Are Attorney’s Fees an Endangered Species?

Published January 31, 2012

The Fee Must Be Reasonable

The fundamental principle of charging for legal services, enshrined in Rule of Professional Conduct 1.5, is that the fee must be reasonable. Ancillary to this is the provision that lawyer and client should document the basics of the fee in their engagement agreement. However, is this enough to assure what the attorney’s fees will be? Or, is this becoming a gray area?

The American Rule

In the United States, we follow what is referred to as the American Rule, which states that a person pays for their own attorney’s fees regardless of the outcome of the lawsuit. This is very different from the practice followed in England, which requires the losing party to pay for the prevailing party’s attorney’s fees in addition to their own. However, the American rule does not apply when case law, a contract, or a statute (referred to as fee shifting statutes) each allows a successful litigant to obtain attorney’s fees and other expenses from the losing party. Often consumer protection laws and malpractice statutes allow the winning litigant to make such a recovery from a defendant, an award that can also be at the court’s discretion.

Excessive Attorney Fee Awards?

Increasingly, state legislatures are attacking attorney fee awards under the guise of reigning in “excessive” plaintiff litigation. A recent example comes from Wisconsin, where a lawyer who had promoted himself as the “king of lemon law” won a judgment for $12,500 against an auto dealership for unauthorized repairs and received an attorney’s fees award of $150,000. The Republican-controlled legislature was so incensed that they adopted a 2011 law signed by the governor limiting attorney’s fees at three times the judgment. With such limitations, lawyers will be less likely to tackle consumer lawsuits, the obvious intent of the statute.

Statutes Limiting Damage Awards

Other states have sought to limit damage awards (such as Texas, which instituted comprehensive tort reform well over a decade ago), but have not directly attacked attorney’s fees. Is the action in Wisconsin an indication of what some states might do? The State Bar of Wisconsin vigorously opposed the new law, pointing out “The new limits imposed by the bill may impact as many as 280 statutes and administrative rules, including many that are frequently brought by Wisconsin businesses against those who have violated the law. These statutes also are frequently used to successfully defend against frivolous claims brought against an innocent party by someone who has actually violated the law.” It goes to show that “abusive” attorney’s fees can be a matter of whose ox is being gored – and pointing out the business advantages may not be enough to prevent similar actions elsewhere.

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Audience type: Associates, Large Law Firms, Small Law Firms, Sole Practitioners