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Category: Fee Clause

Article: Who Pays For Attorney Fees in Litigation?

August 23, 2021

A recent article by Julie Pendleton, “Who Pays For Attorney Fees in Litigation?,” reports on who covers attorney fees in litigation in Washington.  This article was posted with permission.  The article reads:

One of the first questions asked of me by clients when considering litigation is, “Can I make the other side pay for my attorney’s fees?”  In Washington State, the answer to that question is generally no.  This is referred to as the “American Rule.”

Courts have reiterated their support for the American Rule because (1) litigation is inherently a risky proposition, and a party should not be penalized for merely participating in a lawsuit; (2) those without means would be unduly discouraged from pursuing their legal rights if they feared that losing the case would also cost them their opponents’ legal fees; and (3) the cost of proving the amount of legal fees would pose an undue burden on judicial administration.  Blue Sky Advocates v. State, 107 Wn.2d 112, 123, 727 P.2d 644 (1986).

However, there are three exceptions to this rule and Courts can award attorney’s fees where: (1) there is a contractual provision for attorney’s fees, (2) a statute allows for the award of attorney’s fees, and (3) equity allows for attorney’s fees.

Contractual Attorney’s Fees

A litigant can recover attorney fees if the dispute involves a contract that includes a provision that the prevailing party is entitled to recover attorney fees.  It is quite common to see an attorney’s fee provision in adhesion contracts.  The good news is that in Washington, attorney’s fee provisions have to be applied bilaterally, or in other words, even if the contract only provides attorney’s fees provision if Party A wins, the Courts will apply it equally, so whichever party prevails will be entitled to have their attorney’s fees reimbursed by the other side.

While contractual attorney’s fees are enforced as a matter of course in Washington, they do require a “win” to apply.  In some cases where the case ends in a draw or a tie, where both sides lose a little and win a little, the Court may refuse to award fees.  In addition,  most courts will only award “reasonable” attorney’s fees, so an attorney’s fee provision in the Contract should not be treated as a blank check to direct your attorneys to overwork the case.  .

Statutory Attorney’s Fees

In Washington, a party can recover its attorney fees against another party if a law or statute that governs the case provides for the recovery of attorney fees.  There are many types of statutes that include these types of provisions. Examples include parties prevailing on: a Consumer Protection Act claim, an unpaid salary or wages claim, or a discrimination claim. However, each statute is different and should be read carefully.  Some statutes are mandatory while others allow the court to exercise discretion in deciding whether or not to award fees.  Further, some other statutes may only allow a winning plaintiff to recover fees, but not a winning defendant.  For example, if an employer is sued for minimum wage act violations and successfully prevails against the employee, while the employee probably requested the court to pay their fees under the minimum wage act, the employer would not be entitled to a reimbursement of fees at this stage.

Many clients are particularly interested in the frivolous lawsuit statute, which provides for fees and costs if a lawsuit is brought and continued for an improper purpose and is not grounded in fact.  RCW 4.84.0185.  This statute provides attorney’s fees if a litigant is subjected to a lawsuit that is either brought solely to harass or burden the defendant or otherwise is completely fanciful.  However, the standard is high to recover these sort of attorney’s fees as the litigant is required to prove  that the other side was either solely motivated by malice or another improper purpose or that the lawsuit had no chance of winning under any circumstances.  Receiving  attorney’s fees under the frivolous lawsuit statute is difficult, and should never be considered a guaranteed method of recovery.

Equitable Attorney’s Fees

In rare cases, a party can recover attorney’s fees from a party who engages in bad faith litigation conduct.  There are three types of bad faith litigation conduct: (1) pre-litigation misconduct, where a party engages in bad faith conduct that wastes private and judicial resources and forces a legal action to enforce a clearly valid claim or right; (2) procedural misconduct, where a party engages in bad faith conduct during the course of the lawsuit; (3) substantive bad faith, where a party intentionally brings a frivolous clam, counterclaim or defense for an improper motive such as harassment.  While most litigants believe that the other side has engaged in bad faith conduct in some form or another, recovering under this provision is extremely rare.

How does this Impact my Case?

If there is a method to recover attorney’s fees in a case (either by contract or statute), this is vital to discuss early on in the case with an attorney.  Not only can attorney’s fees provisions be used to drive early settlement, but they should also be considered when determining whether or not to bring a lawsuit or counterclaims.

