The Attorney Fee Recovery Blog

Example: Attorney Fee Recovery for Frivolous Legal Claims

2010-07-14T16:57:00.005-04:00

A recent NJ case illustrates what can happen when lawyers file frivolous claims to appease rich clients. In this case, a billionaire hired attorneys from two different firms to sue his 85 year old former father in law in an attempt recover funds allegedly promised to his ex-wife, by her father, before she died. Although the complaint could have been filed in good faith, it could not have been pursued in good faith after certain critical facts were established with respect to when and how the alleged promise was made. Despite facts such that “no competent attorney could have missed the frivolous nature of [the case].” Plaintiff's counsel pursued the matter using bare-knuckle methods that “crossed the boundary of appropriate litigation tactics.” Although those tactics were not technically part of the basis for the award, the fact that the Court found them worth mentioning is instructive as to the risk one takes when attempting to compensate for a weak or non-existent case with tactics that multiply the costs of litigation. (At least that’s how the Court saw things. The attorneys in question, not surprisingly, insist that they did nothing wrong and have stated that they intend to appeal the ruling.)

Although the amount of the recovery was not immediately quantified, the defense attorneys estimated that it would be several million dollars. Assuming that an attorney fee recovery in that range is upheld on appeal, two obvious lessons present themselves. First, attorneys can pay dearly for pursuing legally unsupportable actions, and need to consider that risk when evaluating the demands of a client they might otherwise think they can’t afford to say no to. Second, cases that at first seem too expensive to defend may not be. If the other side’s position is sufficiently egregious, an award of attorney fees can make a legal victory an economic victory as well.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fees When Cases are Remanded to State Court

2010-06-16T17:42:00.003-04:00

For numerous reasons, a defendant in state court might rather be in federal court. Federal law provides that, under the correct circumstances, a defendant can “remove” its case from state court to federal court. If the plaintiff successfully challenges the removal to federal court (because the requirements for removal were not met), the case will be “remanded” back to the state court. Such an improvident detour through the federal system creates delay and causes unnecessary expenses, including attorney fees. To discourage defendants from using removals as a delaying tactic, the law provides that, “An order remanding the case may require the payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C. §1447(c)(emphasis added).

The word "may" is, of course key, as it begs the question of when the court should shift the costs and expenses associated with an improvident removal to federal court. The United States Supreme Court addressed this question in Martin v. Franklin Capital Association, 546 US 132, 126 S.Ct. 704, 163 L. Ed. 2d 547 (2005) by holding that, “absent unusual circumstances, attorney’s fees should not be awarded when the removing party has an objectively reasonable basis for removal.” Id., 546 US at 136, 126 S.Ct. at 708, 163 L.Ed. 2d at 552 (emphasis added). In setting the objectively reasonable standard, the Court sought to achieve a balanced approach to dissuade unreasonable removals without deterring defendants from validly seeking removal in matters that are merely less than certain.

The Court also discussed the "absent unusual circumstances" portion of the standard, explaining that it should be applied, consistent with the standard's objective, to achieve balanced results. For example, delay by the plaintiff in challenging a removal would militate against the award of fees. On the other hand, a defendant withholding information that shows removal to be unreasonable operates as a militating factor in favor of sanctions. Id., 546 US at 141, 126 S.Ct. at 711, 163 L.Ed. 2d at 555.

Predictably, a consequence of the above standard is much litigation over the circumstances that will tip the scales one way or the other. Defendants considering removing their cases to federal court under less than ideal conditions, and plaintiffs deciding how to respond, should factor the potential for an attorney fee recovery into their considerations.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Awards Without Winning

2010-06-01T13:15:00.001-04:00

A recent case in NJ illustrates how, depending on statutory language, it might be possible to receive an award of attorney fees where winning is merely likely, but not assured. In Penna v. Newell Funding, which is presently in discovery (the long middle part of litigation where each side gathers facts about the other) the Court recently issued an order awarding attorney fees based, not on the final resolution for the case or as a sanction against one of the parties, but based upon the plaintiff winning a preliminary injunction.

A preliminary injunction is a form of equitable relief where the court issues an order aimed at preserving the status quo until the conclusion of the litigation. For example, in a case arising out of a pending foreclosure, a preliminary injunction might suspend the foreclosure process. Typically, to win a preliminary injunction you must show that: (1) absent the injunction, you will be damaged in such a way that a monetary award later will not make you whole; (2) no harm will result from the issuance of the injunction that is greater than the harm that will be prevented by the injunction; and (3) there is a substantial likelihood that you will prevail on the merits of the case.

In Penna the plaintiff won a preliminary injunction in a case predicated on New Jersey’s Consumer Fraud Act. The Court determined that winning the injunction qualified as the sort of equitable relief that would justify awarding attorney fees under the statute. The Court was aided in its decision by the fact that the award of a preliminary injunction carried with it a determination that plaintiff was likely to prevail on the merits at the end of the case. The Court awarded all fees incurred from the beginning of the case until the preliminary injunction.

Such rulings, if upheld, will further shift the economics of litigation brought under consumer protection laws.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Defraying Document Production Costs

2010-04-26T18:29:00.007-04:00

Sometimes the litigation costs you most need to defray are not your attorney fees. This can easily be the case when you are not an actual party to the litigation, but merely the hapless recipient of a subpoena served by one or more of the direct participates. Document subpoenas can be hugely complicated, spanning years of business records and requiring careful review for privileged and confidential information. The wrong third party subpoena, in the wrong case, could be as disruptive to your business as actually being sued.

In federal court, three avenues for potential relief from third party document subpoenas are: 1) objecting to the subpoena (Rule 45(C)(2)(B)); 2) moving to quash or modify pursuant (Rule 45(c)(3)); or 3) moving for a protective order ( Rule 26(c)). The second and third avenues often turn on claims of "undue burden" and involve similar analyses. For present purposes we will limit our discussion to motions for a protective order.

Rule 26(c)(1) provides that "[a] party or any person from whom discovery is sought may move for a protective order in the court where the action is pending …. The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." The party seeking the protective order has the burden of convincing the court that compliance with the subpoena will cause a clearly defined and serious injury." See, e.g., Glenmede Trust Co. v. Hutton, 56 F.3d 476, 483 (3d Cir. 1995).

Within the Third Circuit this determination is made by examining the specific circumstances and balancing any conflicts between public and the private interests. Id. While the list of factors the court might consider is not closed, it generally includes the following: “1) whether disclosure will violate any privacy interests; 2) whether the information is being sought for a legitimate purpose or for an improper purpose; 3) whether disclosure of the information will cause a party embarrassment; 4) whether confidentiality is being sought over information important to public health and safety; 5) whether the sharing of information among litigants will promote fairness and efficiency; 6) whether a party benefiting from the order of confidentiality is a public entity or official; and 7) whether the case involves issues important to the public. Id.

The court has broad discretion to fashion a protective order that it feels will balance the competing interests and produce a just result. See, Rodgers v. United States Steel Corp., 536 F.2d 1001, 1006 n. 12 (3d Cir. 1976); Pearson v. Miller, 211 F.3d 57, 73 (3d Cir. 2000).

Given the above, where a third party is faced with a subpoena that appears to have been served for what a court would deem to be a legitimate purpose, and where it cannot argue that the subpoena is seeking information that is privileged or so sensitive that it cannot be adequately guarded through a properly crafted protective order, it will probably have to comply with the subpoena. However, complying with the subpoena does not necessarily mean paying the cost of complying with the subpoena.

Although a nonparty responding to a subpoena is typically required to pay its own costs of production, Rule 45(c)(1) expressly requires the courts and parties to avoid "imposing undue burden or expense" on the nonparty. To do this, courts may require the discovering party to inspect and copy the subpoenaed information at the third party's offices, in a manner that is convenient to the third party and limits its costs. See 45 Moore's Federal Practice § 45.03. In the alternative, courts may simply shift the cost of complying with the subpoena to the discovering party.

