Guzall disputes

this characterization of the shareholder agreement, and argues that Mr. Seifman is entitled

to no more than quantum meruit. Because Mr. Seifman’s involvement in the Hankins

case was minimal, he argues, then Mr. Seifman’s share of the fee should be minimal.

The shareholder agreement, along with its modifications, defined the legal

relationship between Mr. Seifman and Mr. Guzall. Regardless of whether or not it is

considered a fee-sharing arrangement, its 75/25 ownership provision dictates that Mr.

Seifman receive 75% of the Hankins fee.

First, I am persuaded that while the shareholder agreement could have been more

specific as to how fees were to be apportioned between the two shareholders, it was, in

intent and effect, a fee-splitting agreement. The undisputed testimony was that Mr.

Guzall was initially given a 5% ownership interest in Seifman & Guzall, and by the time

he left, his ownership interest increased to 25%. It is only logical that a 25% interest was

more advantageous to Mr. Guzall than a 5% interest. Yet the agreement provided that if

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Mr. Guzall left the firm, he would be paid only $5.00 for his shares. What, then, was the

value to him of his ever-increasing ownership percentage under the shareholder

agreement? It could only have been a proportional share of the profits of the law firm,

profits that were generated by fees such as those obtained in the Hankins case. This is

corroborated by Mr. Seifman’s testimony that after expenses were paid, he would make

distributions, above his and Mr. Guzall’s salaries, according to the ownership percentages

in the shareholder agreement. Whether these distributions would be made at the end of

the year, based on aggregate profits, or on a case-by-case basis in the event of a large fee,

they were made proportionally to Seifman’s and Guzall’s respective ownership

percentages. The shareholder agreement can therefore be reasonably interpreted to be a

fee-splitting agreement.

In McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, 197 Mich.App. 282,

287, 494 N.W.2d 826 (1993), the Court held that fee-splitting agreements do not violate

the Michigan Rules of Professional Conduct, but rather “simply seek[] to obviate timeconsuming squabbles that formerly arose when plaintiff’s entitlement to its fair share of

any fee generated by a departing client’s file was determined on a quantum merit basis.”

The Court added that “such arrangements, as long as they are reasonable, should be

encouraged.” Id. Fee-splitting agreements, such as the shareholder agreement in this

case, cover fees that might be attributable to the departing attorney’s work on a case after

separation from the law firm. Torpey v. Secrest, Wardle, Lynch, Hampton, Truex,

Morley, PC, 2003 WL 21958289, at *5 (Mich. Ct.App. 2003), citing McCroskey

(“Indeed, the fee-splitting arrangement upheld in McCroskey clearly applied to work

performed after the attorney left the firm.”).

But even if the shareholder agreement is not considered a fee-splitting agreement,

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its percentages still govern the distribution of the Hankins fee. In Jewel v. Boxer, 156

Cal. App.3d 171, 203 Cal. Rptr.13 (1984), the law firm of Jewel, Boxer and Elkind

dissolved, with Jewel and Boxer forming separate law firms. There was no agreement as

to the allocation of fees from active cases upon dissolution of the partnership. The Court

held that “absent a contrary agreement, any income generated through the winding up of

unfinished business is allocated to the former partners according to their respective

interests in the partnership.” 156 Cal. App.3d at 176. The Court considered the active

cases as unfinished business of the former law firm. The Jewel Court described the

“sound policy reasons” for this rule:

“The rule prevents partners from competing for the most remunerative cases

during the life of the partnership in anticipation that they might retain those

cases should the partnership dissolve. It also discourages former partners

from scrambling to take physical possession of files and seeking personal

gain by soliciting a firm’s existing clients upon dissolution.” Id. at 179.

Rejecting the trial court’s allocation of fees on the basis of quantum meruit, the

Jewel Court held:

“In short, the trial court’s allocation of postdissolution income to the old

and new firms on a quantum meruit basis constituted error. The appropriate

remedy is to remand the cause for posttrial proceedings to allocate such

income to the former partners of the old firm in accordance with their

respective percentage interests in the former partnership.” Id. at 180.

The law firm in Jewel was a partnership, not a corporation, and the Court relied in

part on the Uniform Partnership Act, Cal. Corp. Code § 15001 et seq. However, in Fox v.

Abrams, 163 Cal. App.3d 610, 210 Cal. Rptr. 260 (1985), the Court, noting that “Jewel v.

Boxer was not based solely on partnership law but also cited ‘sound policy reasons’ for

its decision,” id. at 616, applied the “ownership percentage” rule to law firms that

practiced as professional corporations. Citing the fiduciary obligations of law partners

discussed in Jewel, the Court found

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“that attorneys practicing together in a law corporation owe each other

fiduciary duties very similar to those owed by law partners, and therefore

the fact that a law corporation is involved is no reason to disregard the fair

and reasonable principles of Jewel v. Boxer or to interpret the parties’

agreement in a manner favoring one group over another.” Id. at 617.