Julie Pendleton is an attorney at Lasher Holzapfel Sperry & Ebberson PLLC in Seattle and a member of the firm’s Business Litigation and Trusts and Estates Litigation practice groups representing individuals and small companies throughout various stages of litigation and dispute resolution.

Article: CA Ruling Shows That Prevailing Party Wins Can Be Pyrrhic

August 22, 2021

A recent Law 360 article by Warren Jackson, “Calif. Ruling Shows That Prevailing Party Wins Can Be Pyrrhic,” reports on a recent court ruling in California on prevailing party issues in fee-shifting litigation.  This article was posted with permission.  The article reads:

In the 1992 buddy movie, "White Men Can't Jump," Rosie Perez's character, Gloria Clemente, said, "Sometimes when you win, you really lose, and sometimes when you lose, you really win."  It provides a rambling life lesson: Victories can be pyrrhic, and even taking an "L" may not make you a loser.

In an interesting and novel recent opinion that would make Gloria proud, a California state appeals court, in affirming an order denying attorney fees to a self-described prevailing party, reaffirmed in a commercial litigation context that determining who's prevailed and is entitled to fees is not always clear.  The case, Harris v. Rojas, was decided on July 20 in the Court of Appeal of the State of California, Second Appellate District.  Justice John Shepard Wiley Jr., who authored the opinion, also gave a special, well-deserved shout-out to the alternative dispute resolution profession.

It's not unusual, particularly in individual discrimination, harassment, and wage and hour cases, for the potential attorney fees award to be substantially greater than the economic damages, e.g., in cases with a plaintiff who is a low-wage earner or who has successfully mitigated damages.  As a result, the settlement value is not simply economic damages, but attorney fees as well.

The policy goals behind statutory awards of attorney fees or fee-shifting provisions are clear.  A virtual guarantee of attorney fees to the prevailing plaintiff, even if the damages are nominal, is a powerful incentive for the plaintiffs bar to represent employees who have fewer means and less power, but were allegedly treated unfairly.  To put a finer point on it, that incentive is also not diminished by what's generally the case — no downside of having to pay a prevailing employer's fees.  More on this dynamic and its impact on mediating cases later, but first, the opinion.

George Harris leased commercial space from Abel Rojas, and the lease had a clause for attorney fees to the prevailing party in the event of litigation.  Harris sued Rojas for breach of contract, among other claims, and Rojas cross-complained for ejectment, breach of contract and nuisance.  There was also a separate unlawful detainer case by Rojas against Harris.  After nearly three years of litigation and a seven-day jury trial, the jury awarded $6,450 to Harris on his breach of contract claim (rather than his requested $200,000). Rojas also was awarded $6,450 against Harris on his negligence claim, and Harris was awarded $500 on his negligence claim against Rojas.

The harm was apportioned at 15% for Harris and 85% for Rojas, so when all the math was done, a net judgment was entered in Harris' favor for $5,907.50 or $5,882.50 — a discrepancy between the actual math result and the judgment, which only the court noticed.  Thereafter, Harris moved for an award of attorney fees under the lease, seeking $296,744.68.  The trial court — California Superior Court in Los Angeles County — denied Harris' motion, ruling there was no prevailing party, citing the California Supreme Court’s 1995 decision in Hsu v. Abbara — if a party obtains a "simple, unqualified victory" in an action with an attorney fee clause, the court is obliged to make an award, but where there is "good news and bad news" for each party in the outcome, there's discretion.  Harris appealed this order.

Justice Wiley, also relying upon Hsu v. Abbara, seized on the obvious: "When the demand is $200,000 and the verdict is $6,450 or less ... the 'victory' is pyrrhic and nobody won."  He went on to clarify, "Reaping merely five or six thousand dollars after spending three years pursuing $200,000 drastically falls short of the goal." Thus, the trial court properly exercised its discretion.

Justice Wiley had an alternative and novel theory for affirming the denial of attorney fees.  Looking to the result in Rojas' unlawful detainer action, where he was awarded some $13,000 or $17,000, "depending on the moment at which one calculates the rent and interest," Justice Wiley aggregated the two results, opining, "This war had two battles.  Harris decisively lost the war."  As Gloria Clemente remarked, "Sometimes when you tie, you actually win or lose."