A good example of the latter remedy is found Miller v. Allstate Fire & Cas. Ins. Co., 73 Fed. R. Serv. 3d (Callaghan) 394 (W.D. Pa. Mar. 17, 2009). Interestingly, while the Miller court ordered the discovering party to pick up “all” the third party’s costs associated with the subpoena, it excluded attorney fees from that order. Arguably the court did not want to invite the third party to use the production process as a vehicle for recovering the costs associated with the motion for a protective order, which cost would not normally be shifted absent some other grounds for recovering attorney fees.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Shifting Under New Jersey’s Rules

2010-03-27T15:05:00.002-04:00

This blog entry looks at attorney fee shifting under New Jersey Court Rule 4:58. Under this rule, either party can find itself responsible for the other sides attorney fees if it improvidently rejects a settlement demand or offer.
The attorney fee shifting provisions go into effect to the advantage of the plaintiff if the judgment is at least 120% of the plaintiff's offered settlement amount. Attorney fee shifting will favor the defendant where the judgment is 80% or less of the amount the defendant offered.

The amount owed under the attorney fee shifting provision may be reduced if it would work an undue hardship on the party to which the attorney fee is shifted. Also, a defendant cannot benefit from the rule if the plaintiff’s claim is dismissed, the defendant gets a no-cause verdict, or only nominal damages are awarded.

Offers falling under this NJ rule must be made at least 20 days before trial and are deemed withdrawn after 90 days or within 10 days of trial, whichever comes first. Subsequent offers by a party are considered a withdrawal of the party’s prior offers, but a counter offer does not render the initial offer invalid. It may still be accepted unless affirmatively withdrawn.

Rule 4:58 applies only in maters that are exclusively for monetary relief. The rule does not apply to matrimonial actions.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery and Federal Rule 68

2010-02-28T17:01:00.002-05:00

Federal Rule of Civil Procedure 68 provides for cost shifting if: (1) the defendant serves a settlement offer on the plaintiff more than 10 days before trial; (2) the plaintiff does not accept the offer within 10 days of its service; and (3) the judgment ultimately received is less favorable to the plaintiff than the offer. In such a case, the litigation costs incurred by the defendant after the offer was made must be payed by the plaintiff. At first blush, this Rule appears to only apply to the general class of litigation costs (filing fees and the like) that pale in comparison to the expense of attorney fees. However, in certain cases, it can have a dramatic effect on the ability of the victorious plaintiff to recover otherwise available attorney fees from the defendant.

The key factor in determining the impact of Rule 68 on Attorney Fee Recoveries is the source of the authority for fee shifting in the underlying case. For example, if the authority for fee shifting is a statute that provides for the recovery of attorney fees as a part of costs, then Rule 68 can operate to cut off the shifting of fees under the fee shifting provisions of the statute for services performed in the post offer period.

The rule will operate this way even if the offer exceeds the judgment by a tiny amount, and even if the judgment was brought lower than the offer by the closest of legal questions or factual determinations. On the other hand, courts may consider the intrinsic value of certain forms of injunctive relief when deciding whether the value of the judgment exceeded the value of the offer.

Notably, even where the underlying fee shifting statute does not define attorney fees as an element of costs, the improvident rejection of a Rule 68 offer could have a deleterious effect where the statute merely provides that the court may award the plaintiff attorney fees, or gives the court broad discretion in quantifying the award. On the one hand, the court must be mindful that the fee shifting provisions of statutes are designed to encourage and enable plaintiffs to bring meritorious suits that they otherwise could not afford. At the same time, however, the court could be sympathetic to the plaintiff in a case where the defendant's post offer work resulted in a relative loss to the defendant (i.e. where the post offer work cost the defendant more than the difference between the parties' settlement positions).

The take away here is that, in any federal case involving a fee shifting statute, it is important to understand how Rule 68 can affect the plaintiff’s ability to recover attorney fees.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

RICO Enterprises and Associations in Fact

2010-02-08T20:35:00.000-05:00

This blog entry continues my discussion of the circumstances under which you may procede with a civil RICO suit. As discussed in prior entries, civil RICO provides for, among other things, the recovery of attorney fees.

Where the alleged RICO enterprise is not a legal entity, but an association-in-fact, plaintiff must show: (1) that there exists or existed an organization, whether formal or informal; (2) that the various associates of the organization function or functioned as a continuing unit; and (3) that the organization has or had an existence separate and apart from the pattern of racketeering activity. Such an enterprise need not have a chain of command. It may make its decisions on an ad hoc basis, by any number of methods, including general consensus. The requirement that the organization (i.e. the RICO enterprise) have an existence apart from the pattern of racketeering activity simply means that the alleged enterprise must: (1) be more than an association of individuals conducting the normal business functions of a corporation; and (2) have some level of existence beyond what is necessary to engage in the alleged acts of racketeering. However, it is not necessary that the enterprise have any function wholly unrelated to the racketeering activity.

Because the rules that require pleading the organization’s identity, its mode of functioning, and its existence apart from the racketeering activity appear more onerous than they are, defendants often attack the adequacy of plaintiff’s pleadings on those specific requirements. However, where a true association-in-fact exists, there is usually a basis for at least tentatively asserting enough about how it operates to get past this defense. Of course, if the plaintiff does not have sufficient facts to allege these requirements, defendant’s counsel should waste no time moving for a quick dismissal.

For authorities supporting the above discussion, see e.g., Boyle v. United States, 129 S.Ct. 2237, 2245 (2009); United States v. Turkette 452 U.S. 576, 583 (1981); United States v. Console, 13 F.3d 641, 651-651 (3rd Cir. 1993).

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

A Closer Look at Civil RICO: the Person/Enterprise Distinction

2010-01-27T13:13:00.000-05:00

Because civil RICO is both a powerful and complicated tool for recovering damages and attorney fees, the next several Blog Entries will be dedicated to further exploring the circumstances under which you can proceed with a civil RICO case. (For a brief introduction to civil RICO see my blog entry dated October 6, 2009.) Civil RICO claims are provided for in both state and federal statutes, which may differ. This blog entry will focus on RICO claims under the federal statute at 18 U.S.C. 1962(c).

To state a civil RICO claim, the plaintiff must allege that a “person” engaged in (1) “conduct,” (2) of an “enterprise” (3) through a “pattern”; (4) of “racketeering activity.” Camiolo v. State Farm, 334 F.3d 345 (3rd Cir. 2003). Each of the words or phrases in quotes must be understood in terms of definitions in the statute (if available) and in terms of definitions provided by the courts. The statute provides that the “person” (i.e. the defendant) can be “any individual or entity capable of holding a legal or beneficial interest in property.” 18 U.S.C. 1961(3). The term “enterprise” includes any individual, partnership, corporation, association, or other legal entity.” (18 U.S.C. §1961(4).) The enterprise “may be comprised of only defendants, or of defendants and non-defendants.” (U.S. v. Urban, 404 F.2d 754 (3rd Cir. 2005). It may be an association-in-fact, as opposed to a formal legal entity. Although there can be overlap between the defendant and the enterprise, they cannot be one in the same. Cedric Kushner Promotions v. King, 533 U.S. 158 (2001). This is part of what is referred to as the “distinctiveness requirement” in a RICO cause of action.

The above distinctiveness requirement is easily met if the RICO enterprise consists of more than one legal entity, or legal entities separate from the legal entity that is the enterprise. For example the RICO defendants can be all the partners of a RICO enterprise partnership. On the other hand, a RICO enterprise cannot consist of a RICO defendant corporation and its own employees. However the enterprise could consist of the defendant corporation and its network of independent, non-exclusive, agents. Likewise, a RICO enterprise can consist of a defendant corporation and its outside (but not in house) attorneys.

