A recent Law.com article, “’Exploring the American Rule on Attorney Fees”, reports on the American Rule doctrine and the limits of the offer of judgment rule in New Jersey.  The article reads:

In the recent J.P. Electric, Inc. v. LPMG Construction Management, LLC case, approved for publication on Nov. 2, a trial judge granted defendant’s motion for involuntary dismissal at the conclusion of plaintiff’s proofs.  Prior to trial, defendant had made an offer for judgment to be taken against it under the offer of judgment rule, R.4:58.  After dismissal of plaintiff’s case, defendant filed a motion to have plaintiff pay its fees and costs.  The trial judge denied the motion, holding that where a plaintiff’s claim is dismissed, without plaintiff having secured a favorable verdict and money judgment, as required by the rule, defendant had no right to collect its fees from the plaintiff. Defendant appealed the court’s denial of its fee application.

The Appellate Division opinion, affirming the trial judge, held that for a defendant who has invoked R.4:58 by offering to have judgment taken, it would be necessary for plaintiff to have recovered a money judgment to compare the amount of the judgment with the monetary offer made by defendant.  That comparison requirement is specifically set forth in R.4:58-2 and R.4:58-3 but, of course, there was no money judgment because of the dismissal as a matter of law.

The Appellate Division’s two-page opinion affirming the trial court contained emphatic language: “Lest there be any doubt, a mid-trial involuntary dismissal does not entitle a defendant offeror to fee-shifting under the Rule.”  No doubt the reason for a two-page opinion to be published.  A forceful reminder to trial courts and trial bar of the specific limitations of the offer of judgment rule.

The appellate court held that the policy reasons inherent in the rule’s language would be undermined if such fee shifting were permitted, because the rule is not one designed to transform an offer of judgment into a general fee-shifting rule.  Further, R.4:58-3(c) also provides that no allowances shall be granted if a plaintiff’s claim is dismissed or if a no-cause verdict is returned.

Of course the Supreme Court by rule or the Legislature by statute could provide that in an offer-of-judgment context, dismissal of plaintiff’s case after an offer of judgment is made might also allow defendant to recover fees and costs on post-trial application to the trial judge by creating a new exception to the American Rule of fee payment.

Under the American Rule, the prevailing party is ordinarily not entitled to collect fees from the adversary.  This is based upon the policy that, “Sound judicial administration will be best advanced if litigant’s bear their own counsel fees.” See, Guarantee Insurance Co. v. Saltman, 217 N.J. Super. 604, 609-610 (App. Div. 1987), which furnishes a concise history of the rule and its application.  There are some exceptions to the ordinary application of the American Rule, as when it is permitted by court rule or statute; or pursuant to the terms of a contract; or when counsel fees are a traditional element of damages in the action; or where an insured has incurred counsel fees in defending an action under a disclaimed liability or indemnity policy.

The first reported case in which counsel for plaintiff made application for fees from the insurer after plaintiff’s success in requiring the insurer to defend and indemnify a workers’ compensation claim against its insured because of convoluted policy language was Gerhardt v. Continental Ins. Co., 48 N.J. 291 (1966).

In Gerhardt, Justice Jacobs, writing for a unanimous court, rejected arguments that Ms. Gerhardt should qualify for reimbursement of her fees in the successful coverage action under the inherent equitable power of the court and by analogy to fee payments where a coverage claim on a liability policy had been successful.  Justice Jacobs pointed out that exceptions to the American Rule, that each party bear its own fees, generally rests on statutory provisions which have no counterpart in New Jersey law.  He wrote that when the New Jersey rules were originally adopted, they embraced the view that sound judicial administration would be best advanced by having each litigant bear counsel fees incurred, except in a few specially designated instances.