Writing what could be characterized as a nod to mediators everywhere, Justice Wiley dogmatically declared: Determining a party's true litigation objective is no mean feat.  When the case is strictly about money, the litigation objective is a dollar figure.  The true value of a case is a matter of opinion, and parties normally conceal their true opinion on this vital topic.  That is why we call that look a poker face.  What economists call a reservation price usually is a carefully guarded secret; if the other side perceives this closeted sum, it will offer that amount in settlement negotiations and nothing more. So each side typically bluffs while searching the other side for clues.  Successful mediators use sustained efforts in a confidential setting to extract this private information from both sides.  By discovering previously hidden common ground, a mediator can settle the case.  But this exploration is often difficult, which is why successful mediators can command premium rates.

As mentioned above, courts have waded into the waters of who's a prevailing party in employment cases over the years.  In the seminal Chavez v. City of Los Angeles decision in 2010, the California Supreme Court upheld a trial court's rejection of a fee application under California Fair Employment and Housing Act, where the plaintiff recovered damages of $11,500 — less than the $25,000 that could have been recovered in a limited civil case — and sought an attorney fee award of $870,935.50.

Noting that under FEHA, the prevailing employee should ordinarily be awarded fees unless special circumstances would render such an award unjust, the court held that where a plaintiff brings an unlimited civil case but fails to recover $25,000, the trial court has discretion under Code of Civil Procedure Section 1033 (a) to deny an attorney fees application.  While Chavez is often cited where a verdict is substantially dwarfed by the attorney fee application, in my opinion it has not shifted the landscape dramatically.  Fee applications can be denied in their entirety.  However, more often the result is a reduction in the fee request.

Turning back to the challenge of mediating cases where attorney fee awards are available to a plaintiff, we mediators routinely hear from defense counsel that some plaintiffs lawyers have been incentivized to increase the settlement value of cases by aggressively working them up.  Of course, what may seem like overworking a case to counsel can simply be opposing counsel's diligence and due care.  Justice Wiley seems to suggest successful mediators have a secret sauce for settling cases. While past success can portend future success, unfortunately, there's no guaranteed formula.  One key to success is a tactic that parties often employ — early mediation.  By mediating a case early before significant attorney fees have been incurred, the fee-shifting issue is less problematic.

Of course, early mediations have their drawback in terms of equality of pertinent information or discovery and analysis, so parties should evaluate the relative merits of proceeding early versus later-stage scheduling.  In addition, defense counsel often employ the strategy of threatening or filing a California Code of Civil Procedure Section 998 offer to potentially place the attorney fee award at risk if the recovery at trial is less than the offer and the offer was properly drafted.

My experience, however, is that employers prefer a settlement to a 998 offer, and plaintiffs prefer a reasonable settlement over protracted or scorched-earth litigation.  Finally, the only secret sauce in getting difficult cases resolved might be the four Ps: patience, perseverance, persuasion and proposals from mediators.  But all parties should recognize that the logic and holding of Harris v. Rojas have implications in the employment law context.  And the case should be a reminder that verdict size and prevailing party determinations are necessarily intertwined, and that Gloria Clemente was more lucid that we thought.

T. Warren Jackson is a mediator and arbitrator at Signature Resolution.

Law Firm Wants Attorney Fee Dispute in Arbitration

August 18, 2021

A recent Law 360 story by Caroline Simson, “King & Spalding Says Fee Fight Must Be Arbitrated”, reports that King & Spalding is urging a Texas court to force a former client to arbitrate allegations that the firm fraudulently colluded with Burford Capital to maximize fees while representing him ​​in a treaty claim​ against Vietnam, pointing to an arbitration clause in the underlying fee agreement.  Fighting back against Trinh Vinh Binh's arguments earlier this month that the clause is inapplicable because the firm didn't sign the funding agreement with Burford, King & Spalding argued in a brief that the clause is broad enough to encompass the dispute.

Binh, who's accused the firm and two of its international arbitration partners in Houston of making a "mockery of the fiduciary obligations an attorney owes to their clients," told the court that the funding agreement doesn't contain any reference to King & Spalding.  In fact, the firm had already inked a deal with him that laid out all the terms of their relationship and did not include an arbitration clause, he said.

But the firm pointed in its brief to the wording of the clause, noting that it applies to "any controversy or claim" that is "relat[ed] to" the funding agreement.  The clause also applies to "any other transaction document," which includes a "counsel letter" through which Binh instructed the firm to distribute any arbitration proceeds in accordance with the funding agreement, according to the brief.  "Plaintiff cannot reasonably dispute that his claims 'relate to' the [funding agreement] and the counsel letter," according to the brief, which notes that Binh is seeking damages based on the firm's alleged failure to allocate the arbitration proceeds in compliance with the funding agreement.