The take away from this blog entry is that the person/defendant distinction must be well understood to identify situations where civil RICO claims are appropriate. From the defendant’s perspective, it should also be understood to properly challenge RICO claims that should never have been brought.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery Under the Contractor and Subcontractor Payment Act

2010-01-15T18:24:00.001-05:00

The Contractor and Subcontractor Payment Act (the “CSPA,” at 73 P.S.A. 501-516) applies to any construction project in Pennsylvania, excepting residential projects involving six or fewer units. It is intended to assure contractors prompt payment from owners, and subcontractors prompt payment from contractors and other subcontractors. It leaves substantial room for owners and contractors to reach their own payment arrangements, but lends additional enforcement teeth to those arrangements. When the prompt payment provisions (which allow for good faith disputes) are not met, and the matter goes to litigation, the substantially prevailing party is entitled to attorney fees.

Notwithstanding any agreement to the contrary, the substantially prevailing party in a proceeding to recover payment under this act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses.

(73 P.S.A. 512(b), emphasis added.) As plainly set forth in the Act, the availability of this remedy cannot be contracted away.

It is, of course, possible for neither party to be “substantially prevailing.” This could happen, for example, where the plaintiff alleges that the defendant withheld $4 million in bad faith, and the court holds that only $1 million was withheld in bad faith. The plaintiff could be said to not have substantially prevailed because the majority of the disputed amount was found to have been withheld in good faith; and, the defendant could be said to not have substantially prevailed because it withheld $1 million in bad faith.

However, where the court does find that one of the parties substantially prevailed, reasonable attorney fees will be recoverable not only for the CSPA claim itself, but for any efforts reasonably expended to collect on the judgment, which in the case of a defendant’s victory could be the attorney fees required to collect attorney fees under the CSPA.

In that regard, note the “any proceeding to recover any payment” language in the Act, as contrasted with language that might read “any proceeding arising under the statute.” Although one might argue that either provision requires an award of attorney fees in the post judgment collection phase, the Pennsylvania courts have expressly held that the former language has that effect. Therefore, it pays to look for distinctions of this kind generally when evaluating attorney fee recovery provisions, and to be conscious of the distinction when writing your own provisions into contracts.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery and the Federal Consumer Credit Transaction Laws

2010-01-08T10:11:00.000-05:00

The federal consumer credit protection code, at 15 U.S.C. 1640(a)(3), provides for attorney fees as part of the recoverable amount for any violation of Parts B, D, or E of Subsection I of the code. (These code sections are parts of what is referred to as the Truth in Lending Act.) Part B deals with disclosures in consumer credit transactions and runs from 1631 to 1651. Part D deals with credit billing and runs from 1666 to 1666j. Part E deals with Consumer Leases and runs from 1677 to 1677f.

Although granting attorney fee to a prevailing plaintiff is mandatory, the court has discretion as to the amount of fees awarded. That said, courts have acknowledged that the purpose for awarding attorney fees is to make the plaintiff whole and encourage private enforcement actions. Attorney fees are quantified based on a reasonable hourly rate and a reasonable number of hours for work necessary to plaintiff’s representation. Plaintiff’s actual obligation to pay the fee is not a factor. Since a Plaintiff might be found to have prevailed on its action even where a cases settles, defendants should make sure settlements specifically address the attorney fee issue.

Things that can put a business at risk under the above laws (and this is a very abbreviated list) include:

(1) Failing to adhere to the ways in which certain kinds of disclosures need to be labeled and formatted (15 U.S.C 1632).

(2) Failing to properly disclose the consumer’s right to rescind a consumer credit transaction within three days of its formation (15 U.S.C. 1635).

(3) Violating the disclosure requirements associated with an open ended consumer credit plan (including with respect to solicitations, opening accounts, renewing accounts, changing terms/rates, and furnishing statements, (15 U.S.C. 1637), with additional rules if the plan is secured by the consumer’s principal dwelling (15 U.S.C. 1637(a)).

(4) Violating the disclosure requirements associated with a non-open ended consumer credit transaction (15 U.S.C. 1638), with other specific disclosure requirements for certain mortgages (15 U.S.C. 1639).

(5) Violating the disclosure requirements associated with reverse mortgages (15 U.S.C. 1648).

(6) Violating the rules governing the handling of alleged billing errors. (15 U.S.C. 1066).

(7) Violating the rules governing the return of credit balances (15 U.S.C. 1066(d)).

(8) Violating the prohibition against credit card tie in services (15 U.S.C. 1666(g)).

(9) Violating the prohibition against offsets to pay credit card debt (15 U.S.C. 1666(h)).

(10) Failing to adhere to rules governing rate increases and amortization for credit card accounts (15 U.S.C. 1666(i)).

(11) Violating the rules governing disclosures in a consumer lease (15 U.S.C. 1667(a)).

(12) Violating the rules governing consumer liability at the termination of a lease (15 U.S.C. 1667(b)).

(13) Violating the rules governing disclosures in advertisements for consumer leases (15 U.S.C. 1677(c)).

Violations of the consumer credit protection code carry statutory penalties in addition to actual damages. Such penalties, including liability for the plaintiff’s attorney fees, can be triggered by unintentional violations even where the plaintiff has not incurred any actual damage. Moreover, violations may be the product of faulty procedures applied systematically across many transactions, making great fodder for class actions—especially if the class does not have to dilute their recovery to pay attorney fees.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recoveries in Federal Consumer Product Warranty Cases

2009-12-30T13:59:00.000-05:00

Chapter 50 of the federal commerce and trade laws, which starts at 15 U.S.C. 2301, sets certain standards that must be followed by suppliers, warrantors and service providers with respect to warranties, implied warranties and service contracts. Section 2310 (d) (2) of the Chapter provides that a prevailing consumer under in an action brought under Section 2310 (d) (1) may be awarded reasonable attorney fees as a part of their recovery. First I will discuss the kinds of consumer actions that are covered by this provision, and then I will discuss the parameters of the court’s discretion to grant or not grant attorney fees to the prevailing consumer.

The Attorney Fee Recovery provision applies, with a few carve outs, to any action by a consumer who has been damaged by the failure of a supplier, warrantor, or service provider to comply with an obligation under the Chapter or under a warranty, implied warranty or service contract.

The carve outs relate to a warrantor’s informal dispute settlement procedures and the opportunity to cure defects. The first carve out states that warrantors are allowed to establish informal procedures for solving warranty disputes that the consumer must follow before taking the warrantor to court. These procedures must meet standards established either directly in Chapter 50 or through the Federal Trade Commission. Therefore, where a valid informal settlement procedure is established, it must be followed before the consumer can proceed in court. The second carve out states that, before initiating a legal action, the consumer must allow the entity obligated under a warranty, implied warranty, or service contract a reasonable opportunity to cure any defect in their performance. (In either case, a court may allow a class action to be filed, and the procedure to determine the representative capacities of named plaintiffs to go forward, as exceptions to the carve outs.)

