The Recovery of Attorney Fees in NY State Litigation

When drafting a complaint, as a matter of course, most attorneys include a cause of action for attorney fees, or at least insert a boilerplate ad damnum clause demanding recovery of attorneys’ fees. These attorneys, however, should be well aware of the fact that New York State courts will award attorney fees only in very limited circumstances. Indeed, the so-called American Rule requires that each litigant – even a successful one – bear his own attorney fees (which is the major expense of litigants). In contrast, the European (or English) Rule mandates that the losing party pay all of the winning litigant’s legal fees.1
As with most legal rules, there are exceptions to this American Rule. Courts may award attorney fees to a party where such an award is authorized by agreement between the parties, a statute, or a particular court rule. Although an award of legal fees is in derogation of common law and is strictly construed, a court may not reduce an award of counsel fees to a prevailing party in order “to err on the side of conservatism and avoid contribution toward the overpricing of litigation” if the court specifically finds that the amount of time spent was reasonable indeed, the time was appropriately documented, and the rate charged was reasonable.2
Attorney fees authorized by agreement between the parties
Inasmuch as a promise by one party to indemnify the other side for attorney fees incurred in litigation runs counter to the well-understood rule that parties are responsible for their own attorney fees, courts cannot infer a party’s intention to waive the benefit of this rule unless it is unmistakably clear from actual language in the promise.3 Provisions in agreements between parties providing for an award of attorney fees are commonly found, for example, in loan agreements, insurance contracts, purchase and sale agreements, factoring agreements, and commercial leases.
Courts will readily uphold legal fees provisions recited in contracts. Hence, a contract containing an attorney fee clause may put a signatory at significant disadvantage in the event a dispute arises. Certain contracts even provide that one party will be responsible for the legal fees of another irrespective of the dispute’s outcome.
Attorney fees authorized by statute or court rule
1. To balance the equities and avoid prejudice
Statutes providing for an award of attorney fees generally aim to avoid undue prejudice to parties who have sustained legally valid claims. For example, civil contempt carries as a fine the sum which would indemnify the injured party for the actual loss caused by the contempt, including attorney fees.4 Further, where a plaintiff has posted a bond to obtain a preliminary injunction, if the defendant wins the case on its merits, the damages awarded to the defendant (i.e., recovered under the bond) frequently can include the defendant’s pre-trial attorney fees. Notably, a defendant is not entitled to recover attorney fees incurred during the trial of plaintiff’s lawsuit on the merits where the trial would have gone forward regardless of whether the plaintiff had obtained a preliminary injunction. In other words, a defendant may recover legal fees for trying the action only with respect to procuring dissolution of the injunction itself.5
A defendant may also obtain an award of attorney fees against a tortfeasor who is obligated to indemnify the defendant for a tort committed on the plaintiff. The defendant may not, however, recover attorney fees from the tortfeasor in defendant’s prosecution of the impleader claim.6 Attorney fees may also be awarded in interpleader actions (see CPLR 1006; Metropolitan Life Ins. Co. v. Brody, 35 Misc. 2d 384, 385 [N.Y. Sup. Ct., Albany Co. 1962]), and where a plaintiff’s seizure of a chattel without notice was later found to have been wrongful (CPLR 7108[a]).
Courts occasionally grant attorney fees to a successful party upon a finding that the losing party had committed willful and egregious conduct, and that the losing party’s malicious acts caused the successful party to incur such legal fees. Indeed, plaintiffs are commonly awarded legal fees in successful actions for malicious prosecution and/ or false arrest. To be recoverable, however, the attorney fees must be proximately related to the malicious acts, and such acts must have been entirely motivated by a “disinterested” malevolence.7
Finally, a court has discretion to condition a grant of a party’s motion for leave to amend a pleading (where that moving party’s lateness in so moving is deemed inexcusable) upon the movant’s payment of the non-movant’s attorney fees incurred in responding to the amendment.8
2. To encourage a party’s enforcement of his rights via litigation
Some New York statutes permit an award of attorney fees to economically disadvantaged litigants seeking to obtain redress from the wrongful actions of others. For example, courts have required losing parties to pay for successful parties’ counsel fees where the litigation created a benefit to others.9
CPLR 909 provides that, if a judgment is rendered in favor of the class action plaintiffs, the court “may award attorney … fees to the representative of the class based on the reasonable value of legal services rendered and if justice requires, allow recovery of the amount awarded from the opponent of the class.” Similarly, section 276-a of the Debtor and Creditor Law permits an award of legal fees to the prevailing party, and CPLR 8303(a)(4) allows a court to award “to the fiduciary or to any party to an action which involves the construction of a will or an intervivos trust instrument.”
The New York State Equal Access to Justice Act permits a party to recover attorney fees and other expenses in certain successful claims against New York State. CPLR 8601(a) provides that a court may award a prevailing party, other than the state, attorney fees incurred in the action against the state “unless the court finds that the position of the state was substantially justified or that special circumstances make an award unjust.”