In Vowell & Meelheim, P.C. v. Beddow, Erben & Bown, P.A., 679 So.2d 637

(S.Ct. Ala. 1996), the Alabama Supreme Court also applied the Jewel methodology to a

fee dispute between professional legal corporations, noting that “the majority rule

requires that legal fees earned from clients of the partnership or professional association

be divided according to the interest of each partner in the partnership or the interest of

each shareholder in the professional association.” Id. at 640 (citing cases).3

While I have some concern with the manner in which Mr. Guzall left his former

law firm–that is, surreptitiously taking client files on Super Bowl Sunday, when no one

would be in the office, and leaving a note on Mr. Seifman’s chair for him to find on

Monday morning–it is not necessary to make a finding that Mr. Guzall breached his

fiduciary duty to the firm, and I decline to make that finding. The Jewell methodology of

dividing post-dissolution fees according to the ownership interest of each shareholder is

In Kohl, Harris, Nolan & McCarthy, P.C. v. Peters, 2008 WL 183294 (Mich. Ct. 3

App. 2008), there was both a fee-splitting agreement and a shareholder agreement. The

Court stated:

“While no Michigan case law is directly on point, we note that a majority of

jurisdictions treat a pending contingent-fee case taken by a terminating

attorney as an asset of the originating firm and that, upon collection of the

contingency fee, the terminating attorney has a continuing fiduciary duty in

regard to fee splitting, and must comply with the terms of any applicable

fee-splitting agreement.” Id. at *3 (emphasis in original).

In support of this proposition, the Kohl Court cited Jewel, Fox, and Vowell, all of

which involved partnership or shareholder agreements not explicit fee-splitting

agreements. The import of Kohl is that for purposes of distributing fees among former

law partners, a shareholder agreement that allocates a percentage ownership to each

shareholder is the functional equivalent of a fee-splitting agreement.

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“fair and reasonable,” and may be applied without the necessity of litigating the issue of

whether there was a fiduciary breach. See Fox, 163 Cal. App.3d at 617.

One final point. In Vowell, the Court noted that on remand, the trial court in

Jewell

“made an equitable adjustment in this majority rule. In order to adjust the

allocation of fees to achieve what the trial court deemed a fair result for all

concerned, it held that Vowell [the departing attorney who completed the

case] would be allowed a reasonable hourly rate for the time spent by the

Vowell firm in completing the work on the four cases. Specifically, the

trial court found that a reasonable rate for Vowell’s time in 1987 would

have been $125 per hour. Therefore, based on the total fee the Vowell firm

had received in each of the four cases at issue here, the trial court calculated

Vowell’s compensation for the hours spent on each case, plus Vowell’s

21% interest in the fees, and then calculated the total amount due the

Beddow firm [the originating firm]....”

The testimony at the evidentiary hearing shows that Mr. Guzall spent a

considerable amount of time on Mr. Hankins’ case, both as a shareholder in Seifman &

Guzall and at his own firm, and he clearly obtained excellent results for Mr. Hankins. I

therefore recommend that this Court apply the same equitable adjustment that the trial

court applied in Jewel, and in addition to his 25% share of the Hankins fee, award him an

additional reasonable amount based on the time expended on behalf of Mr. Hankins after

Mr. Guzall parted company with Mr. Seifman.

Specifically, Mr. Guzall testified that he spent 155.5 hours on Mr. Hankins’ case

after he left Seifman and Guzall (Tr. 49). He incorporated his law practice on February

1, 2012, and gave Mr. Seifman notice that he was leaving on February 6, 2012. The case

settled on February 21, 2012. Mr. Guzall also took other files with him, so his claim for

155.5 hours in the three weeks or so he worked on the Hankins case after separating from

Mr. Seifman (approximately 52 hours per week on this case alone) seems excessive,

especially since he testified that he put in an equivalent amount of time while at Seifman

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& Guzall. While there is no exact methodology for determining a specific number of

hours to attribute to Mr. Guzall–and he neither kept nor provided contemporaneous time

records–it would be reasonable, and within this Court’s discretion, to award him 80

hours, considering that before settlement he would have spent time in trial preparation. In

addition, and with reference to the State Bar of Michigan’s most recent Economics of

Law Practice Survey, an hourly rate of $300.00 is reasonable.

This would give Mr. Guzall an award of 25% of the Hankins fee, plus $24,000.00

($300 x 80), with the remaining portion of the fee going to Mr. Seifman.

III. CONCLUSION

I recommend that Plaintiff’s Motion for Determination of Attorney Fees and Costs

[Doc. #109] be GRANTED, and that the attorney fee be divided between Mr. Seifman

and Mr. Guzall, with Mr. Guzall receiving 25% plus an additional $24,000.00, and Mr.

Seifman receiving the remainder.

Any objections to this Report and Recommendation must be filed within fourteen

(14) days of service of a copy hereof as provided for in 28 U.S.C. §636(b)(1) and E.D.

Mich. LR 72.1(d)(2). Failure to file specific objections constitutes a waiver of any

further right of appeal. Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435

(1985); Howard v. Secretary of HHS, 932 F.2d 505 (6 Cir. 1991); United States v. th

Walters, 638 F.2d 947 (6 Cir. 1981). Filing of objections which raise some issues but th

fail to raise others with specificity will not preserve all the objections a party might have

to this Report and Recommendation. Willis v. Secretary of HHS, 931 F.2d 390, 401 (6th

Cir. 1991); Smith v. Detroit Fed’n of Teachers Local 231, 829 F.2d 1370, 1373 (6 Cir. th

1987). Pursuant to E.D. Mich. LR 72.1(d)(2), a copy of any objections is to be served

upon this Magistrate Judge.

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Within fourteen (14) days of service of any objecting party’s timely filed objections,

the opposing party may file a response. The response shall be not more than twenty (20)

pages in length unless by motion and order such page limit is extended by the court. The

response shall address specifically, and in the same order raised, each issue contained within

the objections.

s/ R. Steven Whalen

R. STEVEN WHALEN

UNITED STATES MAGISTRATE JUDGE

Dated: December 8, 2017

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing document was sent to parties of

record on December 8, 2017, electronically and/or by U.S. mail.

s/Carolyn M. Ciesla

Case Manager to the

Honorable R. Steven Whalen

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