The American Rule and its exceptions have been argued to the court over the years.  The argument for awarding fees to a successful plaintiff is based on equitable considerations, i.e., to give the successful party full benefit of the sums to which it was found entitled. Sears Mortgage Corp. v. Rase, 134 N.J. 326, 3540356 (1993); Shore Orthopedic Group v. Equitable Life Assur. Soc., 199 N.J. 310 (2009); In re Estate of Vayda, 184 N.J. 115 (2005).  “The American Rule prohibits recovery of counsel fees by the prevailing party against the losing party … The purposes behind the American Rule are threefold: (1) unrestricted access to the courts for all persons; (2) ensuring equity by not penalizing persons for exercising their right to litigate a dispute, even if they lose; and (3) administrative convenience.” Occhifinto v. Olivo Constr. Co., 221 N.J. 443, 449 (2015).

On through the years and to present, the courts as indicated have expressed their support of the American Rule.  If there are proceedings in J.P. Electric seeking relief from the Supreme Court, chances for success are indeed bleak based on the judicial history of New Jersey.

A recent Law.com story by Riley Brennan, “Ohio Courts Clarify ‘Prevailing Party’ Owed Attorney Fees in Deceptive Trade Practices Case”, reports that, in a question of first impression for Ohio courts, the First Appellate District looked to define the meaning of the term “prevailing party” in terms of attorney fees pursuant to the Ohio Deceptive Trade Practices Act.  The meaning of “prevailing party” was at the center of a case before the court, with the question arising after a jury found in favor of the plaintiffs, Niv Goomai and Bar Hajbi, on their allegations that the defendants, H&E Enterprise and Avi Ohad, violated the Deceptive Trade Practices Act (DTPA) and breach of contract claims.  The jury only awarded damages on the breach of contract claim, and therefore, as there were no damages awarded on the DTPA claim.

The trial court denied “statutorily-available attorney fees,” citing the plaintiff’s failure to prevail on the deceptive trade practices claim and denied attorney fees as a result.  On appeal, Goomai claimed the lower court erred in failing to properly interpret and apply the DTPA attorney fee provision found in Ohio Revised Code 4165.03(B).  Goomai argued that “he was a prevailing party under the DTPA by virtue of the jury’s verdict finding that H&E violated the DTPA,” while H&E argued that in order to be a prevailing party under R.C. 4165.03(B), “a party must obtain not only a judgment in its favor, but also a remedy,” according to the appellate court’s Oct. 27 opinion. 

The Court of Appeals for the First Appellate District of Ohio agreed, holding the question in the case regarded the applicability of a statutory fee-shifting provision. In looking at what it means to be a “prevailing party” under R.C. 4165.03(B), the court used “ordinary principles of statutory interpretation” to guide its resolution, according to the opinion authored by Judge Jennifer Kinsley.  As the term isn’t defined by the statute, the court looked to Black’s Law Dictionary definition, which defines “prevailing party” as “[a] party in whose favor a judgment is rendered, regardless of the amount of damages awarded.”

According to the court, under this definition, “the relief obtained is immaterial to a party’s status; what matters is whether the party obtained judgment in its favor.”  “Our review of R.C. 4165.03 supports this conclusion. In construing statutory terms, courts read statutes as a whole and do not dissociated words and phrases from their context. … Looking at the language of R.C. 4165.03 as a whole, we are persuaded that ‘prevailing’ in the context of the DTPA means that the party obtained judgment in its favor, regardless of whether the party obtained a remedy in furtherance of that judgment,” Kinsley wrote.

“For one, the DTPA permits recovery of attorney fees from a plaintiff who knowingly pursues a groundless DTPA claim,” the judge continued.  “In such circumstances, a prevailing defendant would obtain no relief other than a judgment in its favor, but that defendant would still be entitled to attorney fees from the plaintiff under R.C. 4165.03(B).  If we were to read the statute as requiring a party to obtain a remedy in order to prevail, we would effectively eliminate the ability of prevailing defendants to obtain attorney fees and undermine the intent of the legislature in the process.  And courts do not read language out of statutes.”

