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“Can I Sue ‘em For My Legal Fees?”

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  • Posted on: Feb 26 2021

Frequently, the first question asked by a potential client when consulting about a new litigation matter is “can we sue them for our legal fees.”  Clients are often dismayed to learn that attorney’s fees are not generally recoverable in litigation under the “American Rule,” because “[i]n the United States, the prevailing litigant is ordinarily not entitled to collect a reasonable attorney fee from the loser.”  Alyeska Pipeline Services Co. v. Wilderness Society, 421 U.S. 240, 247 (1975) (providing a historical perspective on the awarding of attorneys’ fees in Federal Court litigation); see also, Mighty Midgets, Inc. v. Centennial Ins. Co., 47 N.Y.2d 12, 21-22 (1979).  The “American Rule” “reflects a fundamental legislative policy decision that, save for particular exceptions or when parties have entered into a special agreement, it is undesirable to discourage submission of grievances to judicial determination and that, in providing freer and more equal access to the courts, the present system promotes democratic and libertarian principles.”  Mighty Midgets, 47 N.Y.2d at 22 (citations omitted).  

Exceptions to the “American Rule” exist where the recovery of attorney’s fees “is authorized by agreement between the parties, statute or court rule.”  Hooper Assoc., Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487 (1989) (citations omitted).  Indeed, contracts typically contain language permitting a party to collect its reasonable legal fees in the event of litigation.

Moreover, courts can exercise their “inherent powers” in certain circumstances to assess attorneys’ fees against a litigant.  Thus, the “inherent powers” of Federal Courts has been described as follows:

Indeed, there are ample grounds for recognizing that in narrowly defined circumstances federal courts have inherent power to assess attorney’s fees against counsel, even though the so-called “American Rule” prohibits fee shifting in most cases.  As we explained in Alyeska, [supra], these exceptions fall into three categories.  The first, known as the “common fund exception,” derives not from a court’s power to control litigants, but from its historic equity jurisdiction, and allows a court to award attorney’s fees to a party whose litigation efforts directly benefit others.  Second, a court may assess attorney’s fees as a sanction for the willful disobedience of a court order.  Thus, a court’s discretion to determine the degree of punishment for contempt permits the court to impose as part of the fine attorney’s fees representing the entire cost of the litigation.

Third, and most relevant here, a court may assess attorney’s fees when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. In this regard, if a court finds that fraud has been practiced upon it, or that the very temple of justice has been defiled, it may assess attorney’s fees against the responsible party, as it may when a party shows bad faith by delaying or disrupting the litigation or by hampering enforcement of a court order.

Chambers, 501 U.S. at 45-46 (citations, footnotes, internal quotation marks, ellipses and brackets omitted).

Further, “[i]n general, only a prevailing party is entitled to recover an attorney’s fee and to be considered a prevailing party, a party must be successful with respect to the central relief sought.”  Village of Hempstead v. Taliercio, 8 A.D3d 476 (2nd Dep’t 2004) (citations, internal quotation marks and brackets omitted).  “Such a determination requires an initial consideration of the true scope of the dispute litigated, followed by a comparison of what was achieved within that scope.”  DKR Mortgage Asset Trust 1 v. Rivera, 130 A.D.3d 774 (2nd Dep’t 2015) (citations and brackets omitted).

On February 24, 2021 the Supreme Court, Second Department, decided Blinds to Go (U.S.), Inc. v. Times Plaza Development, L.P., a case in which the issue of entitlement to attorney’s fees was decided using the principals discussed herein.  The history of Blinds to Go is tortured and tortured histories equate to significant legal fees.  Plaintiff, Blinds to Go, as tenant, entered into a lease agreement with defendant, Times Plaza, as landlord.  The lease permitted the landlord to “recapture” the property and relet it to another entity if plaintiff “closed its business on the property for a period of three months or more”.  Almost two and one-half years after executing the lease plaintiff had not yet began construction to open for business – much less actually open for business and, as a result, landlord purported to terminate the lease pursuant to the “recapture” provision of the lease.  

Plaintiff commenced a lawsuit challenging landlord’s termination.  After landlord’s motion to dismiss the complaint was granted, plaintiff “surrendered the keys and possession of the premises to the defendant.  Thereafter, the court reversed its earlier decision “on the ground that, since the plaintiff never commenced any business operations at the premises, the recapture provision was inapplicable.”  (Citation omitted.)  Six years later, after a trial on both liability and damages, judgment was entered in plaintiff’s favor in an amount exceeding $4,000,00.00.  On landlord’s appeal for the damages award only (as it did not challenge the jury’s verdict that it breached the lease), the judgment was reversed and a new trial on the issue of damages was granted.

The referee to whom the matter of damage calculation was referred, found that no damages for lost profit were proved and, therefore, damages were not awarded.  Thereafter, landlord sought “attorney’s fees and costs as the ‘prevailing party’ pursuant to Paragraph 35 of the lease.”  Supreme court determined that landlord was the prevailing party and, again, referred the matter to a referee to determine the quantum of legal fees to which the landlord was entitled.  Judgment on the attorney’s fees issue was ultimately entered against tenant in an amount exceeding $1.6 million and both parties appealed.

The Second Department reversed.  First, the Court determined that tenant failed to “sustain its burden of demonstrating lost profits with reasonable certainty.”  (Citations omitted.)  The Court, however, disagreed “with the determination to award attorney’s fees and costs to defendant [under p]aragraph 35 of the lease [which] stated that ‘the non-prevailing party shall pay to the prevailing party all costs, expenses and reasonable attorneys’ fees and disbursements that the prevailing party reasonably incurred in connection therewith.’”  In so holding, the Court found that:

Here, considering the true scope of the dispute litigated and what was achieved within that scope, we conclude that neither party was entitled to attorney’s fees and costs as a prevailing party.  In this highly litigated and contentious action, notwithstanding numerous motions, trials, hearings, and appeals spanning more than 17 years, neither party has obtained the central relief each seeks so as to constitute a prevailing party pursuant to Paragraph 35 of the lease.

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