As to the court’s discretion to grant or not grant attorney fees, a sample of the case law shows the following: (1) there must be proof that the actual fees were expended (or that the specific work from which a reasonable fee was calculated was done); (2) the first mention of a demand for fees cannot come in a post trial motion (it should be inserted in the pleadings); (3) fees will only be paid for prosecuting causes of action brought under Chapter 50 that result in a judgment for the consumer (no fee awards for work done on dismissed causes of action or causes of action not authorized by Section 2310 (d) (1)); (4) settlements should explicitly state how attorney fees are to be handled; (5) only a prevailing consumer (not a prevailing defendant) can be awarded fees under section 2310 (d) (2); and (6) courts may limit attorney fees based on any determination that they are excessive (including the amount of the fees in proportion to the amount of damages) or may allow fee accelerators for high value/high risk cases.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery in Product Safety Whistle Blower Cases

2009-12-23T20:00:00.000-05:00

Last week we looked at the federal code governing consumer product safety and the opportunity to recover attorney fees in cases arising out of safety violations under that code. This week we look at the opportunity to recover attorney fees in the event of related whistle blower litigation. This is a relatively new statute that lacks a body of case law to aid in its interpretation. Therefore, we will limit our review to a straight forward reading of he statute’s text. Though not within the scope of this blog entry, a person trying to predict what the courts will do with the statute would be well advised to seek out opinions under other, similarly worded, federal whistle blower statutes.

The salient point of the statute is that an employer may not treat an employee adversely as a result of the employee: (1) bringing attention to a violation of the Consumer Product Safety Act; (2) cooperating in an investigation or prosecution arising out of the Act; or (3) refusing to participate in or advocate a violation of the Act, or the hiding of a violation of the Act. 15 U.S.C. 2780(a). An employee so victimized has very little time—180 days from the adverse treatment—to file a complaint with the Secretary of Labor. 15 U.S.C. 2780(b). The Secretary shall undertake an investigation as described in the statute and, if it is determined that the whistle blower statute has been violated, order relief in he form of: (1) compensatory damages; and, (2) restoration of the victim to the position they would have been in but for the violation. The Secretary shall also award the victim all costs and expenses including attorney fees and expert witness fees, as determined by the Secretary. 15 U.S.C. 2780(b)(3)(B).

An employee considering action under this statute should, however, exercise caution as the statute can also provide limited relief for the wrongfully accused employer. Specifically, in the event the Secretary determines that the complaint was brought frivolously or in bad faith, the Secretary may award the employer reasonable attorney fees up to $1,000, to be paid by the complainant.

Notably, if the Secretary does not reach a determination within 120 days of the complaint, the complainant is free to pursue the above described relief (including attorney and expert witness fees) through the federal district courts—including, if requested, through a jury trial. 15 U.S.C. 2780 (b)(4).

Orders issued by the Secretary, pursuant to this statute, are themselves enforceable through the federal courts and attorney fees are also recoverable in those enforcement actions, by any party if the court so directs it. 15 U.S.C. 2780(b)(7)(B).

As in the case of countless other statutes, beware of the exceptions. The very last part of this statute excepts (maybe not all but a wide swath) of employers from any liability under the statute for the undirected violation of rogue employees.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery and Violations of the Consumer Product Safety Improvement Act

2009-12-17T13:45:00.000-05:00

The Consumer Product Safety Improvement Act, set forth in the federal code at 15 U.S.C. 2051 to 15 U.S.C. 2089, sets forth various rules governing product safety for various categories of consumer products (basically all consumer products less some very substantial exceptions set forth in the code’s definition of “Consumer product” at 15 U.S.C. 2052). The rules in question require the disclosure of information regarding consumer products, mandate certain kinds of labeling for products, create performance requirements and ban certain products, or prohibit certain substances (or certain concentrations of substances) in products. Examples of product controls include prohibitions of lead paint in children’s toys, warnings on ATV vehicles, and procedures for registering the users of certain types of products in the event of a recall. The Act also created the Consumer Protection Agency, which is the body that promulgates most of the specific consumer safety rules that are enforced through the Act. For a better understanding of the Commission’s work, you can visit its website at www.cpsc.gov.

Section 2072 of the Act provides that any person who is injured “by reason of any knowing (including willful) violation of a consumer product safety rule, or any other rule or order issued by the Commission may sue any person who knowingly (including willfully) violated any such rule or order…” Further, if the plaintiff prevails and is awarded a sum in excess of $10,000, the plaintiff “may, if the court determines it to be in the interest of justice, recover the costs of suit, including reasonable attorneys’ fees … and reasonable expert witness fees.” (Costs, but not fees, could get shifted the other way in the event that a judgment exceeding $10,000 is not achieved.) Attorney fees are not recoverable if the defendant is the United States or any of its agencies, officers or employees who are sued for their actions or inactions in their official capacity.

As these remedies are in addition to those provided by any other federal or state law, it could serve product defect plaintiffs well to see if their state tort case also qualifies as a violation of this Act. Be aware that the case law regarding this section of the Act is sparse, the Act has its own pleading requirements in addition to what is necessary for a state common law action, the act does not provide for punitive damages, and availing yourself of the Act will put you in federal court.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery Through the Uniform Trade Secrets Act

2009-12-09T15:56:00.001-05:00

The Uniform Trades Secret Act (“UTSA”), which has been adopted with variations by almost every state, provides for attorney fee recoveries under the circumstances described below. For illustration purposes, I will use Pennsylvania’s adoption of this statute, which starts at 12 Pa. C. S. § 5301.

The Pennsylvania’s UTSA displaces any conflicting common law tort based causes of action or remedies for the misappropriation of trade secrets. (In effect, it incorporates the theories of liability and provides a uniform structure with respect to the tort remedies.) It does not displace contract based remedies for the misappropriation of trade secretes. The Act provides for damages and injunctive relief in cases where a misappropriation of trade secrets is proven. Both the terms “misappropriation” and “trade secrets” are defined in the Act at Section 5302. Exemplary (i.e. punitive) damages may also be awarded, if warranted, in amounts of up to 2x compensatory damages.

With respect to attorney fees, the statute provides that the prevailing party may recover its fees as follows: (1) the defendant may recover its attorney fees if it is found that the matter was initiated in bad faith, or that defendant’s motion to terminate an injunction was resisted in bad faith; and (2) the plaintiff may recover attorney fees if it is found that the misappropriation was willful and malicious, or that defendant’s motion to terminate an injunction was made in bad faith. (12 P. C. S. 5305.) Even if the overall case is decided by a jury, the judge will decide matters of attorney fee recovery.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery in Interstate Land Sale Cases

2009-12-02T17:02:00.000-05:00

Chapter 42 of the Federal Code, dealing with interstate land sales, provides for the recovery of attorney fees for certain violations. Specifically, 15 U.S.C. 1709 provides that attorney fees may be included in the amount recoverable in actions brought for violations of section 1703. That section, in turn, provides rules that apply to non-exempt interstate land sales and leases, including:

(1) a statement of record comporting with 15 U.S.C. 1706 must be in effect before the land is sold or leased;

(2) a printed property report comporting with 15 U.S.C. 1707 must be provided to the purchaser or lessee before the land is sold or leased;

(3) none of the advertising or promotional materials and be inconsistent with the printed property report;

(4) there can be no “device, scheme, or artifice to defraud”;

(5) there can be no misleading statement of omission leading to the receipt of money

(6) there can be no representation “that roads, sewers, water, gas, or electric service, or amenities will be provided,” unless such is provided for in the contract for sale or lease;

(7) the purchaser or lessee must be given at least seven days to revoke the contract, and the contract must state this;

(8) if the purchaser or lessee did not receive a timely property report, the purchaser or lessee has 2 years to revoke the contract, and the contract must state this

(9) if certain other provisions that protect the purchaser or lessee are not in the contract, the purchaser or lessee has 2 years to revoke the contract.

