Understanding Attorney Fees and Fee Suits
Legal fees are perhaps the greatest expenditure for any litigant. When fighting a lawsuit, it is usually the case that one has to hire an attorney to represent them, pay for depositions, pay to get documents from third parties, pay for records, pay for court reporters, pay for service, pay to defend or pursue motions, pay for investigators, and more. A lawsuit is not cheap by any means. Of course, if you lose the suit, the person who lost has to pay their own legal fees. If you win, the person who lost has to pay your legal fees. This does not necessarily mean the person has to pay the entire amount of fees that were spent. It is up to the court to determine how much legal fees should be spent. However, this rarely leads to one side paying for the entire amount of the fees – usually the person who loses has to pay a percentage of the fees that were actually spent.
There are also times when a person is supposed to receive fees from winning a lawsuit , but they cannot seem to collect them. This is usually when the person who lost files an appeal. This occurs in almost all cases where the person who loses claims their rights were denied by the court. Usually, the court will order a person to pay legal fees even if it is on hold pending the appeal outcome. However, it is not uncommon for the losing party to refuse to pay legal fees. In these instances, the person owed the fees must file a motion to force the other party to pay their fees. These fees can also get very high, although, in these instances, the rules vary from one court to another. Typically, the fees that are spent during the appeal are lower than the amount that the pleading party would spend in the case itself.
When it comes to investigating legal fees, lawsuits and mediation, it is up to the attorney to fight on your behalf. So long as the facts are correct and the law is on your side, then you may be able to get what you are owed.
When Can You Sue for Attorney Fees?
You may be able to recover your legal fees for a breach of contract, fraud case, will contest, divorce, bankruptcy matter, or other civil litigation that you were forced to litigate due to the wrongful actions of the other party (in most cases). In a breach of contract case, you may be able to recover your legal fees if the other party was the first to substantially breach the contract. See Cohen v. Lotus Cars, Inc., 41 Cal.App.4th 981, 988 (1995) ("There is an exception to this general rule in breach of contract actions where the party who successfully enforced the contract was the party first to breach the contract … .); see also US Ecology, Inc. v. State of California, 129 Cal.App.4th 887 (2005). However, there has been some question about the validity of this exception. See West Coast Home Builders v. Aydin, 192 Cal.App.4th 317 (2011), which held that there is no exception. However, the court later admitted that it was wrong in West Coast Home Builders. See Bay Cities Paving & Grading, Inc. v. Lawyers’ Mutual Ins. Co., 5 Cal.App.4th 62, 79-80 (1992) ("We noted in West Coast Home Builders v. Aydin [citation], that the California chief commentator on contract law, Professor Witkin, disagreed with our conclusion, noting that in Cohen [citation], the only California case that has considered the rule, the result is entirely consistent with general principles relating to breach of contract."). In other words, this means that Professor Witkin and other commentators believe that Cohen is a better statement of the law. This is the case even if the contract has no attorney fee provision and the other side is the first to breach the contract. Manocherian v. Dais Cohen Enterprises, Inc., 207 Cal.App.3d 749, 763 (1989). "The reason for making an exception when a party is the first to breach the contract is that the other party should not have to incur expenses complying with a breached obligation under the contract." Id. Parties can usually, but not always, agree that one party or the other can recover its legal fees. See Burch v. Regis Corp., 45 Cal.4th 1, 12-13 (2008). Also, the parties can agree that they each get their legal fees back. See Ahlstrom v. Superior Court, 172 Cal.App.4th 1117, 1124 (2009). Furthermore, the parties can agree that the winner of the case gets their legal fees back. See Hsu v. Abbara, 9 Cal.4th 811, 817-818 (1995). A party can also usually recover its legal fees in a fraud case if it has pled it properly. Estate of Fain v. Nixon Peabody LLP, 217 Cal.App.4th 994, 1004 (2013) ("A common exception to the general rule is fraud … ."); see also Rosenman v. Superior Court, 205 Cal.App.3d 53 (1988); see also Cal. Civil Code section 1717. In a will contest, the person or entity prevailing in the will contest can recover its legal fees against the losing party if certain requirements are met. See Cal. Probate Code section 17211. In other cases like a bankruptcy case or fraud case, a party may be able to recover its legal fees because it had to hire and pay an attorney to keep it from being victimized further. See Alhambra School Dist. v. County of L.A., 28 Cal.App. 509, 513 (1915) ("To allow [the party] to take some affirmative action which might constrain [the defendant] to make restitution would hardly be equitable. We repeat, all the circumstances indicate that the whole situation was occasioned by the fraud, and that [the party] was compelled to take the action against [the defendant]. To place the expense upon [the party] would allow the wrongdoer to profit by its wrong.").
