Lawsuits abound in our “sue happy”
society, and businesses must necessarily be prepared should one be filed against them.
One major concern is the recovery of fees
spent on litigation, which for some companies can reach into the millions of dollars.
Most clients assume the losing party will
have to pay for all of their fees, but this is a
faulty assumption, says Kevin Stine, a partner with the law firm Gambrell & Stolz,
LLP, in Atlanta.
Smart Business spoke with Stine about
the misconceptions concerning the recovery of legal fees and what a business can do
to make sure it’s compensated after a trial.
How does one go about recovering attorney’s
fees and expenses in litigation?
When a client has a legal dispute and
comes to me for advice, one of the first
things I’m routinely asked is whether the
other party will be required to pay their
legal fees and expenses when they prevail
in court. This is one of the most difficult
issues to explain because most clients
assume the losing party will automatically
be required to pay all of their fees at the
end of the case. We have what’s referred to
as the ‘American Rule’ in this country.
Whether in state or federal court, the
American Rule provides that each party to
a lawsuit, even the prevailing party, must
pay its own fees and expenses. There are
few exceptions to this rule.
What are the exceptions to the American
Rule?
There must be specific authority for an
award of attorney’s fees and expenses in a
contract or statute. So, for example, if you
sue another party for breaching a contract
with you, the contract you’re enforcing
must contain an express provision entitling
you to recover your attorney’s fees and
expenses in addition to any other damages.
What kinds of statutes authorize recovery of
attorney’s fees?
There are two general types of statutes that authorize recovery of attorney’s fees.
The first type creates the underlying basis
for the lawsuit in addition to the basis for
recovery of fees. Examples include the federal anti-discrimination laws and certain
consumer protection statutes.
The second type is aimed specifically at
bad faith conduct, prior to or during the
lawsuit. One such law in Georgia permits
the plaintiff to recover its legal fees where
the other party, prior to the lawsuit, acted
in bad faith, was stubbornly litigious or
caused the plaintiff to incur unnecessary
trouble and expense.
The other pertinent Georgia law is available to both plaintiffs and defendants, and
concerns misconduct during the course of
the lawsuit. This law is commonly referred
to as the frivolous litigation statute and permits a party to recover its legal fees and
expenses if the other party asserted a claim
or defense that lacked any factual or legal
support or unnecessarily expanded the
proceeding solely for harassment.
Let’s say a client’s claim for legal fees fits
within one of these exceptions to the
American Rule. Are there any other restrictions the client needs to be aware of?
If you are enforcing a fee provision in a
debt instrument, like a promissory note,
Georgia law imposes two additional
restrictions. First, you must serve a specific written demand on the debtor, which
gives the debtor 10 days to pay the outstanding principal and interest, without the
legal fees. Second, if a debt instrument permits recovery of ‘reasonable’ fees, your fee
recovery is limited to 15 percent of the first
$500 and 10 percent of the remainder of the
outstanding principal and interest, regardless of your actual fees. If the debt instrument permits recovery of fees based on a
specific percentage, the percentage is
capped at 15 percent of outstanding principal and interest, again, even if your actual
fees exceed this amount.
For other types of contracts with fee provisions and statutory claims, the court will
award ‘reasonable’ fees. In practice, the
judge or jury can often find only a portion
of the actual fees incurred is reasonable.
Do you have any suggestions for improving
the chances of recovering fees in legal disputes?
If the debt instrument will be governed
by Georgia law, I advise creditors to make
sure the attorney fee provision is based on
the maximum percentage of principal and
interest allowed in Georgia, or 15 percent.
I also advise clients there are ways to plan
ahead for bankruptcy. For instance, I
advise creditors to require an express
waiver of the 10-day demand in the debt
instrument, because some bankruptcy
courts have rejected claims for fees if the
10-day demand is not served before bankruptcy, or even if it is served beforehand
but within 90 days of the bankruptcy. If a
waiver is not practical, I encourage clients
to get us involved early on, particularly if
bankruptcy is a real possibility, so that we
can make sure these laws are complied
with and maximize the chance of a fee
recovery.
KEVIN A. STINE is a partner in the Litigation Practice Section of
Gambrell & Stolz, LLP, in Atlanta, concentrating in business litigation, creditor’s rights and bankruptcy. He can be reached at
(404) 223-2207 or [email protected].