"While plaintiff attempts to characterize these claims as arising out of the engagement agreement, that agreement does not address the allocation of arbitration proceeds," the firm continued. "The terms cited in the petition were set forth in the [funding agreement] and 'agreed to' by defendants through the counsel letter, bringing those claims squarely within the ambit of the [funding agreement]'s arbitration agreement."

Counsel for Binh declined to comment, saying they will file a response with the court.  Binh sued King & Spalding and two of its partners, Reggie R. Smith and Craig S. Miles, in June, alleging they made a "mockery of the fiduciary obligations an attorney owes to their clients" by "colluding" with litigation funder Burford to take more of the arbitration proceeds than Binh had agreed to.

The law firm had represented Binh in a treaty claim against Vietnam over the confiscation of certain real estate that ended in a $45 million award against the country in 2019.  In the arbitration, filed in 2015, Binh accused the country of improperly taking several valuable properties he says were worth an estimated $214 million.  Under their deal, the law firm agreed to hold back 30% of billings for fees and defer the payment of those amounts until work had concluded in the arbitration.

At the same time, Binh entered into a funding agreement with Burford Capital with a $4.678 million spending cap, according to the suit.  Binh claims that King & Spalding told him the firm could complete the arbitration work within that cap.  But by May 2016, the firm had already billed and been paid some $1.9 million, leaving about $1.8 million after initial costs and expenses had been paid out.  Binh alleges that at that point the firm, "motivated by securing continued, guaranteed immediate payment of their fees, colluded with Burford" to contrive a scheme to increase the amount potentially owed by Binh by increasing the cap on King & Spalding's legal fees and, consequently, increasing Burford's potential entitlement to an increased return.

Binh says that the way the agreement worked was that the more King & Spalding billed against the cap amount in legal spending, the more he was at risk of paying a so-called success return, to be paid if he prevailed in the arbitration.  The success return was to be split between King & Spalding and Burford based on the relative portion of their investments in the arbitration, Binh said.  Binh alleges that King & Spalding tried to make him agree to increase the cap on expenditures for legal fees — and potentially, provide more of a return for Burford — but that he refused.  Thereafter, Burford and the law firm allegedly executed a side agreement between themselves.

In addition to accusing King & Spalding of breaching its fiduciary duty, Binh's lawsuit includes claims for negligence if the overpayment of fees was due to a mistake, as well as claims of misrepresentation and fraud.  He also accuses the firm of negligence after the tribunal in the case against Vietnam rejected an expert report the firm provided stating that Binh's property was worth some $214 million.  The tribunal instead awarded $45.4 million.

No Arbitration for Attorney-Client Fee Dispute

August 11, 2021

A recent Law 360 story by Caroline Simson, “No Arbitration For King & Spalding Client Fight, Court Hears”, reports that a Dutch citizen who accuses King & Spalding LLP of fraudulently colluding with Burford Capital to maximize fees ​​in a treaty claim​ against Vietnam​ is fighting the law firm's efforts to send the fee dispute to arbitration, arguing that an arbitration clause in the funding agreement is inapplicable.

Trinh Vinh Binh sued King & Spalding and two of its international arbitration partners in Houston, Reggie R. Smith and Craig S. Miles, in June, alleging they made a "mockery of the fiduciary obligations an attorney owes to their clients" by "colluding" with litigation funder Burford to take more of the arbitration proceeds than Binh had agreed to.  The law firm had represented Binh in a treaty claim against Vietnam over the confiscation of certain real estate that ended in a $45 million award against the country in 2019.

King & Spalding pressed a federal court in Houston last month to send the dispute with Binh to arbitration, citing an arbitration clause in the funding agreement and alleging that Binh excluded Burford from his suit in an attempt to skirt the clause.  The law firm claims that even though it is not a signatory to the funding agreement, the broad scope of the clause provides for arbitration of any dispute arising out of the pact.

But Binh argued that the clause governs disputes only between him and Burford, and not with any third parties. He said that the engagement agreement he signed with King & Spalding when he retained the firm for the Vietnam matter makes no mention of arbitration for disputes.  "Defendants are attorneys, and they certainly know how to draft an arbitration clause.  But the engagement agreement between Binh and defendants contains no arbitration clause," Binh's attorneys said. "Try as they might, defendants have not shown — and cannot show — that they may properly invoke the [funding agreement's] arbitration clause.  Binh therefore respectfully requests that this court deny defendants' motion."

