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Understanding the Complexities of Attorney Fee Recovery

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Litigation is risky and expensive; it should be avoided if at all possible. Some of that risk and expense can be reduced through the use of attorney fee recovery clauses or statutes. Unfortunately, attorney fee recovery does not entirely eliminate such risk or expense. This post is designed to provide a helpful introductory overview of the attorney fee recovery process, highlighting those risks and expenses that cannot be eliminated.

THE DEFAULT RULE: YOU PAY FOR YOUR OWN LAWYER

At the outset, I should note that the default rule in all U.S. jurisdictions is that litigants must bear the cost of their own legal representation without reimbursement. Litigants can either represent themselves or retain counsel, but must pay for the costs charged by such counsel themselves. The only way to alter the default rule is by way of a contract or statute, meaning the contract governing your dispute must contain an attorney fee clause or a statute governing one or more of the claims in the dispute must provide for attorney fee recovery. From there, the precise nature and extent of that attorney fee recovery depends on the language of the clause or statute, as well as a number of other factors discussed below. (This is one of the reasons to seek legal guidance during the contracting phase, rather than wait until after something has gone wrong, but that is a topic for another post.)

COSTS INHERENT IN ATTORNEY FEE RECOVERY

Even with a contract or statute providing a bases to seek recovery of attorney fees, litigants nonetheless cannot eliminate certain costs inherent in the litigation process. Below is a discussion of the most significant categories to consider.

Pay first; reimburse later. One of the more common misconceptions is that an attorney fee clause somehow means the other side will be paying your attorney fees along the way. Unfortunately, this is not the case, and represents one of the biggest problems with attorney fee recovery in general. When you hire an attorney to represent you in a case, you must compensate the attorney by the terms of the engagement letter with your attorney. That could be hourly, flat fee, contingency, unit pricing, or other models, but regardless, the obligation to pay your legal fees falls upon the client, not the opposing party. That includes the entire process until either resolution of the case either by settlement or judgment.

Expert Costs. The other major problem with attorney fee recovery is that you cannot recover expert costs unless your contract or statute expressly allows such recovery. Many cases will require the use of experts for investigation, evaluation, consultation, preparation, and ultimately trial testimony. The costs of such expert involvement can be substantial, and will typically be heavily weighted towards both the beginning of the case (investigation/evaluation) and the end of the case (preparation/testimony). However, no reimbursement is allowed for such costs as part of an attorney fee recovery, unless your particular attorney fee clause or statute expressly provides for recovery of expert costs. Most do not. Most likely, you will pay for such costs without any hope of offsetting those costs at the end of the case. Note that sometimes the experts have previously charged for fact investigation, which costs frequently can be claimed as part of your damages, but such work frequently ends before litigation begins in earnest.

Appeal. Similar to expert costs, appeal costs are not covered unless expressly referenced in your attorney fee clause or statute. The vast majority of cases never get to an appeal, but this is something to be considered when making strategic decisions. If your case goes to appeal, you will frequently bear those costs on your own.

Different claims pleaded. Most cases involve more than one technical claim pleaded in the lawsuit. Examples include breach of contract, negligence, quiet title, trespass, etc., and each claim involves slightly different elements to be proven by the evidence in the case. Attorneys commonly endeavor to plead as many possible claims for relief as possible, as a precaution against the possibility of losing one or more of the claims. Pleading only one claim at the outset of the case can be risky because if the evidence ultimately does not support that single claim, you will have lost the entire case. However, pleading multiple claims carries other risks when considering attorney fee recovery, in at least two different respects:

  • Dilution of fee award. One of the risks is that you may have the right to recover attorney fees on a single claim, meaning you can seek reimbursement for the attorney fees related to that claim, but nonetheless you may not recover the attorney fees related to the other claims for which you have no fee right. Allocating time between such claims is often very difficult. Note that when the attorney time is expended performing work that benefits all claims or multiple claims, recovery is allowed for such time, even when unrelated work is excluded.
  • Potential offsetting fees. Many perceive attorney fee recovery as an all-or-nothing proposition, meaning the overall “winner” of the case will recover attorney fees and the overall “loser” will recover nothing. Not so. Oregon requires analysis of fee recovery on a claim-by-claim basis. This means there is a “winner” and a “loser” for each claim – not the overall case – and the therefore also a “winner” and a “loser” of the right to recover attorney fees on each claim. If the case involves more than one claim for which attorney fees may be granted, the possibility exists of offsetting fee awards, meaning both sides could recover their attorney fees. When this happens, it has the net effect of negating the attorney fee recovery for the overall case “winner,” which can make a victorious case feel like a net loss.

