LEGAL FEES IN NEW YORK: WHEN CAN YOU RECOVER?
In filing a lawsuit, a prospective plaintiff ought to be aware of the cost of litigation, especially the cost of hiring an attorney. To help these prospective plaintiffs, most lawyers will include a cause of action for legal fees. This cause of action would force the hypothetical defendant to pay the legal fees of the plaintiff.
Unfortunately, in New York, the plaintiff can only win legal fees in very limited circumstances. This comes from a fundamental difference between American law and European law. In America, the plaintiff typically must pay for their own legal fees, even if they win the lawsuit. In Europe, on the other hand, the losing party typically pays the winning litigant’s legal fees. This so-called American rule has its history in colonial legislation, and is the rule in every state except for Alaska.
However, New York has two broad exceptions to the American rule: (1) if there is an agreement between the parties that the legal fees will be apportioned to the loser of the lawsuit, or (2) if a statute or court rule has otherwise authorized shifting legal fees.
The process is fairly simple if the parties have an agreement in writing. If our hypothetical plaintiff and hypothetical defendant have signed an agreement and defendant breaches, the court will look at what was written in the contract to determine if legal fees can shift. This is why many commercial contracts will include such a provision. Some contracts may even provide that one party is responsible for legal fees regardless of the outcome of any dispute. However, if there’s nothing determinative within the contract, the court may also consider relevant statutes or court rules.
There are several situations wherein a court order may require the losing party to pay for the winner’s legal fees. For example, if the court determines our hypothetical plaintiff is bringing a frivolous claim (one that the plaintiff knows is without legal merit or factual basis), the court can order the plaintiff to pay the defendant’s legal fees.
The situations where a court can order legal fees is usually related to a certain statute. For example, a N.Y. Real Prop. Law § 234 allows courts to compel a landlord to pay legal fees to a tenant in a landlord/tenant case if the landlord would have recovered those fees had they been successful. An example of this statute being applied is the 2021 case Isaly-Liceaga v. Pickarski. 199 A.D.3d 413, 153 N.Y.S.3d 847 (2021). Here the Supreme Court of New York found that the defendant tenant was the prevailing party and therefore should have been awarded attorney’s fees under the statute.
Perhaps more prominent is the federal Fair Labor Standards Act (commonly known as the FLSA). The FLSA states that an employer who violates the Act “shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and the cost of the action.” The District Court cited this clause in the 2016 case Steele v. Leasing Enterprises, Ltd. In Steele, the Circuit Court found that while the District Court could determine what was reasonable, they did not have discretion to deny a prevailing party attorneys’ fees. Steele v. Leasing Enterprises, Ltd., 826 F.3d 237, 249 (5th Cir. 2016). This means that if our hypothetical plaintiff brought an action under FLSA and prevailed, our plaintiff would automatically be awarded attorneys’ fees.
Another significant example of statutorily based attorney shifting comes from the Lanham Act, which addresses copyright infringement. As opposed to the FLSA, which strongly protects a plaintiff’s ability to recover legal fees, the Lanham Act is vague. The Lanham Act states: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” While the Act doesn’t tell us what is considered an “exceptional” case, some key decisions do. Notably, in Octane Fitness, LLC v. ICON Health & Fitness, Inc., the Supreme Court of the United States held that an “exceptional” case was “simply one that stands out from the others” regarding either the strength of a party’s litigating position or the “unreasonable” way the case was litigated. Octane Fitness, LLC v. ICON Health & Fitness, Inc, 572 U.S. 545, 134 S. Ct. 1749, 188 L. Ed. 2d 816 (2014).
So, what does this mean for our hypothetical plaintiff? It means that to win attorney’s fees in a suit brought under the Lanham Act, our hypothetical plaintiff must show that either the strength of one party’s litigating position was exceptional or that the case was litigated in a manner the court deems to be exceptional. The vagueness of this test shows that winning legal fees under the Lanham Act is more difficult than under the FLSA or various state statutes.
These examples go to show the variety of situations wherein our hypothetical plaintiff may be able to recover legal fees from our hypothetical defendant, despite the long-standing American rule. If a statute permits, a court can supersede the American rule and force the losing party to pay legal fees. If you are considering bringing a lawsuit and have a question regarding legal fees, it is best to contact your attorney to determine which party will be required to pay legal fees.
Contribution by Samuel Caldarone