It should be noted that the list of exemptions contained in section 1702 of this Chapter greatly limits the transactions to which the above rules are applicable.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery in Copyright Cases

2009-11-25T22:48:00.000-05:00

The federal statutes that govern copyright infringement cases provide that “Except as otherwise provided by this title, the court may also award a reasonable attorney’s fee to the prevailing party as a part of costs.” (17 U.S.C. 505) Under this provision, either the defendant or the plaintiff may recover their attorney fees if they are the prevailing party. Some courts have narrowly construed the provision to exclude the fees of experts retained by their attorneys to help them prevail. In cases where the plaintiff prevails with regard to some but not all of its claims, it will generally be allowed to recover some but not all of its attorney fees. The same does not appear to apply to defendants that are partially successful. However, awarding attorney fees up to the court’s discretion, and the court has a large measure of freedom to award fees or not based on its assessment of the overall equities of the case.

Unlike an award of attorney fees in patent and trademark cases, there is no requirement in a copyright case that fees be awarded only under “exceptional” circumstances. So, while fraudulent or unconscionable behavior on the part of the losing party will weight heavily toward an award of attorney fees, such behavior is not necessary. In that regard, it has been held that the purpose of the award is to encourage copyright holders to protect their rights. Still, in a cases where both parties acted in good faith and the matter ultimately turns on complex or novel issues of law, the court may decline to award fees.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery in Trademark Cases

2009-11-19T15:59:00.000-05:00

The federal statutes governing trademark infringement cases contain provisions at 17 U.S.C. § 1117 that provide for the recovery of attorney fees under various circumstances. Under the first such provision, § 1117(a), defendants who violate section 1125(a), or willfully violate section 1125(c) may be charged with the plaintiff’s attorney’s fees “in exceptional cases.”

A 1125 (c) violation is, among other things, the use in commerce of names, symbols, devices, misleading descriptions or misleading representations that are likely to cause confusion as to the ownership, affiliations, origins, properties, and identities of goods or services. A 1125(c) violation occurs when the value of a well established trademark is damaged (the term of art is “diluted”) by someone else’s use of an impermissibly similar mark. The above descriptions are over simplifications, and the question of whether a trademark has been infringed can be a close one. However, cases where attorney fees are allowed under § 1117(a) are not the close ones. They are cases where strings of adjectives such as “deliberate, fraudulent, unconscionable, malicious and wanton” apply to defendant’s actions. Situations where the court has already issued an injunction against a defendant to stop infringing behavior, and the defendant persisted in the infringement, are also good candidates for attorney fee awards. Prevailing defendants can be awarded fees in cases where plaintiff’s claims were frivolous.

Section § 1117(b) sets forth circumstances where an assessment of damages under 1117(a) should automatically, unless there are extenuating circumstances, include treble damages and attorney fees. Those are circumstances where the defendant intentionally uses a counterfeit trademark or provides goods or services that enable the use of a counterfeit trademark with the intent that the goods and services be used that way.

Where attorney fees are recoverable under this statute, the court will review submitted fees for reasonableness. The court might consider the ability of the party to pay when determining the amount of attorney fees to award.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fees in Patent Infringement Cases

2009-11-15T15:00:00.001-05:00

The federal statutes governing patent infringement cases include a section that reads “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. 285. This should be of great interest to anyone embroiled in, or anticipating, a patent infringement case. Parties to such actions should carefully plan their complaints, counterclaims and/or defenses to, whenever possible, increase the chances of making a successful claim under the “exceptional case” provision of the statute—and to decrease the chances of their opponent making a successful claim under that provision.

That said the “exceptional case” standard is a difficult one to meet. It must be shown that the equities are such that it would be “grossly unjust” or “unconscionable” for the prevailing party to bear the litigation burdens normally born by prevailing parties in under the American Rule (i.e. the principle in US courts that each party generally bears their own litigation costs).

Exceptional cases exist where the trial court, in its discretion, determines that a plaintiff initiated unjustified litigation, or where the litigation posture of one of the parties constituted a fraud on the Patent and Trademark Office. Although circumstances that justify an award of attorney fees under this statute often overlap with circumstances that might draw other statutory or common law sanctions, the courts do not consider awards of attorney fees under the above statute to be punitive in nature. Rather, the courts consider such awards to be compensatory.

Where attorney fees are recoverable under this statute, other litigation expenses, such as expert’s fees, are also recoverable. The court will review submitted fees for reasonableness.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Business Protections in Consumer Protection Laws

2009-11-04T16:06:00.000-05:00

Not all consumer protection laws protect only non-commercial consumers. Some also protect businesses and, therefore, present an avenue for collecting attorney fees in situations where no such relief would be available in a straight forward breach of contract action. An example of this is found in New Jersey in a grouping of statutes titled “Frauds, Etc., in Sales or Advertisements of Merchandise,” which is more commonly referred to as the “Consumer Fraud Act,” or “CFA.

Among other things, the CFA provides, a cause of action for “unconscionable commercial practice, deception fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression or omission of any material fact with the intent that others rely on such concealment suppression or omission, in connection with the sale or advertisement of any merchandise or real estate ….” Notably, unlike a cause of action for common law fraud, reliance on the deceptive behavior need not be shown before recovering damages under the “CFA.”

A prevailing CFA plaintiff (which includes a defendant that raises a CFA action as a counterclaim) will be awarded triple actual damages and costs of suit, including attorney fees. This can be good news for businesses as well as individual consumers because New Jersey state courts have held that the CFA does not exclude business from the protected class. Rather, the key determination as to a plaintiff’s ability to seek relief under the CFA rests on whether the transaction complained about goes to the sale or advertisement of merchandise or real estate, and whether the thing sold was offered for sale to the general public. In that regard, the purchase of a new franchise (but not of an ongoing business) and renovation services purchased by businesses have been found to fall under the CFA.

The take away point, is that business looking at a breach of contract action, where the contract does not provide for an award of attorney fees, should check to see if they can take advantage of the consumer protection law of their jurisdiction. If they can get into federal court (on diversity jurisdiction) they should see how the statute is interpreted in both the state and federal courts, because the state courts and federal courts will sometimes interpret the state’s laws differently. For example, federal courts in New Jersey are less likely than state courts to allow business to bring an action under the CFA.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

More on the Pennsylvania CPL

2009-10-30T11:43:00.000-04:00

In my last Blog entry, I mentioned that Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (the “CPL”) offered relief, including an award of attorney fees, in the event a consumer suffers damages as the result of any of 21 wrongful acts that are listed in the statute. In this Blog entry, I briefly summarize what those acts are. For the sake of brevity, I combined certain of the acts and paraphrased the language in the statute. To determine exactly what protections are afforded under the statute you should, of course, consult an attorney. That said, here is my abbreviated list of the wrongs for which consumers can seek redress under Pennsylvania’s CPL:

1) Deceiving the consumer as to the identity of the maker or provider of the goods or services, or as to the identity of persons or entities affiliated with or endorsing the goods or services, or with respect to the geographic origin of the goods or services.

2) Passing off new or refurbished goods as new.

3) Advertising goods of services with an intent to not sell them as advertised (including an undisclosed limitation of the quantity available at the advertised price or terms).

4) Disparaging another’s goods or services through false or misleading representations.

5) Making any other false claim about the nature or benefits of goods or services.

6) Offering future credits, at the time of a sale, for bringing in additional buyers following the sale.

7) Facilitating Chain Letter or Pyramid Schemes.

8) Not honoring a guarantee or warranty.

9) Knowingly misrepresenting the need for services, replacements or repairs.

10) Making improvements, repairs or replacements that are of lesser quality than agreed to in writing.

11) Making telephone solicitations that do not properly identify the caller, the purpose of the call, the thing being offered and, if the is an opportunity to win a prize, the fact that no purchase is required to be eligible to win the prize.

12) Offering any contract that includes a clause whereby the consumer gives up the right to assert a defense.

13) Soliciting mail or phone sales without reasonably believing that it can ship anything purchased to the buyer when promised or, if no promise is given, within 30 days.