3. To deter frivolous lawsuits
Conversely, attorney fees may be awarded to deter frivolous lawsuits and other acts of bad faith. For example, CPLR 8303-a(a) and 22 NYCRR § 130-1.1(a) permit a court to award legal fees to a prevailing party or attorney where the losing party had asserted frivolous claims or counterclaims. Additionally, a court may impose financial sanctions upon a party or attorney who has engaged in frivolous conduct.10 Likewise, court will award attorney fees where parties have failed to act in good faith during discovery.11
Recovery of attorney fees, however, cannot be sole motivating factor for commencing a civil action The possibility of an award of legal fees exists in many instances, and offers a plaintiff the added advantage of being able to bring a claim. The award may provide incentive for an attorney to accept a case on a pro bono, modified-fee, or contingent-fee basis.12 No party, however, should ever assume that an award of fees will be forthcoming, and such assumption should never be a party’s sole motivating factor in commencing an action. In fact, a court may grant attorney fees to a defendant even after a plaintiff voluntarily discontinues the action, as was the case in Schimansky v. Nelson, 50 A.D.2d 634, 635 (3d Dept. 1975).
The lack of a generalized rule awarding attorney fees to a prevailing party in a New York civil action is frequently criticized. Indeed, an award of “costs” to a successful party – $200 for all proceedings before a note of issue is filed, $200 after a note of issue is filed, and $300 for each trial – comes far short of any party’s actual attorney fees, and bears no relationship to the actual costs of litigation.13
Gabrielle R. Schaich is a commercial litigator associated with the law firm Reisman, Peirez & Reisman, L.L.P. She is also an adjunct instructor at Queens College, where she teaches Legal Writing and Bankruptcy Law.
1. Chapel v. Mitchell, 84 N.Y.2d 345, 348 (1994); Hooper Associates, Ltd. v. ASG Computers, Inc., 74 N.Y.2d 487, 491 (1989).
2. Continental Bldg. Co. v. Town of North Salem, 211 A.D.2d 88, 95-96 (3d Dept. 1995).
3. Hooper Assocs., Ltd., 74 N.Y.2d at 492; 1199 Hous. Corp. v. Intl. Fid. Ins. Co., 14 A.D.3d 383, 385 (1st Dept. 2005).
4. Judiciary Law § 773 (providing that “[w]here it is not shown that such an actual loss or injury has been caused, a fine may be imposed, not exceeding the amount of the complainant’s costs and expenses, and $250 in addition thereto”); see Quantum Heating Services Inc. v. Austern, 121 A.D.2d 437, 438 (2d Dept. 1986); Levine v. 97 Realty Corp., 21 A.D.2d 655, 655 (1st Dept. 1964).
5. Cross Properties, Inc. v. Brook Realty Co., 76 A.D.2d 445, 458 (2d Dept. 1980); Carroll v. Kenin, 25 A.D.2d 743, 743 (1st Dept. 1966).
6. Chapel, 84 N.Y.2d at 349.
7. Sterling Natl. Bank v. Israel Discount Bank of New York, 305 A.D.2d 184, 186 (1st Dept. 2003); Harradine v. Bd. of Supervisors of Orleans County, 73 A.D.2d 118, 123 (4th Dept. 1980).
8. Mirabella v. Banco Industrial de la Republica Argentina, 34 A.D.2d 630, 631 (1st Dept. 1970); see CPLR 3025(b) (providing that a court shall freely grant leave to amend a pleading “upon such terms as may be just including the granting of costs”).
9. 24 N.Y. Jur. 2d Costs in Civil Actions § 198. Although beyond the scope of this article, civil rights actions brought under 42 USC § 1988 in both federal and state court generally result in an award of attorneys’ fees to a prevailing plaintiff. Harradine, 73 A.D.2d at 125; Young v. Toia, 66 A.D.2d 377, 379 (4th Dept. 1979).
10. CPLR 8303-a(c) (defining frivolous claims as, inter alia, claims asserted in bad faith, solely to delay or prolong the resolution of the litigation, or to harass or maliciously injure another, or claims asserted in bad faith without any reasonable basis in law or fact).
11. CPLR 3123(c) (providing for penalties, including an award of reasonable attorneys’ fees, against a party served with a notice to admit, who does not admit to the genuineness or truthfulness of an item later proved to be genuine or truthful by the other party); CPLR 3126 (permitting a court to impose penalties “as are just” upon a party who refuses to make required disclosures, which frequently includes an award of attorneys’ fees).
12. Chapel, 84 N.Y.2d at 348 (explaining that the American Rule “represents an implicit legislative judgment regarding the allocation of legal fees… [which] encourages the submission of grievances to judicial determination and provides freer and more equal access to the courts promoting democratic and libertarian principles”).
13. CPLR 8101, 8201; see CPLR 8203 (granting costs on a motion, but capped at $100). Notably, “costs” are distinct from “attorneys’ fees.” 24 N.Y. Jur. 2d Costs in Civil Actions § 197.