King & Spalding had represented Binh in an arbitration matter filed against Vietnam in 2015, in which Binh accused the country of improperly taking several valuable properties he says were worth an estimated $214 million.  Under their deal, the law firm agreed to hold back 30% of billings for fees and defer the payment of those amounts until work had concluded in the arbitration.  At the same time, Binh entered into a funding agreement with Burford Capital with a $4.678 million spending cap, according to the suit.

Binh claims that King & Spalding told him the firm could complete the arbitration work within that cap.  But by May 2016, the firm had already billed and been paid some $1.9 million, leaving about $1.8 million after initial costs and expenses had been paid out.

Binh alleges that at that point the firm, "motivated by securing continued, guaranteed immediate payment of their fees, colluded with Burford" to contrive a scheme to increase the amount potentially owed by Binh by increasing the cap on King & Spalding's legal fees and, consequently, increasing Burford's potential entitlement to an increased return.  The way the agreement worked was that the more King & Spalding billed against the cap amount in legal spending, the more Binh was at risk of paying a so-called success return, to be paid if Binh prevailed in the arbitration.  The success return was to be split between King & Spalding and Burford based on the relative portion of their investments in the arbitration.

Binh alleges that King & Spalding tried to make him agree to increase the cap on expenditures for legal fees — and potentially, provide more of a return for Burford — but that he refused.  Thereafter, Burford and the law firm allegedly executed a side agreement between themselves.

In addition to accusing King & Spalding of breaching its fiduciary duty, Binh's lawsuit includes claims for negligence if the overpayment of fees was due to a mistake, as well as claims of misrepresentation and fraud.  He also accuses the firm of negligence after the tribunal in the case against Vietnam rejected an expert report the firm provided stating that Binh's property was worth some $214 million.  The tribunal instead awarded $45.4 million.

Fee Dispute Sent to Arbitration Despite Illegal Fee Clause

March 31, 2021

A recent Law 360 story by Carolina Bolado, “Atty-Client Spat Sent To Arbitration Despite Illegal Fee Clause, reports that a Florida state appeals court ruled that a woman's suit against her former attorney for erroneously wiring funds to a hacker's account number is subject to an arbitration clause in their retention agreement, even though a fee-shifting provision in the agreement was deemed invalid.  Florida's Third District Court of Appeal said that the arbitration clause in the agreement between Valeria Sessa and Natalie Lemos of Leinoff & Lemos PA is valid, and that it unambiguously covers Sessa's tort claims against her former attorney for sending half of her divorce settlement to a hacker's bank account.

Sessa had argued that the disputes subject to the arbitration clause in the agreement are limited to claims of fee disputes and legal malpractice, not generalized tort claims like hers, but the appeals court disagreed.  "The duty Lemos owed to Sessa, and allegedly breached by Lemos, is simply not the type of duty generally owed to others besides the contracting parties," the appeals court said. "It is, rather, a duty 'created by the parties' unique contractual relationship.'"

The agreement also included a severability provision, which the appeals court said allowed it to divorce the enforceable arbitration clause from the invalid provisions that require the client to advance any arbitration costs in the event of a dispute and to pay for the firm's attorney fees and costs.  The appeals court said Florida lawyers are barred from agreements with clients that prospectively limit their liability for malpractice.

"While the subject provisions in the arbitration clause are certainly not the type of exculpatory clauses expressly prohibited by the rule, in practice the two provisions erect a significant barrier to a client seeking recourse against her lawyer," the Third District said.  Sessa hired Lemos in June 2018 to represent her in her divorce.  In 2019, Sessa and her ex-husband negotiated a settlement that required him to make two lump-sum payments to her, according to the opinion.

The first payment was made directly to Sessa's brokerage account, but the second was made to Lemos' trust account so that she could deduct any outstanding fees and costs before wiring the balance to Sessa, according to the opinion.  But someone hacked into either Sessa's or Lemos' email accounts, and Lemos received fraudulent wiring instructions. She wired the balance of the second payment to a phony bank account and the money was never recovered.  Sessa then filed a lawsuit and Lemos asked for the court to compel arbitration. The trial court denied that request after finding that the arbitration clause was ambiguous and unenforceable because of the invalid fee-shifting provisions in the agreement.