How to Prepare for an Attorney Fee Suit
Lawsuits for legal fees can be tricky business. It is not always enough to know that you are entitled to some fee recovery. Instead, there are several steps to starting a lawsuit. And even if that lawsuit is successful, how much does your own lawyer get? There can be multiple layers of legal fees, with the amount at each layer sometimes being fixed and other times being based on the amount of benefits obtained. The first step is to evaluate the possible cases. In many instances, you may have to ask another law firm to represent you in your fee lawsuit. That is, before you even file a case against the defendant, you may have to retain local counsel to sue your own previous attorneys and/or experts. This is an important consideration, and may be the type of issue where a consultation with a Florida Bar Board Certified Specialist in Legal Malpractice may be of assistance. Next, as part of your new attorney consultation, you should begin gathering the documents that your new attorney will need for the case. Sometimes, your new attorney will take your case on a contingency fee basis, sometimes they will charge you a flat fee, and sometimes they will charge you a retainer then bill at their normal hourly rates. The next step is to discuss timing.
Even dueling opponents on opposite sides of legal fee lawsuits are often willing to set aside one day for depositions, and ask for no papers to be filed that day, in order that everyone can focus on the matter at hand and to save time. In most instances, again, there needs to be a discussion of whether the case is worth pursuing on a pure contingency fee or not, and what the settlement potential is early on. During initial meetings, you and your new attorney will need to assess what other depositions and information might be required, such as obtaining records from other individual or law firm defendants.
Attorney Fee Suing Grounds
The legal grounds often used to justify a lawsuit for attorney’s fees and costs include: (a) the enforceability of a contractual agreement for the award of attorney’s fees, (b) breach of contract, (c) fraud, (d) fraud in the inducement, (e) fraud in the performance, (f) breach of fiduciary duty, and (g) breach of the covenant of good faith and fair dealing.
The application of these legal theories to attorney’s fee- and cost-recovery cases is not always straightforward. For example, given the "American rule" that each side to a lawsuit is responsible for paying its own attorney’s fees and costs, a contract provision that calls for fees and costs to be paid to only one party may be considered an exception to the rule, and therefore enforceable. The enforceability of such provisions depends on whether California’s Civil Code, Section 1717 applies; Section 1717 codifies an exception to the American rule, but that exception only apples to attorney’s fees provisions contained in contracts that involve an "action on a contract," which is defined as the action in which attorney’s fees are awarded by the court.
An exception to this rule also exists in the context of fiduciary relationships, which impose a duty of utmost good faith and loyalty. Fee agreements with clients in the context of fiduciary relationships, therefore, must be strictly construed to protect the client. The fiduciary relationship may arise in two contexts: (a) the relationship between directors and their corporation or non-profit corporation, and (b) the relationship between partners.
The Court Process for Attorney Fee Suits
Most legal fee lawsuits are filed in state small claims or municipal courts, with California having the most user friendly system. The typical systems are very efficient and often do not involve any discovery or other time consuming procedures. If you sue in a small claims or municipal court, there is no jury trial; the case is heard by a judge. The procedures are very informal, but the ruling of a municipal or small claims judge is final, subject to appeal. Most judges, however, will require you to present evidence. As noted above, the judge will hardly (if ever) require you to bring witnesses. In fact, the judge will likely ask you and the lawyer questions to clarify the issues.
A common defense in legal fee disputes is to claim that you owe the lawyer some other sums that exceed the amount you have claimed. To refute this, you need to bring evidence of all payments made to your lawyer. The best evidence is a cancelled check, but a bank ledger statement, along with a bookkeeper testimony will suffice. You also need to show all services that your lawyer said he or she performed. This task can be particularly difficult as lawyers’ time records are not always easy to decipher.
If your lawyer asserts that you owed him for some services not rendered in your case , you may need witnesses who would testify to his performance in those cases. With just one or two witnesses, you should be able to prove your case in a small claims court.
This entire process makes the legal fee lawsuit a simple matter of showing your cancelled checks, account statements and testimony. In a regular civil court, the process can be more convoluted. However, because the parties to legal fee or malpractice suits know the game all too well, one of the defendants will usually demand that you submit the case to arbitration. In California, you must request arbitration of your case, and if that request is made in a timely manner and the other side agrees to arbitration, a trial is not permissible. The other party must agree to arbitration, as this is a condition precedent to filing a lawsuit. Thus, the judge often allows you to file the lawsuit only when the lawyer and you cannot agree on an arbitrator or the process of selecting an arbitrator.
In arbitration, the judge may still require witnesses. However, in California, a master fee schedule is often employed. Thus, it is reasonably cost effective to sue your lawyer for legal fees. In fact, the State Bar Association has a new office whose sole purpose is to help you with a legal fee dispute.