According to the court, Subsection B specifies that courts “may award in accordance with this division reasonable attorney’s fees to the prevailing party in either type of  civil action authorized by division (A) of this section.”  “This clear statutory language defines attorney fees eligibility by the type of action, not by the type of remedy.  If the legislature intended to make prevailing party status dependent upon obtaining one of the remedies outlined in R.C. 4165.03(A), it could easily have said so,” Kinsley wrote.  “Its decision not to do so is indicative of its intent to untangle attorney fees from any other type of remedy recovered in a DTPA case.”

In 2017, Ohad helped Goomai purchase a property in the Camp Washington neighborhood of Cincinnati, with the two entering into an agreement that Ohad and H&E would renovate the property for $50,000, with the project set to be completed by January 2018.  However, after H&E failed to deliver on their promises, and the renovation project never materialized, Goomai sold the property for $50,000, which was at a loss on his investment.  Goomai went on to sue H&E, including claims for breach of contract, fraudulent misrepresentation, and violation of the DTPA. H&E filed a counterclaim against Goomai for breach of contract, with only the DTPA claim permitting the recovery of statutory attorney fees if Goomai prevailed.

The jury didn’t receive instructions about the applicability of the attorney fees provision, or the implications of its allocation of damages if it decided to award no damage on the DTPA claim, said the court.  The jury ultimately found against Goomai on the fraudulent misrepresentation claim, and agaisnt H&E on its counterclaim, awarding $30,604.09 in damages on the breach of contract claim and no damages on the DTPA claim.  However, a Hamilton County judge denied Goomai’s motion for an award of attorney fees, “on the basis that Goomai was not a prevailing party within the meaning of the DTPA, because the jury did not award damages on that claim,” the opinion said.

The three-judge appellate panel court concluded that the term “prevailing party” in R.C. 4165.03(B) “supports the conclusion that obtaining a judgment, even one without an award of damages, entitles a party to see attorney fees.” Judges Robert C. Winkler and Ginger Bock concurred.  In reaching this determination, the court sustained Goomai’s assignment of error, reversed the trial court’s decision, and remanded the case back to the trial court to consider the amount of attorney fees Goomai is entitled.

A recent Law.com story by Riley Brennan, “3^rd Circ. Clarifies When District Courts Can Award Attorney Fees on Remand”, reports that, in a precedential decision, the U.S. Court of Appeals for the Third Circuit concluded that district courts lack the authority to award attorney fees under 28 U.S.C. Section 1447(c) when a case has been properly removed from state court but subsequently remanded based on a forum-selection clause.  In an opinion, authored by Third Circuit Judge David J. Porter, the court vacated a district court’s awarding of attorney fees to the Medical Associates of Erie, concluding that, because a forum-selection clause isn’t a removal defect and doesn’t deprive the district court of subject matter jurisdiction, the court can’t remand and award attorney fees under 28 U.S.C. Section 1447(c).

The Medical Associates of Erie (MAE) and Michael B. Zaycosky originally entered into an employment contract but couldn’t agree on when Zaycosky promised to start his employment, leading MAE to sue Zaycosky in the state court, as prescribed in the contract between the two parties.  However, Zaycosky removed the suit to federal court, leading MAE to move for remand to enforce the contract’s forum-selection clause and for an award of attorney fees.  The district court had remanded and granted MAE 30 days to petition for costs and fees, with MAE timely submitting a petition for $29,517.25.

Zaycosky opposed the petition, arguing the district court “lacked authority under 28 U.S.C. § 1447(c) to award costs and attorney fees for a remand based on a forum-selection clause, and, alternatively, that a fee award was not warranted because he had an objectively reasonable basis for removal.”  The district court rejected Zaycosky’s arguments and awarded MAE its requested amount.

On appeal, the Third Circuit looked to answer whether courts can award attorney’s fees against the “American Rule,” which holds that court’s presume “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.”  “Courts may award fees when Congress provides ‘a sufficiently ‘specific and explicit’ indication of its intent to overcome the American Rue’s presumption against fee shifting,’” the court said, determining the question on appeal was whether “§ 1447(c) specifically and explicitly indicates Congress’s intent to allow fee shifting when courts enforce a forum-selection clause.”

