Attorney Fee Recovery
One of the most frustrating aspects of being involved in a legal dispute is the cost of paying your attorney. This article discusses some of the theories governing recovery of attorneys’ fees in a legal dispute.
The legal right to recover attorneys’ fees is very limited in California and in the United States. There are two basic theories governing the issue: the “English Rule” and the “American Rule”. Each state in the United States follows one of these two paradigms, with exceptions to each particular state’s application of the relevant rule to a particular type of claim. The “English Rule” states that the prevailing party recovers its attorneys’ fees from the non-prevailing party. The “American Rule” states that each party pays its own attorneys’ fees, regardless of who is the prevailing party.
In California, the “American Rule” is generally applied, with a few modifications. In California, generally, each party pays its own attorneys’ fees, no matter who is the prevailing party unless there is either a contract at issue in the lawsuit containing an attorneys’ fee clause or if the lawsuit involves a statute which provides for a recovery of attorneys’ fees to the prevailing party. The legal term “prevailing party” usually means the party that obtains a favorable judgment at a trial. However, in California, if a lawsuit has been filed and the Plaintiff dismisses its case before a judgment has been entered, then the defendant becomes the “prevailing party”. Therefore, to be a “prevailing party” entitled to a recovery of your attorneys’ fees in California, there must be both (1) a lawsuit that has been filed in Court in which either a judgment has been entered in your favor or a dismissal filed, and (2) either a contract clause providing for a recovery of attorneys’ fees in the event a lawsuit must be filed to enforce the contract, or a statute governing the specific cause of action which allows for a recovery of attorneys’ fees to a party enforcing its rights under the statute.
There are thus conditions to recover your attorneys’ fees in a legal matter, and attorneys’ fees are never recovered in California unless a lawsuit has been filed. That is why most written contracts include a provision allowing for a recovery of attorneys’ fees to the person forced to file a lawsuit to enforce the terms of the contract.
But even if a lawsuit has been filed and there is a “prevailing party”, there is still the issue of how much of your attorneys’ fees can be recovered: Is the prevailing party entitled to recover its “actual” attorneys’ fees or its “reasonable” attorneys’ fees? If the contract or statute is silent on this point, then the prevailing party is entitled to recover only the lesser valued “reasonable” attorneys’ fees. Whether the prevailing party is entitled to recover its actual attorneys’ fees or only its reasonable attorneys’ fees, the amount of those fees still remains the subject of post-trial motions on issues such as whether the specific work done by the attorney for the prevailing party was necessary for the particular case.
Thus, even if a prevailing party is entitled to a recovery of its actual attorneys’ fees, the prevailing party will likely not recover the amount actually paid to its attorney. Furthermore, if a lawsuit settles before a judgment is entered (even if the trial has commenced), it is common practice that each of the parties waives its right to recover its attorneys’ fees from the other party as one of the negotiated settlement terms. In fact, it is my opinion that the several limitations on recovering the total amount of attorneys’ fees paid by a party is a huge motivating factor in negotiating the settlement of the case.