Your results may vary. Attorney fees are awarded by judges not juries. After the trial is concluded, the attorney(s) prevailing on a claim for which attorney fee recovery is allowed will submit an attorney fee petition. The judge then reviews the petition along with any objections, and will decide the correct amount to be awarded. However, because all attorneys are slightly different in how they staff and manage their cases, the amount of time spent will be viewed differently be each judge. I have been fortunate in my fee petitions, in that most of them have been approved at 100% of the time spent, but I have had a couple instances where judges awarded less than 100% of the fees expended.

RISKS INHERENT IN ATTORNEY FEE RECOVERY

Recoverability. In the end, the right to recover attorney fees means only that you have the right to have the judge add the amount of your attorney fees to the final judgment in the case. From there, actual recovery of attorney fees depends upon the judgment debtor’s ability to pay the judgment. If your opponent has no money, an attorney fee award may have no benefit in the end.

What if you lose? No claim is 100% guaranteed to win. All claims bear a non-zero chance of being unsuccessful. For fee-based claims, that means facing the chance you might owe the other side their attorney fees in the event of a loss. If that happens, not only would you not have recovered your damages, but you would have lost the money you paid your lawyer to fight the case, and to top it off you would need to write a check to the other side to reimburse their attorney fees. Even if the chances are miniscule, the potential loss is large.

Raises stakes along the way. In cases where attorney fees could be awarded, where each party believes in the righteousness of their respective cases, they will also believe they can recover their own attorney fees. Therefore, the further into the case the parties get, the larger the demands become when accounting for attorney fees expended.

Settlement Difficulties. In addition to the entrenchment problem mentioned above, settlement discussions can become increasingly difficult throughout the case because of the increasing attorney fees expended and the difficulty in predicting exactly how much of the overall expenditure might be recoverable. Some clients believe that settlement discussions concern only the underlying claims, and that the other side will remain obligated for attorney fees after the settlement. Although such an arrangement is possible, nearly all settlement discussions contemplate payment for all claims including attorney fees. Thus, settlement discussions become more difficult along the way merely because calculation of the “net” settlement – the amount recovered after deducting the amount already spent on attorney fees and experts – complicates the discussion.

Lawyer Ego. Lawyers are prideful animals by nature. When pleading or answering a fee claim, attorneys are called upon to evaluate the odds of success and the ability to deliver a positive outcome to the client. Once that early analysis is complete, and the lawyers and clients have made litigation and financial decisions based upon that analysis, the lawyer’s personal pride becomes attached to the analysis itself. Adaptation and re-evaluation become more difficult because a changed analysis feels like a concession that the initial analysis was somehow flawed. Lawyers are human, and some humans are more capable of adaptation than others. Prosecuting or defending a fee claim requires that the lawyers be more willing to set ego aside in favor of evolving analyses, and requires that clients accept such evolving analyses.

The problem of “justice.” Rare is the perfect case. Lawyers are needed because cases are imperfect. That being said, even in the perfect case, litigation will hurt. For all of the above reasons and more, there are very few scenarios where a litigant will come out 100% unscathed. This is a flaw in the legal system itself, well beyond the scope of this post, but clients should nonetheless be aware of this inherent flaw in our system.

HOW BEST TO PROCEED

Understanding that certain risks and costs cannot be eliminated is only the first step. Litigant and lawyer must analyze the specifics applicable to each case and decide how best to proceed. Every case is different, regardless of whether or not attorney fee recovery might be allowed.

 

Aldrich Goldstein

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