To the winners go the spoils ...not necessarily

Louis B. Cristo
BridgeTower Media Newswires

The litigation game, devoid of the emotional element, is a game of numbers. As a prospective litigant, one customarily asks “what amount can I hope to collect and what is my chance of success”?  The answer to this question is greatly impacted in most cases by one added element, the costs of hiring an attorney to pursue your case. Unfortunately, the involvement of litigation costs can often change a hard-fought win into a pyrrhic victory.

It is unconceivable to many litigants that, in the event of a successful lawsuit, they will be required to absorb the cost of their own attorneys’ fees. In complex litigation, these may rise to an amount in the high tens — or even hundreds — of thousands of dollars. A discussion of the standard is in order.

The history of our legal system has evolved under what is known as “The American Rule.” The American Rule generally obligates each party in a lawsuit to compensate its own counsel.
The prevailing party receives no contribution to its fees from the defeated opponent. This is in direct contrast with the corollary, known as “The English Rule,” which awards legal fees to the successful litigant. Most advanced nations with similar judicial systems have adopted The English Rule, not The American Rule.

As with many matters, however, the exceptions outnumber the application of the rule, and as a result of the perception of inherent unfairness, legislatures have shifted the fee burden in certain situations. For example, if a court determines that a party has engaged in “frivolous” conduct in commencing a claim or defending a claim, it may impose sanctions including attorneys’ fees. This may sound academic to most people involved in litigation, because what party involved in a court case doesn’t believe their opponent’s position to be frivolous?

In one attempt to prevent a harmful imposition of attorneys’ fees upon consumers, the New York State Legislature enacted General Obligations Law section 5-327. In it, where there is a consumer contract for “personal, household or family” goods or services, if the seller protected itself with an attorney fee clause, there automatically becomes reciprocity, and the consumer receives the same benefit of legal fees, as well if it is victorious. So, in New York, when you purchase a washing machine (or any other consumer item or service), and in small print you are obligated to pay attorneys’ fees if you lose a dispute over the purchase, you will also gain your attorneys’ fees in the event of a win against the seller.

Another means of altering the effect of The American Rule is by simply voluntarily reaching an agreement to award legal fees on top of any recovery to the successful party in a dispute. As a party to a contract capable of drafting the terms, you are also capable of placing a term in the contract awarding attorneys’ fees in the event of a successful contract dispute. Most sophisticated business people are aware of this longstanding rule, but it is surprising how many have not incorporated such a provision in their agreements. Savvy business people assess whether they are more likely to be a successful plaintiff recovering the benefit of an attorneys’ fee clause or an unsuccessful defendant paying on an attorneys’ fee clause.

Similarly, with some laws, the violation of which carry with them their own attorneys’ fee award. If, for example, a party is successful arguing the existence of employment or housing discrimination, the New York Human Rights Law allows an award of legal fees. The Legislature has acknowledged that without the ability to capture attorneys’ fees from the defendant, there would effectively be no access to the justice system. This statutory scheme, however, can sometimes cause seemingly bizarre results.

For example, in some lawsuits created by statute, a jury could determine that a violation exists, but decide the damages are nominal, awarding the plaintiff $1 in damages. The attorneys’ fees, however, could be significant. The defendant, under those circumstances, wins the battle and loses the war, as they are required to pay the victorious party a single dollar but pay that party’s attorney hundreds of thousands of dollars. This has led to the flourishing industry of class action law firms trolling for potential claimants capable of qualifying for class action treatment.

In one recent case, a plaintiff debtor was injured through some predatory collection practices by a creditor and awarded a jury verdict the monumental sum of $500. The attorneys’ fees charged to the creditor to obtain the verdict, however, amounted to $36,000, and it was approved by the Court. Under the particular statute being enforced, this is not uncommon.

In some very large class action cases, the fees being sought by class counsel can be in the tens of millions of dollars. Collectively, results may reap rewards to a very large group of claimants, but each individual award would be so small that it wouldn’t justify hiring a lawyer to pursue it absent class action treatment. Some class claimants have objected to their own attorneys’ multi-million dollar fee request, and the court is then required to more closely scrutinize the attorney fee request.

Under the Class Action Fairness Act of 2005, the U.S. government intended to introduce some reason to the process of awarding fees, but many critics argue that it didn’t do much to change the landscape. Lawyers argue that they are accepting a significant risk by handling these types of cases. They often fund these cases, advance significant expenses and devote a vast amount of time pursuing these claims in the hope of recovery which may never materialize. There is some truth to this argument in support of enhanced attorneys’ fees.

If there is any moral to the story — when considering whether you should urge your college-age children to go to medical school or law school, don’t forget that lawyers make the laws, and somehow the lawyers do seem to get paid at the end of the day.

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Louis B. Cristo is president of Trevett, Cristo, PC, a general practice law firm. For more information, visit trevett cristo.com.