14) Making any misleading representations or omissions conserving rustproofing with respect to the sale of new automobiles.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Consumer Protection Laws

2009-10-27T14:21:00.000-04:00

It is quite possible for a matter to be too complex for a plaintiff to pursue it without an attorney, too small (in terms of the possible recovery) to justify an attorney taking the case on a contingent fee basis, and too large for the plaintiff to not be seriously affected by the loss.

To help alleviate this situation, at least with respect to disputes arising from consumer transactions, many states have enacted general consumer protection laws. The law serving this purpose in Pennsylvania is the Unfair Trade Practices and Consumer Protection Law, (the “CPL”). Among other things, the CPL provides that, when a person “purchases or leases goods or services primarily for personal, family or household purposes” and suffers a loss for one of 21 specific reasons listed in the statute, that person will receive an award of damages of at least $100 (even if actual damages are less, and without an upper limit if damages are more) and may receive an adjustment to the award of up to 3 times damages and “costs and reasonable attorney’s fees.”

In determining how much attorney’s fees are reasonable, the court considers: (1) the magnitude of the effort and skill required to properly conduct the case; (2) the customary charges for similar services by other attorneys it the area; (3) the amount at stake and the benefit resulting to client; and (4) the risk taken in pursuit of the case. In balancing these factors, it has been found by Pennsylvania courts that attorney’s fees of between 11 and 12 times actual damages can be reasonable. However, Pennsylvania courts have also found attorney’s fees of between 3 and 4 times damages to be unreasonable. It all depends on the facts and circumstances of the case and on how the court works through the above factors

When balancing the four factors, courts will look more kindly on a large fee request where plaintiff has actually paid the fees and seeks reimbursement. Courts will typically be less generous where the fee was contingent, with the fees only being paid to the extent they could be recovered under the CPL. Though the contingent nature of an attorney’s fee does not make it unrecoverable, it will draw closer scrutiny from the court. It should also be noted that the court will reduce an award of attorney fees proportionately by the amount of effort the attorney spent pursuing legal theories outside of the CPL.

Finally, as you might have noticed, attorney fees under the CPL go to the prevailing plaintiff, not the prevailing defendant. If a prevailing defendant wants to pursue the costs of defense, it will have to look elsewhere for the authority to do so. Possibilities include: statutes, common law and rules governing claims made in bad faith, abuse of civil process and, if applicable, the express terms of an underlying contract.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Example: Attorney Fee Liability for Overreaching in Counterclaim

2009-10-23T11:08:00.000-04:00

In today’s Blog entry, we take a look at a situation where the defendants were successful in having the plaintiff’s case dismissed, but nevertheless face liability for plaintiff’s attorneys’ fees because the court found their counterclaim to be frivolous.

Plaintiff sued her attorneys for legal malpractice over the handling of her medical malpractice case. Her former attorneys responded with a counterclaim seeking reimbursement of the $6,000 they spent pursuing plaintiff’s medical malpractice case.

The court dismissed plaintiff’s action because she waited to long to sue and missed the deadline for commencing her suit that was specified in the relevant statute of limitations. The defendants were not entirely off the hook, however, because of their counterclaim. That counterclaim was based on the theory that state law (in this case NY), requires that clients always be responsible for disbursements. (Disbursements are out of pocket expenses such as filing fees and other non-lawyer costs, such as copying.)

Arguably, the contingency fee agreement should have been written in such a way that the plaintiff could, at least technically, have been responsible for disbursements. In the matter before the court, however, the relevant question was not what a properly drafted retainer agreement should have said, but what the retainer agreement drafted by the defendants actually said. Looking to the plain language of the retainer agreement, the court concluded that disbursements could only be recovered by defendants if defendants achieved a recovery for plaintiff in her medical malpractice action or if the plaintiff replaced defendants as counsel. Since there was no recovery in the medical malpractice case, and since plaintiff never replaced defendants as counsel in that case, there was no contractual right to disbursements in the retainer agreement.

The court further found that, because defendants were sophisticated plaintiffs attorneys, they should be treated as though they were aware that their counterclaims were unsupportable in light of the retainer agreement that they drafted. That rendered their counterclaim “nonsensical and frivolous” and paved the way for a recovery of attorney fees, associated with the defense of the counterclaim, by the plaintiff.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fee Recovery Under Rules of Civil Procedure

2009-10-20T14:08:00.000-04:00

The Federal Rules of Civil Procedure, as well as the procedural rules of many states, set forth provisions by which attorney fees can be recovered in the event of misbehavior.

In the federal rules, the primary provision of this kind is set forth in Rule No. 11, which states that every presentation to the court of a “pleading, written motion, or other paper” carries with it a certification that the person submitting it, after a “reasonable inquiry,” believes that: (1) the submission is not for an improper purpose such as harassment, delay, or increasing the cost of litigation; (2) the legal basis for the submission is not frivolous; and (3) all factual allegations are based on evidence or a reasonable belief that evidence will be forthcoming (and/or, in the case of a denial of a factual allegation, a reasonable belief or lack of information).

If a party believes it has been subjected to a filing that violates the above certification at any stage of the litigation, it may file a motion seeking sanctions. (There is no need to file a separate action.) Unlike most motions, the motion for sanctions must be presented to the other side 21 days before it is presented to the court. If, in that time, the opposing side withdraws the offending submission, the motion for sanctions becomes moot.

If the offending party does not withdraw its submission, it can be sanctioned in whatever amount the court deems proper as a deterrent against similar actions in the future. In addition to a sanction paid to the court, the offending party can be ordered to reimburse the movant for all attorney fees and related expenses cause by the underlying offending submission, including the fees and costs incurred in filing the motion for sanctions.

Motions for Rule 11 sanctions (and similar motions provided for in state courts), should not be filed lightly. Parties that file such motion and lose can, under the same rules, be made to pay the attorney’s fees of the prevailing side.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Abuse of Process

2009-10-15T17:45:00.000-04:00

Abuse of Process is the name for a common law tort that provides many of the remedies of a Dragonetti type statute, but which can be applied with greater flexibility. Unlike relief through the Dragonetti Act (see Blog entry from October 8, 2009), a claim for Abuse of Process can be made, and prosecuted to conclusion, while the underlying litigation is still ongoing.

Abuse of process has been defined by Pennsylvania courts as "the use of legal process against another primarily to accomplish a purpose for which it is not designed." This use could come long after litigation has begun. So, even a plaintiff perfectly justified in initiating litigation that it ultimately wins may be called to task if, during the course of that litigation, the plaintiff employs the litigation process for a purpose the process was not intended, by law, to effect. Similarly, a defendant wrongfully dragged into court and ultimately vindicated may incur liability for abuse of process in the same way.

The improper use in an Abuse of Process case is typically a form of extortion or collateral pressure. Examples include:

          Over-broad discovery demands that put trade secrets at risk being used to make the other side
          negotiate something away that would not normally be within the scope of the litigation.

          In a personal injury case, a petition by a defendant to appoint a guardian over an injured child to scare
          the parents into settling for less.

          Tactics principally designed to unnecessarily multiply the costs of litigation for the other side.

Like any tort, the party advancing an Abuse of Process Claim must be able to demonstrate harm from the action complained of. Depending on the offense, the damages, and therefore the thing recoverable, might be attorney fees and costs. Given the nature of an abuse of process claim, there can also be punitive damages and even damages for collateral harm such as emotional distress.

Knowing when and how to initiate a proper claim for abuse of process can change the dynamics, and ultimate costs, of litigation.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Attorney Fees by Contract

2009-10-13T15:19:00.000-04:00

Given that attorney fees are not generally recoverable for breach of contract, and given that many jurisdictions do not allow for the recovery of punitive damages for breach of contract, and – above and beyond that – given the effect of the gist of the action doctrine on your chances of working a tort claim into what is otherwise an action for breach of contract (see Blog entry dated October 1, 2009), your best bet for recovering attorney fees in the event of a contract dispute is to put it in the contract.

