Don't Bet the Business

One question I am often asked by clients who are inexperienced with the realities of litigation is “can I get the other side to pay my attorney fees” in this lawsuit? 

It’s a valid question, but the answer is nearly always the same:  “No, unless the other side previously agreed to pay your attorney fees in the event of a dispute.” Which is typically followed by, “but how can that be fair? He hurt me; I’m just responding to his wrongful actions?” Again, it’s a valid question.

In Michigan, attorney fees are governed by the “American Rule,” which was the repudiation of the “English Rule” along with many other rules and customs of the King following the Great Treason of July 4, 1776.  Under the English Rule, the losing party pays the legal fees of the winning party in a lawsuit. In practice, following the English Rule meant that only the wealthy might be able to afford the inherent risks of litigation. 

Americans tend to favor a more even playing field, including the rules applicable in a courtroom. We instead opted for a policy that does not deter anyone from bringing a lawsuit to protect their rights or interests. As such, the American Rule reads that each side in a lawsuit bears their own litigation expenses and attorney fees, regardless who wins.

There are exceptions to the American Rule. Attorney fees in litigation can be recovered if they are provided by a specific statute or court rule, some recognized common-law exception to the rule or, as is fairly common in commercial disputes, by the parties’ contract.

Commercial contracts often include a “fee shifting” provision if litigation results from a contractual dispute. A typical fee shifting provision may simply provide that “in the event of litigation concerning the subject matter of this agreement, the prevailing party is entitled to recover all costs and reasonable attorney fees incurred.” Under such a fee shifting clause, the court is authorized by the parties’ express agreement to order the losing side to pay the winning side its litigation costs and attorney fees. 

Ok, so what can go wrong with that if everyone agrees to the rule going in? A lot, in fact. It is not uncommon for significant litigation to occur when the underlying dispute is decided - merely to determine what is a “reasonable” attorney fee. 

Indeed, what is a reasonable fee calls into question a myriad of considerations, including (1) how much  time the attorney spent on the case, (2) was the issue disputed novel or difficult to deal with, (3) did the attorney employ unique skills on the client’s behalf, (4) did the attorney decline other cases because of the demands of the lawsuit, (5) what is a customarily accepted fee for similar work in that area, and a host of other concerns, all of which the court must factor into a ruling. 

Litigation over the reasonableness of a fee may require more hearings and the enlistment of expert testimony. The final resolution of what constitutes a reasonable amount can wind up resembling the very trial that triggered the fee shift in the first place. I have even seen parties dispute whether the attorney fees incurred to prove the attorney fees claimed were reasonable were themselves reasonable and therefore recoverable.

Another fertile field for attorney fee disputes is deciding who is a “prevailing party” after the verdict is read. In commercial disputes, it is quite common for claims and counterclaims to exist in the same case. When those disputes are resolved, each side might be awarded something, thereby entitling each side to claim victory.

Complicating this situation is that contractual fee shifting provisions do not typically define what it means to “prevail.” If I bring three claims, do I need to win each claim to trigger the fee shift if it is unclear whether the damages sought are the same? If I am awarded more than my opponent on his counterclaim, does that mean I prevailed, and he did not?  If I am awarded money in a business dispute from my partner, but he succeeds in gaining control of our business, did I win, or did he prevail when deciding who can recover their attorney fees and court costs?

When the parties’ contract sheds no light on who is the prevailing party, the courts sometimes look to analogous Michigan law to guide the analysis.  For example, MCL 600.2591 provides that a prevailing party is to be awarded costs and fees against a non-prevailing party who asserts a frivolous claim or defense. That statute defines a “prevailing party” as “a party who wins on the entire record.”  MCL 600.2591(3)(b).

In another context, the Michigan Court of Appeals has ruled that where there is a single cause of action, a plaintiff need not recover the full amount of damages sought in order to “prevail.” See, Van Zanten v H Vander Laan Co, Inc, 200 Mich App 139, 141; 503 NW2d 713 (1993).  In that case, the plaintiff pled three different theories to explain why she could recover damages against the defendant for a single injury. The plaintiff was only required to prevail on one of the theories pled to be deemed the prevailing party.

MCR 2.625(B) provides rules for determining the prevailing party for purposes of awarding costs. That rule states, “[t]he fact that [a] plaintiff did not obtain the total amount of damages sought does not prohibit him from being the prevailing party . . . .”

However, in McMillan v Auto Club Ins Ass’n, 195 Mich App 463, 466; 491 NW2d 593 (1992), the appellate court concluded that “where a party does not succeed on its claim, it is not a prevailing party even if its position is improved as a result of the litigation.”

Similarly, in Mitchell v Dahlberg, 215 Mich App 718, 729; 547 NW2d 74 (1996), the plaintiffs brought multiple claims, and the defendants filed a counterclaim for foreclosure. The plaintiffs’ claims were eventually arbitrated with the plaintiffs receiving a favorable award. The defendants proceeded in court with the foreclosure claim with the plaintiffs counterclaiming for a judgment on the arbitration award. 

While the trial court entered judgment on the arbitration award and denied foreclosure, the plaintiffs were ordered to pay the defendants all past-due land contract payments.  In that case, the trial court concluded that neither party prevailed, in full, and therefore neither side was entitled to recover their attorney fees.  The appellate court affirmed after finding the trial court’s ruling was not an abuse of discretion. 

Recently, in MSY Capital Partners, LLC v Premier Car Wash Company, LLC, the defendants had admitted fault and voluntarily agreed to most of the nonmonetary relief that plaintiff sought. However, the plaintiff received no monetary damages at trial. The trial court ruled, and the appellate court agreed, that there were no prevailing parties entitled to receive their attorney fees.

Going into litigation, I always counsel potential litigants that they should assume they are paying their own costs and fees. As you can see, whether opportunity presents itself in the future to shift those costs and fees to the other side is going to depend upon a number of dominoes falling in the right direction.