In Howard & Howard, PLLC v. Jabour, the Michigan Court of Appeals held that a receiver is not personally responsible for attorney fees incurred by the receivership estate. In doing so, the Court of Appeals reasoned that an agent who contracts with a third party on behalf of a disclosed principal is generally not liable to the third party in the absence of the agent’s express agreement to be held liable.
In Howard & Howard, a receiver had been appointed by the court to oversee certain businesses involved in litigation. A receiver is simply a person that is placed in custodial responsibility of property or a business where there is a concern that the owner of the property or business cannot meet its financial obligations or enters bankruptcy.
After being appointed, the receiver hired the law firm Howard & Howard, PLLC to handle legal issues for the receivership estate. The receiver appointment order stated that the receiver was responsible for paying the receiver’s fees and expenses, including paying attorney fees. However, the parties to the litigation settled the case without having paid all of the legal fees to the receiver despite being ordered to do so. The law firm then filed a claim against the receiver claiming that the receiver was responsible for paying the attorney fees pursuant to the receiver appointment order. The trial court and the Court of Appeals disagreed with the law firm.
The Court of Appeals held that an agent who contracts with a third party on behalf of a disclosed principal is generally not liable to the third party in the absence of the agent’s express agreement to be held liable. Since the receiver contracted on behalf of the receivership estate and did not agree to be held personally liable for the attorney fees, the Court of Appeals held that the receiver was not personally liable to the law firm.
The best way to avoid this situation is to make sure to always explicitly set out in writing which party is responsible for payment of all fees, and what will happen the case of default.
See the entire opinion of the Court of Appeals here:
This blog was written with help from law clerk, Laura Barrera.