A full description of how you might want to go about doing this is beyond a single blog entry, but a few starting considerations are listed below:

First, you should consider terms designed to reduce the overall costs of a dispute regardless of who wins. A leading mechanism for doing this is arbitration. Arbitration is a form of private dispute resolution that offers streamlined procedures and is, therefore, generally less expensive than proceeding through the court system. A drawback of arbitration is that, for most practical purposes, there are no appeals. Therefore, you are stuck with whatever the arbitrator(s) decide. For this reason, you might not want an arbitration provision in a contract that, if breached, would lead to a “bet your company” dispute.

Second, you should consider when you want liability for attorney fees (and associated expenses) to be triggered. Do you want it to trigger in the event of any breach? Just a material breach? Do you want to trigger it when a complaint is filed or an arbitration demand is made?

Third, consider interest. In a contract case for a specific sum, the winning side usually collects pre-judgment and post-judgment interest at a statutory rate (e.g. at this writing, six percent in Pennsylvania state courts). Chances are that the statutory rate will be substantially below the IRR you would seek from any significant economic investment with the risk factors associated with litigation. In the event of an action on a commercial loan, the appropriate rate may be more like the default rate. In that case, the provisions allowing for the recovery of attorney fees should be written to make it clear that the appropriate higher rate of pre-judgment and post-judgment interest applies to the attorney fee portion of the award.

Fourth, remember a clause governing award of attorney fees is typically a two edged sword. Parties entering into contracts with such clauses do not generally think that they will be the ones made to pay under them. In the event of a dispute, one of those parties is wrong. Make sure you’re willing to risk being on the paying end of whatever you agree to.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

The Dragonetti Act

2009-10-08T15:09:00.001-04:00

Many jurisdictions have laws allowing a party that has prevailed after being wrongfully sued to sue back. In Pennsylvania the statutes that allow that are called the Dragonetti Act. (Additional relief is available through the common law and through the Rules of Civil Procedure. Those options will be discussed in future Blog entries.) Under the Dragonetti Act, you can sue someone for suing you if: (1) you have prevailed in the matter where they sued you (2) the party suing you acted in way that was grossly negligent or without probable cause; and (3) the offending action was primarily for a purpose other than the proper pursuit of a legal claim. Hopefully you’re not the victim of litigation that would give rise to a claim under this Act. However, if you are, you can recover a wide range of damages, including: (1) any harm resulting from a limitation of your use of your property or things; (2) any harm to your reputation; (3) any expenses, including reasonable attorney fees, incurred in defending against the wrongful litigation; (4) emotional distress; and (5) punitive damages where appropriate.

The Dragonetti Act made it onto this Blog because it offers the prospect of recovering attorney fees. Still, recovering attorney fees may not, in and of itself, warrant pursuing such an action. That is because, although you can recover your attorney fees on the underlying wrongful action, you cannot recover them for the Dragonetti action itself. If you were just going for attorney fees, you would have to be very confident that the expense of pursuing the Dragonetti action did not exceed the expense of the underlying litigation.

That said, circumstances that give rise to a Dragonetti action likely also give rise to one or more of the other claims for damages provided for by the Act. Although the finder of fact (the judge or jury) would have to specifically determine that it was warranted in any particular case, given the kind of wrongdoing inherent in a Dragonetti Act violation, punitive damages are often likely.

The victim’s financial ability to pursue a Dragonetti case could be an obstacle, especially if the underlying case was a serious drain on resources. However, if the case is strong, with significant damages, counsel may be available on a contingency or blended rate (smaller percent contingent fee plus significantly reduced hourly fee) basis.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Civil RICO: A First Look

2009-10-06T15:37:00.001-04:00

The next several Blog entries will introduce causes of action or legal theories that allow for the recovery of attorney’s fees. Subsequent entries will fill in the details.

The first of these causes of action is the Racketeer Influenced and Corrupt Organizations Act (“RICO”). RICO was introduced as a federal law designed to combat organized crime. Although envisioned primarily as a criminal statute, RICO also provided private causes of action for victims of racketeering activity. As a result, plaintiffs have used RICO to address wrongs that might otherwise be difficult to remedy. The federal courts somewhat curtailed these private causes of action, noting that wide spread civil use was not the primary purpose of RICO. As a result, case law interpreting how and when individuals can employ RICO is relatively complex. That said, RICO is a well established and valuable litigation tool.

RICO makes it onto this Blog because it allows the winning plaintiff to recover of triple damages and attorneys fees.

In addition to the federal RICO statutes, many states have passed their own versions of RICO. Some are more limited than the federal version (e.g., Pennsylvania’s has no private cause of action), and some have advantages over the federal version (e.g., the N.J. RICO statute, which will be the topic of a future Blog entry).

Federal RICO is composed of six sections of the United States Code (18 U.S.C. 1961-1968). The two RICO sections this Blog will spend the most time with are 1962(c) and 1962(d). To bring a claim under 1962(c), a plaintiff must allege, among other things, that defendants conducted the affairs of an “enterprise,” through a “pattern of racketeering activity,” resulting in damage to the plaintiff. To bring a claim under 1962(d), a plaintiff must allege that defendants both agreed to commit RICO “predicate acts” and knew that those acts were part of a “pattern of racketeering activity.”

Key terms necessary to understand and apply RICO, such as “enterprise,” “racketeering activity” and “pattern of racketeering activity,” are defined, at least partially, in section 1961. To fully understand these terms, as well as critical terms not defined in the statute, and to effectively apply RICO to achieve the desired result, requires familiarity with the evolving case law in the court system where you bring the RICO claim

For purposes of this Blog entry, your take away point is this: If you have been cheated by something that looks like a legitimate business, but which really exists to separate its victims from their money through certain specific illegal schemes, you may have a RICO cause of action. If you have a RICO cause of action, you can get your attorney fees back plus three times damages.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Contract v. Negligence (a difference in damages)

2009-10-01T17:04:00.000-04:00

In many jurisdictions (Pennsylvania for example) there are no punitive damages in a straight forward breach of contract case. Nor is there fee shifting unless provided for in the contract itself. Therefore, absent contractual provisions that bear directly on the quantification of damages, the most any party can recover in a typical contract case is the amount that they lost as a reasonably immediate and foreseeable result of the breach of the contract—their attorney fees not counting as a part of that loss. In other words, any win, by either side, is at best a loss equal to the value of their legal costs.

In a negligence case, however, a winning plaintiff can also receive punitive damages which, of course, can be viewed as defraying litigation expenses. To win punitive damages, one has to prove negligence (the existence of a duty on the part of the defendant, a breach of that duty, and resulting damages) plus some aggravating factor, typically recklessness, such that the offending party should not only make the plaintiff whole, but pay an extra amount as punishment and to dissuade others from doing a similar despicable thing in the future.

This, of course, led plaintiffs to assert that not only did the defendant breach its contract, it breached the contract negligently and recklessly. In this way, plaintiffs hoped to tap into the world of punitive damages to increase the size of their recoveries in contract actions. The tactic worked for a while, but has been largely derailed by what is called the “Gist of the Action Doctrine.” That doctrine is a rule, made up and enforced by the courts, that says that if the matter complained of is essentially an action for breach of contract, then a plaintiff cannot seek a recovery through tort remedies such as negligence actions.

