Authored By: Jennifer Grieco and Nicholas Swider
That collateral estoppel can preclude subsequent litigation of an issue decided in a prior action is unremarkable. Less conventional is whether issue preclusion can apply within a single cause of action, rather than in a later dispute. This, in fact, was an issue of first impression in Michigan decided in the for-publication opinion in the ongoing referral fee dispute in the case of Law Offices of Jeffrey Sherbow, PC v Fieger & Fieger, PC.
That case involved a dispute over the enforceability of a written fee-sharing agreement between the Law Offices of Jeffrey Sherbow (“Sherbow”), the referring attorney, and the Fieger & Fieger, PC law firm (the “Fieger Firm”). Initially, Sherbow had been indirectly contacted by Dion Rice (“Dion”), whose father had died in a car accident and his mother and two others severely injured. After being contacted concerning the accident, Sherbow contacted Jeffrey Danzig, a partner at the Fieger Firm. Sherbow then communicated with Dion directly, and Dion indicated to Sherbow that he had already contacted and intended to retain the Fieger Firm on behalf of his father’s estate (“Rice Estate”) and his mother, Dorothy Dixon (“Dixon”), who remained in a coma at that time. At a meeting with both Sherbow and Danzig, Dion retained the Fieger Firm to represent both the Rice Estate and Dixon. Both Sherbow and Danzig recalled informing Dion that Sherbow would receive a referral fee. Dion did not recall being told of the referral relationship. It was undisputed that Sherbow performed no work on the case.
The case proceeded to a jury trial with a key issue being whether Dixon and the Rice Estate had a sufficient attorney-relationship with Sherbow to permit enforcement of the fee-sharing agreement under MRPC 1.5(e). The jury returned a verdict that only Dion, on behalf of the Rice Estate, was a client of Sherbow, and awarded him $93,333.33. The case ultimately reached the Michigan Supreme Court on the issue of what client relationship is required to support the enforcement of a referral fee relationship between attorneys (you can read about this in a prior Altior Law blog here). After clarifying the required professional relationship necessary to permit a referral fee under MRPC 1.5(e), the Michigan Supreme Court vacated the portion of the jury verdict concerning Sherbow’s claimed entitlement to a fee for referring Dixon and remanded for a new trial.
On remand, Sherbow filed two motions in limine arguing that collateral estoppel barred the relitigation of certain issues claimed to have been decided in the first trial. Amongst them was the jury’s finding that Danzig had authority to bind the Fieger Firm and the Fieger Firm was collaterally estopped from relitigating that issue. The trial court denied both motions primarily reasoning that because the Michigan Supreme Court had remanded the case for a new trial, it lacked any authority to limit the scope of the new trial. The trial court also agreed with the Fieger Firm’s argument that collateral estoppel only applies in “a subsequent, different cause of action.”
On interlocutory leave granted, the Michigan Court of Appeals held that the trial court erred concerning the scope of its authority on remand and its limitation of the application of collateral estoppel. As a threshold matter, the Court “disagree[d] with the trial court’s view that it could not apply any legal doctrines, such as collateral estoppel, after the case was remanded for a new trial.” Rather, “[t]he power of the lower court on remand is to take such action as law and justice may require so long as it is not inconsistent with the judgment of the appellate court.” Thus, the trial court could properly decide pretrial issues, including the applicability of collateral estoppel, because “when an appellate court orders a new trial, that includes all phases of trial, including all pretrial matters.”
Turning to the trial court’s decision that collateral estoppel only applied in subsequent causes of action, the Court of Appeals again found error. Noting that “neither party cites any binding caselaw directly addressing whether collateral estoppel may arise within a single cause of action,” the Court looked outside of Michigan. Citing decisions from the Eleventh and Seventh Circuit Court of Appeals, as well as Wright & Miller, Federal Practice & Procedure, the Court held “that collateral estoppel may arise in the context of a single cause of action.” In support of its holding, the Court reasoned that it “is also in accord with the purposes underlying collateral estoppel, including conserving judicial resources and preventing inconsistent decisions.” Having so decided, the Court held that the jury’s actual and final determination that Danzig had actual or apparent authority to bind the Fieger Firm precluded relitigation of that issue at the retrial.