Ultimately, the court agreed with Zaycosky’s argument that “§ 1447(c) allows fee shifting only for remands where removal failed to meet the statutory requirements or where the court lacks subject matter jurisdiction over the removed case.”

According to the court, Section 1447(c) limits a plaintiff’s ability to challenge the removal of a case and limits a district court’s authority to remedy abuses of the removal procedure.  Further, while plaintiffs “may move for remand at any time if the district court lacks subject matter jurisdiction,” “they must challenge removal defects within thirty days after the filing of the notice to remove.”

“Courts, meanwhile, may issue ‘[a]n order remanding’ and ‘may require payment of the just costs and any actual expenses, including attorney fees, incurred as a result of the removal,’” noted Porter.  And as a result of the Supreme Court maintaining that “the distinction between ‘properly removed’ cases and cases ‘failing in subject-matter jurisdiction,” since Congress amended § 1447 in 1996, the court reads § 1447(c) as authorizing “courts to shift fees when remanding cases removed without subject matter jurisdiction and cases defectively removed.”

The court further examined whether an order remanding to enforce a forum-selection clause authorizes courts to shift fees, holding that “a remand pursuant to a forum selection clause does not fall within the reasons for remand listed in § 1447(c),” per the court’s 2015 decision in Carlyle Investment Management v. Moonmouth.

The court applied the Supreme Court’s holding that a “forum-selection clause has no bearing” regarding whether a case meets the statutory requirements of venue, to the case, ultimately determining that the district court “had subject matter jurisdiction under § 1332, so it may not remand and award fees under § 1447(c) for a failure of subject matter jurisdiction.”  Further, Mae didn’t identify a defect in the removal, with MAE failing to argue before the district court that Zaycosky failed to satisfy the statutory requirements of removal, arguing instead “that the forum-selection clause was the single obstacle to removal.”

According to the court, “an enforceable forum-selection clause is not a removal defect,” with Zaycosky having “had a statutory right to remove, and he did so according to the statutory requirements, so his removal was proper.”  Therefore, the district court could not award fees under § 1447(c) based on a defective removal.  However, the inability to award fees under the statute didn’t foreclose the power to remand, as Section 1447(c) doesn’t occupy the filed for permissible remands.

Per the court’s 1991 ruling in Foster v. Chesapeake Insurance, “a forum-selection clause an be ‘a proper, non-statutory ground for remand.’”  Since the Third Circuit’s Foster ruling, the Supreme Court has declared that the appropriate way to enforce a forum-selection clause pointing to a state forum is through the doctrine of forum non conveniens, of which the “traditional remedy” of outright dismissal.  However, according to the court, it doesn’t eliminate remand as an available remedy for removed cases.

“Nor is Section 1447(c) the only deterrent against abusing removal. Rule 11 requires attorneys and unrepresented litigants to certify that every pleading, written motion, or other paper presented to the court is not presented ‘for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation,’” said the court.

“We presume each litigant bears its own fees and costs, and we do not see a specific and explicit indication of Congress’s intent to displace that presumption for remands not specified in § 1447(c),” concluded the court, vacating the fee award.  “A remand to enforce a forum selection clause is not a remand specified in § 1447(c).  Accordingly, we hold that the District Court lacked the authority to award attorney fees under § 1447(c) when Zaycosky properly removed a case within the District Court’s subject matter jurisdiction.”

A recent Law 360 story by Brian Dowling, “Jailed Engineer Rips Quinn Emanuel, WilmerHale Legal Bill”, reports that a former Analog Devices Inc. engineer convicted of trade secrets theft slammed prosecutors' request that he cover his ex-employer's $600,000-plus legal tab with WilmerHale and Quinn Emanuel, pointing to "staggering" rates including the $1,685 per hour former acting U.S. Attorney William Weinreb billed to sit in on the month-long trial.