The express purpose of the Gist of the Action Doctrine is to keep punitive damages out of most traditional contract disputes. There are, however, certain recognized exceptions where actions are essentially both contract and tort—and a grey area—where the question is debatable. If you can fit into one of those exceptions as a plaintiff (or as a defendant through a counter-claim or cross-claim), you can still assert a claim for punitive damages and possibly recover some or all of you attorney fees. Future entries in this blog will discuss those exceptions and grey areas.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

THE OTHER SIDE OF THE COIN

2009-09-29T10:13:00.000-04:00

One final thought before plunging into the actual mechanisms of fee shifting….. Fee shifting is not necessarily a good thing. In many countries it is automatic—the losing side pays the winning side’s costs. In many of those countries there is a lot less litigation than in the United States. Your knee jerk reaction might be that less litigation is a good thing, but is it? If you are a large corporation, it may be. Especially if you’re a large corporation subject to lots of lawsuits by smaller plaintiffs that think of you as a target for big game hunting. If the plaintiff will have to pay your legal costs if they loose, it is likely that they will give serious consideration to the strength of their case before dragging you into court. That will lead to a reduction of cases where plaintiffs take long shots of dubious merit because their attorneys have time on their hands and the cases are relatively inexpensive to pursue (and might be prosecuted on a contingency basis), and where the potential long shot award is very sizeable. On the other hand, fee shifting provisions can be abused by the side with the resources to hugely outspend its opponent. Parties with good (but less than certain) cases might not be able to risk asserting their rights in court primarily because they cannot afford the risk of paying the disproportionate cost of the mega firm attorneys (and consultants and experts) that their opponents will bring to bear against them. In short, there will be cases where fee shifting exacerbates the very problem it was intended to solve. Fortunately, the potential for this undesirable result has not been lost on the courts or the legislatures. As we will see, many fee shifting mechanisms address the issue to one extent or another.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Contract v. Tort and Statutory Law v. Common Law (basic concepts)

2009-09-24T13:01:00.004-04:00

Here are a few basic terms that I’ll use throughout this Blog. I apologize if they are too basic, but I don’t want to lose non-lawyers by assuming that these terms are commonly understood.

Cases “brought in contract” involve a plaintiff asserting a right that would not exist without a contract between the parties. For example, a plaintiff cannot assert that I should have painted its warehouse unless we had a contract in which I promised to paint it.

Cases “brought in tort,” are based on violations of duties imposed by society. For example, if you leave a banana peal on your shop floor and someone slips on it, you could be liable for a tort called negligence because you failed to meet your societal duty to keep your floor safe.

Statutory law is law created through the legislative process. Statutes can apply to both tort and contract actions. For example, in a case brought because the defendant did not accept the delivery of goods purchased from the plaintiff, the available remedies may be dictated by statute. Statutory law is sometimes referred to as “code.” (For example, the UCC or Uniform Commercial Code, is a collection of model laws, dealing with commercial issues, that states have modified and incorporated into their statutes. In Pennsylvania, the collection of statutes based on the UCC is sometimes referred to as the “Pennsylvania Uniform Commercial Code.”)

Common law refers to laws created by the written opinions of judges, in the absence of statutory laws. Our common law system was inherited from England during colonial times and has evolved since then. Like statutory law, common law can apply to both tort and contract actions. Every court system in the country (50 state systems plus the federal system) has a hierarchy where its lower courts must follow the common law created by its higher courts. This helps make the common law uniform within each system. Common law may be displaced by statutory law.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

Contingent Fees v. Fee Shifting

2009-09-22T09:51:00.001-04:00

Fee shifting mechanisms can lift the burden of litigation costs if you win. Contingent fee agreements lift the burden of litigation costs if you lose, and limit the size of the litigation costs if you win so as to greatly increase your chances of a net positive recovery on the litigation. Such a comparison, at the cursory level, seems to make the contingency fee arrangement very attractive. A more nuanced comparison, however, shows that a straight fee arrangement can be better, even without fee shifting.

Typically, a contingency fee agreement provides that the attorneys for the plaintiffs will not collect a fee unless the plaintiffs win. If the plaintiffs win, their attorneys will take a percent of the recovery. It will be a big percent—typically between a third and just less than half. The attorneys will also take out the costs they advanced for copying, postage, filing fees, etc. and for third party litigation support (expert fees, for example). Whether they take those costs out of the amount recovered before or after they take their percent of the recovery depends on the deal they struck with the client. That is the cost of litigation where all the risk in bourn by your attorneys.

Clearly, if the client has no money to pay for an attorney, the contingent fee route is a lot better than walking away from a meritorious claim. However, clients that can pay a straight hourly fee may be better off doing just that. It all depends on the chances of winning, the likely size of their attorney’s bill, and whether they will be able to avail themselves of a fee shifting mechanism if they win. For example a $1,000,000 dispute in a very strong case with $100,000 in estimated attorney fees might be better litigated on a traditional hourly basis than on a contingency basis. Keeping everything else the same, if potential litigation costs on an hourly basis are $500,000, a contingency fee arrangement (if available) might be more attractive than paying the hourly rate—and the less strong the chances of winning, the more attractive it will be. Now, add in the availability of a fee shifting mechanism, so that if you win those attorney fees are added to your damages. If you can afford the hourly rate, the hourly fee option may have become the better choice.

These are some of the options and scenarios a client may want to discuss with their attorney before their case gets started.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

The American Rule and General Categories for its Exceptions

2009-09-17T15:08:00.001-04:00

“The American Rule” is the common name given for the principle that, in America, each party is generally responsible for paying its own attorney fees regardless of whether it wins or loses. There are typically mechanisms for assessing the more minor litigation costs, such as the court’s filing fees, to the losing party. The burden of each party’s attorney fees (and other professional fees such as expert witnesses and non-testifying experts), however, typically stay with each party. Exceptions to the American Rule whereby the losing party is made to pay the litigation expenses of the winning party are called “fee shifting” mechanisms. Fee shifting mechanisms are typically either contractual provisions or provisions embedded in statutes.

One other mechanism that offers relief, and which will be discussed in this blog, is punitive damages. Punitive damages are not technically “fee shifting” because they are not driven by the amount of fees the winning party incurred. Rather, they are assessed to punish the losing party for especially bad behavior and to discourage others from engaging in similar behavior. Sometimes punitive damages are part of a common law tradition for certain causes of action; sometimes they are provided for expressly by statute. They could be open ended (whatever the jury or court wants to give—within limits) or very specific (e.g. three times actual damages). Either way, if considerable, they can mitigate or wipe out the winning side’s cost of litigation.

Aside from fee shifting mechanisms and punitive damages, the problem of litigation costs can be addressed through contingency fee arrangements. The next blog entry will address some of the advantages and limitations of those arrangements.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or for answers to specific questions, please contact the blog's author.

What This Blog is About

2009-09-11T18:35:00.001-04:00

We would like to think that businesses or people that have been wronged and cannot work out their differences can, as a rule, seek redress in the courts and be made whole. We would also like to think that, if a business finds that someone is coming after it in court based on a claim that has no merit, it can defend itself and expect meaningful vindication.

The cost of litigation often puts a party or potential party in a position where even a win is an economic loss. This can lead you to just absorb expensive losses instead of going to court, or to settle meritorious claims for too little—all based on the economics that come into play because of the cost of litigation.

The problem is exasperated when litigation costs are used as a weapon by the better healed party against a party less able to absorb them. How long can a business with revenues of $10 million a year pursue a contract case for $200,000 against a company ten times its size that is willing to fight a war of attrition?

Many people have thought long and hard about this question for many years. This blog sets out snippets of what attorneys and potential litigants may want to consider when trying to solve the problem of litigation costs. It will be weighted toward mechanisms by which the prevailing litigant can recover litigation costs, so as to make prevailing worth the cost.

The information contained in this blog is not legal advice and should not be relied on as such. For legal advice or answers to specific questions, please contact the blog's author.