Attorneys May Be Awarded Fees When Contractually Required

• Posted on: Apr 1 2024

By: Jeffrey M. Haber

Attorneys are often asked by their clients if they can sue for attorney’s fees. Whether attorney’s fees may be recovered in litigation depends on the circumstances.

Under the general rule, attorney’s fees are incidents of litigation, and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule.¹ In LMM Capital Partners, LLC v. Mill Point Capital, LLC, 2024 N.Y. Slip Op. 31014(U) (Sup. Ct., N.Y. County (Mar. 26, 2024) (here), the question before the motion court was whether the defendants – the prevailing parties in the action – were entitled to attorney’s fees under an agreement between the parties? As discussed below, the motion court answered that question in the affirmative. 

LMM Capital involved the potential acquisition of E&M Logistics, Inc. (“E&M”) and its affiliate Mill Point Capital LLC (“Mill Point”) by LMM Capital Partners, LLC (“LMM”).

On April 21, 2021, LMM entered into a Mutual Termination Agreement and Release with E&M (the “Termination Agreement”), pursuant to which the parties terminated their letter of intent, dated August 4, 2020 (the “LOI”), governing LMM’s potential acquisition of E&M. Among other things, if a superior offer came along after entry of the Termination Agreement, the LOI gave E&M the option to pay a $400,000 “break-up fee” to pursue that proposal. E&M exercised this option and paid LMM $420,000 over a period of six months, which LMM accepted. 

Section 1.C of the Termination Agreement included a broad mutual release, pursuant to which LMM released E&M and E&M’s “future Affiliates,” from any and all claims by LMM, whether known or unknown, “arising out of … the [LOI] and the transactions contemplated thereby.” Mill Point became an “Affiliate” of E&M under the Termination Agreement on September 7, 2022, when it acquired E&M. 

Section 2 of the Termination Agreement provided that: “The successful Party in any action to enforce this Agreement will be entitled to be awarded all costs, including reasonable attorney’s fees, paid, or incurred by such prevailing Party in such action to enforce this Agreement.” (the “Prevailing Party Provision”).

On September 30, 2022, LMM filed the action, alleging breach of contract and tortious interference with Plaintiffs’ business relations against Mill Point; tortious interference with contract and constructive fraud against Defendants; and fraudulent inducement against Defendants. Plaintiffs also sought a declaration that the Termination Agreement and release were unenforceable.

On December 8, 2022, Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(1), (5), and (7) and demanded, among other things, that Plaintiffs withdraw the complaint. 

On May 10, 2023, the motion court dismissed the complaint with prejudice, finding, inter alia, that the release at issue was “extremely broad” and “applie[d] to all claims asserted … by LMM against all the named defendants.”² On August 30, 2023, pursuant to the Termination Agreement, Defendants filed their motion for attorneys’ fees.

The motion court granted the motion as to liability and “referred to a Special Referee or Judicial Hearing Officer to determine the proper amount of fees to be awarded.”³

“To determine whether a party has ‘prevailed’ for the purpose of awarding attorneys’ fees, the court must consider the ‘true scope’ of the dispute litigated and what was achieved within that scope.”⁴ A “prevailing party” is a person or entity that “prevail[s] on the central claims advanced, and receive[s] substantial relief in consequence thereof.”⁵ 

Based upon the foregoing principles, the motion court held that there was no question that Defendants were the successful or prevailing parties under Section 2 of the Termination Agreement.⁶ As such, Defendants were entitled to their attorney’s fees.

In so holding, the motion court rejected Plaintiffs’ arguments that the court lacked jurisdiction to consider the motion for attorney’s fees and that the motion was premature.⁷ Plaintiffs maintained that Defendants were required to include in their motion to dismiss an express request that the court retain jurisdiction to award attorney’s fees if the court granted the motion. The motion court noted that that Plaintiffs failed to cite to any authority for that proposition.”⁸ Plaintiffs also contended that the motion for attorney’s fees was premature due to the pendency of the appeal. The motion court concluded that the argument failed since the First Department affirmed the dismissal of the action.⁹

Having found Plaintiffs liable for Defendants’ attorney’s fees, the motion court referred the determination of the amount to a Special Referee or Judicial Hearing Officer. The motion court found that “the invoices submitted by the defendants [were] heavily redacted and otherwise provide[d] minimal details of the legal work performed and other costs incurred in th[e] action.”¹⁰ 

Finally, the motion court directed Defendants to submit “proper and adequate proof to meet their burden of establishing a reasonable amount of fees and costs.”¹¹ In doing so, the Court stated that the following factors should be considered: “the time and labor expended, the difficulty of the questions involved and the required skill to handle the problems presented, the attorney’s experience, ability, and reputation, the amount involved, the customary fee charged for such services, and the results obtained.”¹² 

Footnotes

1. See Flemming v. Barnwell Nursing Home and Health Facilities, Inc., 15 N.Y.3d 375 (2010); Hooper Assoc. v. AGS Computers, 74 N.Y.2d 487, 491 (1989); see also Coopers & Lybrand v. Levitt, 52 A.D.2d 493 (1st Dept. 1976).
2. By order dated February 15, 2024, the Appellate Division, First Department, affirmed. This Blog examined the First Department’s decision and order here.
3. Slip Op. at *1.
4. Excelsior 57th Corp. v. Winters, 227 A.D.2d 146 (1st Dept. 1996).
5. Board of Mgrs. of 55 Walker Condo. v. Walker St. LLC, 6 A.D.3d 279 (1st Dept. 2004); Sykes v. RFD Third Ave. I Assocs., LLC, 39 AD3d at 279 (1st Dept. 2007).
6. Id. at *2.
7. Id.
8. Id.
9. Id. See also n.2, supra.
10. Id.
11. Id.
12. Id. (quoting Matter of Barich, 91 A.D.3d 769 (2d Dept. 2012), and citing Matter of Freeman, 34 N.Y.2d 1 (1974)).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. 

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

One method of providing for attorney’s fees in actions between the parties is to provide for payment as a form of liquidated damages. Such fees are enforceable if they are not unconscionable (see, Equitable Lbr. Corp. v IPA Land Dev. Corp., 38 N.Y.2d 516 (1976).