Outcome and Recovery of Attorney Fees
If a lawsuit is filed for legal fees, the potential outcomes are full recovery, partial recovery and denial. Many factors will determine whether the court decides to award no fees, a portion of the fees, or all of them. The general rule is that in the case of a breach of contract, fees aren’t recoverable, even if a fee shifting provision exists. Whether or not the party seeking legal fees is the prevailing party will also determine if the party can recoup the legal fees.
The big caveat to remember is that as the party filing the suit or the party defending the lawsuit for legal fees, you cannot reasonably expect to be awarded all, or even any, of the fees you incur. The court will likely determine how many hours you actually worked on the case as opposed to how many hours you claimed to have worked. During the lawsuit, the parties will need to submit exhibits with their billing statements and provide testimony in regards to the amount of fees they should be awarded. As a party to the suit, you should keep that in mind when constructing your billing records. You must have sufficient supporting documents and testimony to establish the work did actually take place. Furthermore, if the court determines that an attorney’s work was unnecessary or unreasonable, the court will reduce the fees accordingly.
Attorney Fee Suit Pitfalls to Watch For in Clause Language
Here are some best practices, tips and other important considerations when it comes to drafting these fee clauses in contracts:
Do NOT rely on the bad faith standard to get you a legal fees award
Even if your state adheres to the law that a party must act in good faith to be entitled to contractual attorneys fees, others do not. Therefore, if even the bad faith standard is not there, you are unlikely to get an award of your attorneys fees even if you win.
Indemnification clause not necessary
As long as you have the legal fees clause in your contract, you technically do not need an indemnification clause specifically covering legal fees. But that is often included anyway in case questions could arise about whether the legal fees clause applies to attorneys fees incurred in a suit to cancel or reform the contract.
Limiting the scope of a legal fees provision
Make sure that when you define the scope of the legal fees clause, everyone is crystal clear about what you mean. If you just put in a standard sentence saying the losing party will pay the prevailing party’s legal fees – is that the plaintiff’s and defendant’s fees if someone sues in court, or just the defendant’s fees in a collection action? Make sure the scope is defined accurately and in detail so the other side is on notice of the potential liability.
Limiting "prevailing parties" recovery
For many clients, they only want their legal fees for a successful summary judgment motion. They may not want their legal fees whenever they just win some motions. If you want to limit recovery of your legal fees, you have to specify that in your clause, for instance stating that a "prevailing party" does not include the party who makes costly but unsuccessful motions, such as motions for a motion to strike, or who simply wins a discovery motion.
Fee clauses should apply to collection action
Your legal fees clause should extend to any action to collect the legal fees. If it doesn’t, you will not see a dime for the legal fees you incurred trying to collect the judgment for your contractual fees.
Fees for appeal
If the loser has to pay the prevailing party’s legal fees, that is supposed to include the other side’s appeal. But sometimes it is unclear in the clause. So just spell out that you want legal fees paid for fees incurred on appeal.
Choosing an Attorney
It is very important to hire a competent and qualified attorney to represent you in bringing a suit for legal fees and costs. Just as with other types of personal injury litigation, the opposing law firm will have top tier legal representation and present a very formidable defense to your case with a client’s money on the line. Make sure the attorney you retain will give your case the same type of qualified representation you would expect from a consumer of litigation services.
The following tips and questions are offered as a guide to selecting qualified legal representation for a legal fees or costs recovery case:
- Hire a litigator. Avoid firms that only dabble in litigation; it’s critical to have someone experienced and knowledgeable in litigation if you want to bring a successful case within the confines of the applicable statute of limitations period. The opposing law firm will not produce the case files nor provide their file until the case is filed and the time for producing the case files under subpoena expires.
- Look for professionals experienced with legal fee dispute cases. Not all litigation attorneys are equally qualified to handle this type of case, and some firms focus energy on general litigation. If a firm has no previous experience with cases like yours, you should expect that your attorney will need some extra time to come up to speed on the basic law applicable to legal fees and costs disputes .
- Request an itemized estimate of fees necessary to recover legal fees and costs. Be sure to review the estimate carefully. Ask your attorney questions if you do not understand something. Don’t be afraid to ask how your case compares to similar types of cases previously litigated by your attorney or law firm.
- Will the attorney work on a contingency basis? Most legal fees and costs recovery cases are taken on a contingency basis. You can always assure yourself that the attorney you’re interviewing will simply not work on your case at all if they sell you on the idea that it would not be too much effort for the firm to do your case on a contingency basis. It’s not a good sign if the attorney insists that you sign an engagement letter containing a provision stating that you agree to pay additional hourly fees over and above the contingency fee, if the case fails at or during arbitration.
- Will the attorney charge you a retainer fee? There’s no reason you should be asked to pay any money up front, so long as you enter into a contingency fee agreement. Finally, just like any other major decision, you owe it to yourself to interview any number of attorneys to find one that feels right and seems comfortable fulfilling the role of advocate for your cause, and has the experience and qualifications to pursue a legal fees recovery case.