Attorneys’ Fees – Can I Collect Mine In Litigation?
Besides whether they will win, whether the client can make their opponent pay for their attorneys’ fees might be the most commonly-asked question in litigation. The answer, like many answers in litigation, is “it depends.” Typically the answer is no, a party must pay for its own litigation expenses. But certain laws can award a victorious party its attorneys’ fees, and a contract can entitle a party to recover its fees from the defendant that breaches it. In fact, a New York court recently approved a plaintiff recovering not just its attorneys’ fees, but twice the amount of those fees from the defendant based on the parties’ contract.
To start with, there is no generally-applicable rule or law that grants a victorious party the right to recover its attorneys’ fees. The so-called “American Rule” followed in New York and other American courts is that parties have to pay their own litigation expenses even if they win. (We deviate from the “English Rule” that entitles the winner to obtain its attorneys’ fees from the loser.) There are state and federal laws that entitle the winner to “tax” the loser for relatively small amounts, which range in the hundreds of dollars for most cases. But the general rule is that the loser of a case is not required to pay the winner’s attorneys’ fees or other significant outlays such as fees for expert witnesses.
Federal and New York laws can change this analysis by granting the prevailing party the right to recover attorneys’ fees. For example, successful plaintiffs in federal Copyright Act and civil rights actions can recover some or all of their attorneys’ fees; the same goes for plaintiffs who successfully sue for violations of the New York Labor Law or Uniform Voidable Transactions Act. Many other federal and state laws, such as anti-discrimination laws, provide a right to attorneys’ fees, but what they all have in common is that the plaintiff must bring a claim specifically under one or more of those laws and prevail in court.
This leaves out a massive variety of cases brought not under statutes, but “common law” theories such as breach of contract, breach of warranty, breach of fiduciary duty, and negligence. The term “common law” refers to the fact that courts, not legislatures, created such theories of recovery. And under the “American Rule,” they do not confer a right to attorneys’ fees—unless the parties have a contract granting the winner that right.
It is not controversial that parties to a contract can agree that the winner of a contractual dispute can get their attorneys’ fees from the loser. “Attorneys’ fees” provisions are found in a wide variety of contracts and courts generally enforce them, which is another reason to read any contract closely before signing or suing on it. Which brings us to Loughlin v. Meghji, 186 AD3d 1633 (2d Dept. Sept. 30, 2020), possibly the first case to enforce a contract that awarded the winner double his attorneys’ fees.
In Loughlin, the plaintiff (Loughlin) and defendant (Meghji) were 50/50 owners of a consulting firm and an investment company. Loughlin bought Meghji out of both companies for $7.5 million, entering into a purchase and sale agreement (PSA). The PSA prohibited Meghji from competing with the purchased businesses or soliciting their customers for two years, and stated that if litigation arose out of the PSA, “the substantially prevailing party shall be entitled to an award of the costs and expenses of such litigation, including two times reasonable attorneys’ fees.”
Loughlin sued Meghji for breaching the PSA’s restrictions on solicitation and competition. After a trial without a jury, the court awarded Loughlin $825,000 for Meghji’s breach of the PSA’s non-compete provision. The trial court also awarded Loughlin $755,160 in attorneys’ fees, but refused to apply the PSA’s “double fees” provision. In other words, the trial court awarded Loughlin his attorney’s fees but would not double them.
Reviewing the decision, the Appellate Division came to a different and perhaps surprising conclusion. The Appellate Division found that while Meghji had breached the non-compete, Loughlin had failed to prove damages from the breach, and thus struck down the trial court’s award of $825,000 in damages. But the Appellate Division also found that the PSA’s double attorneys’ fees provision was enforceable and that Loughlin could recover twice his attorneys’ fees—even though he had not proved that Meghji’s breach had damaged him. Thus, Loughlin would be able to obtain approximately $1.5 million from Meghji based solely on Loughlin’s attorneys’ fees.
So when asking if you can recover your attorneys’ fees in litigation, the answer depends on whether you can sue under a statute that grants you a right to fees, or if you have a contract that awards attorneys’ fees to the winner. As seen in Loughlin, a contract may even allow you to collect twice what you paid your attorneys should you prevail.
Jeremy M. Sher is a partner with the law firm of Adams Leclair LLP. He practices in several areas including commercial, securities, employment, and municipal litigation. He can be reached at jsher(Replace this parenthesis with the @ sign)adamsleclair.law or through the Firm’s website, www.adamsleclair.law.