Haoyang Yu, currently serving a six-month sentence, urged U.S. District Judge William G. Young in Boston to deny the government's "untimely, substantively deficient and patently objectionable request" under the federal Mandatory Victim Restitution Act for Yu to pay $609,915 for legal bills that Analog Devices rang up with attorneys at WilmerHale and Quinn Emanuel Urquhart & Sullivan LLP.

Many of the charges should be disqualified as unnecessary, Yu said, including the hours billed at the four-figure rate by Weinreb, a Quinn Emanuel partner, for his daily attendance watching the trial from the gallery and collaboration with prosecutors — his former colleagues — during breaks.  The federal victims' restitution law "is not a blank check that the government can draw from Mr. Yu to recover every dollar ADI chose to spend on two of the most expensive law firms in the United States," said Yu's response to a government brief.

"ADI, like any person or corporation, is entitled to counsel of its choice," Yu said.  "But it does not serve equal justice," the response continued, "when the corporation, with the government's assistance, later attempts to shift the entire financial burden of that partially privatized prosecution, including the costs [of] private counsel's daily trial attendance, onto the defendant."

The government's attempt to saddle Yu with the company's legal bill amounts to "a new and extraordinary kind of 'trial penalty' that threatens to make criminal jury trials even more rare than they already are," the defendant said.  In an affidavit accompanying the prosecutors' request, Weinreb said the invoices for WilmerHale represented work the firm did for Analog Devices in response to a grand jury subpoena early in the investigation, and the Quinn Emanuel invoices account for the firm's representation of the company since December 2018.

The former acting U.S. attorney wrote that the invoices "understate the losses ADI incurred in connection with the [Department of Justice] investigation and the crime" and do not account for resources spent assisting the government's investigation.  Yu's opposition filing said the two firms' hourly rates "far exceed any court-approved rates" his counsel has been able to find in Massachusetts.  The rates charged by Weinreb increased from $1,150 in December 2018 to $1,865 in July 2023, Yu said, with other Quinn Emanuel hourly rates of $1,440 for "counsel," $1,095 for a fourth-year associate, $880 for a second-year associate and $320 for a paralegal.

WilmerHale partner Anjan Sahni, tapped to become the firm's managing partner in January, came in at $1,105 in April 2018 and $1,165 in October 2019, with other rates including $750 for a fourth-year associate and support personnel ranging from $145 to $500, according to Yu's response.

Yu also challenged Quinn Emanuel's hours billed for preparing witnesses for trial, saying Analog Devices is free to have its private attorneys help the government's prosecution of Yu, but the federal restitution law doesn't put the defendant on the hook for those costs.  The government also wants Yu to pay Analog Devices' bills for complying with defense subpoenas, but "these are not expenses caused by the offense of conviction or the government's investigation," Yu said.

"Imposition of fee shifting for those expenses would impermissibly burden Mr. Yu's exercise of his constitutional right to compulsory process under the Sixth Amendment," the filing reads.  Yu also challenged block-billing practices at both firms that frustrate efforts to break out the costs of unnecessary work, and Weinreb's billing for communications with media related to the case, including time purportedly spent related to a Law360 article and "phone calls with Law360 regarding same."

A recent Law 360 article by Theodore Boutrous, Lee Crain, and Randi Kira Brown of Gibson Dunn LLP, “How NY SLAPP Defendants Can Recover Fees in Fed. Court”, reports on attorney fee recovery in New York SLAPP suits in federal court.  This article was posted with permission.  The article reads:

Meritless defamation lawsuits have long plagued media defendants.  These strategic lawsuits against public participation, often called SLAPP suits, are designed to chill speech.  States across the country have been experimenting with statutes to address this problem for over 30 years. New York — a jurisdiction that many newspapers, magazines, publishing houses and television networks call home — did not have a strong solution to this problem for many years, but the 2020 amendments to New York's anti-SLAPP law were meant to change that.

Among other things, New York's anti-SLAPP law protects defamation defendants by raising the standard of proof on defamation claims for plaintiffs and by providing for fee shifting, allowing victorious defamation defendants to recover the costs they spent in their defense.  Fee-shifting provisions are essential components of anti-SLAPP laws, as the purpose of SLAPP suits is often to punish and chill the exercise of speech rights by imposing litigation costs.

There is so far no federal anti-SLAPP law. Defamation defendants therefore often must consider whether, and to what extent, state anti-SLAPP laws apply in federal court.  If not, a litigious SLAPP plaintiff need only forum-shop to try to avoid any of the provisions of state anti-SLAPP statutes, including state anti-SLAPP fee-shifting rules.  In other words, if that plaintiff files a defamation claim in federal court, she can argue she is no subject to the specter of fee-shifting because the anti-SLAPP law only applies in state court.

Federal courts have been split as to whether certain anti-SLAPP laws apply in federal court under the U.S. Supreme Court's Erie doctrine from the 1938 case Erie Railroad Co. v. Tompkins.  Under that doctrine, courts consider whether an anti-SLAPP law is procedural or substantive and, if procedural, whether it conflicts with the Federal Rules of Civil Procedure.  

New York's anti-SLAPP law was specifically designed to avoid this problem.  How?  Legislative innovation.  Unlike other anti-SLAPP laws, New York law doesn't only create a motion-based procedural vehicle for a defendant to defeat a defamation claim and recover attorney fees.  Instead, a key innovation New York adopted to help SLAPP defendants was to establish a substantive cause of action for defendants to seek fee shifting for SLAPP lawsuits — effectively an anti-SLAPP tort.

Specifically, New York's fee-shifting provision provides a defendant the right to "maintain an action, claim, cross claim or counterclaim to recover damages, including costs and attorney's fees, from any person who commenced or continued [a SLAPP] action," according to Section 70-a(1) of the New York Civil Rights Law.

So far, though, federal courts in New York have not consistently allowed parties to recover these fees, seemingly due to confusion about how the statute works and the best ways to invoke it in federal court.  For example, in Executive Park Partners LLC v. Benicci Inc. in May, the U.S. District Court for the Southern District of New York refused to apply the fee-shifting provision of the anti-SLAPP statute, holding that the plaintiff cannot file a motion for fees in federal court.

An anti-SLAPP motion, brought under Rule 3211(g) of the New York Civil Practice Law and Rules, conflicts with the Federal Rules of Civil Procedure, the court said, and is thus inapplicable in federal court.  By contrast, in 2021, the U.S. District Court for the Northern District of New York applied the fee-shifting provision in Harris v. American Accounting Association, though without addressing the difference between an anti-SLAPP fee-shifting motion and a cause of action to seek those same fees.

The Southern District of New York appears to have suggested last year in Carroll v. Trump that even a counterclaim is not cognizable in federal court because a Section 3211(g) motion is inapplicable, though the court failed to specifically address why a substantive claim was subject to the same Erie analysis as a state-law motion.  By contrast, in March, the Southern District of New York expressly recognized in Max v. Lissner that an anti-SLAPP claim is cognizable in federal court, even if an anti-SLAPP motion is not.

Given this conflicting backdrop and the state of uncertainty, defamation defendants seeking to invoke New York's anti-SLAPP law in federal court need to tread carefully in deploying it.  Simply filing a motion under the statute for fees may well result in a denial under Erie.  But New York law doesn't limit defendants to mere motion practice.  When a defendant prevails on a defamation claim, they should invoke their rights under the anti-SLAPP statute to counterclaim or bring a new action entirely under the statute to recover their fees — as the New York anti-SLAPP statute expressly allows.

And bringing such a substantive cause of action — essentially a substantive anti-SLAPP tort — will effectuate the Legislature's intent to ensure that the anti-SLAPP statute's protections are available in federal or state court.  It will ensure that courts will see the New York anti-SLAPP statute for what it is: A statute that confers substantive rights on defendants that plaintiffs can't try to forum-shop their way out of simply by filing in federal court.

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