There has been debate in the national press of late concerning “loser pays” provisions in litigation situations. Generally speaking, the “American Rule” is that each party bears its own costs, including legal fees relative to a claim, regardless of success or failure. This is at variance from the rule in England where counsel fees are regularly awarded to prevailing parties. Notwithstanding the general rule in America, there are circumstances where an opponent may be required to pay legal fees.
Nothing seems to cause as much consternation among our clients as the requirement that a person who is sued and defends successfully must bear the burden of attorney’s fees in addition to all the aggravation, time lost and emotional trauma. All we, as attorneys, can say is that the “system” does not permit recovery of such fees, irrespective of the inequity.
Certain state and federal statutes permit recovery of legal fees as part of damages. The Wage Payment and Collection Law authorizes an employee who is seeking unpaid wages to recover attorney’s fees as well as a statutory penalty of twenty-five percent of the amount in controversy if successful.
Likewise, in consumer fraud cases brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, a prevailing victim of fraud may be awarded attorney’s fees as part of damages. The court has the authority to order payment of attorney’s fees based upon a balancing of the circumstances in domestic relations cases.
Under federal law, several statutes mandate awarding of fees to prevailing parties or, in the alternative, authorize the court to award fees based upon equitable considerations. Most prominent of these types of cases are civil rights actions generally known as Section 1983 cases against municipal or governmental officers for violation of civil rights.
Attorney’s fees will also be awarded as part of the damages resulting from certain wrongful acts. For example, if an insurance company wrongfully cancels a policy, fees relating to the underlying case may be recovered. Similarly, in false arrest cases or in cases where there is a wrongful failure by an insurance carrier to defend, counsel fees incurred may be recovered as damages.
Parties to a contract may stipulate that upon default, attorney’s fees are recoverable by the non-defaulting party. The most popular use of this provision is in promissory notes and equipment leases. Banks routinely have fee shifting provisions in loan documents. They are also seen in real estate sales agreements and leases. Any contract may contain a provision requiring a losing party to pay the legal fees of a prevailing party in the event of a dispute. A carefully drafted agreement may actually serve to prevent litigation by increasing the risk of damages in the event of unsuccessful litigation.
In summary, the American rule prevails with notable exceptions as outlined above, while Congress and various state legislatures continue to study the issue.
Nothing seems to cause as much consternation among our clients as the requirement that a person who is sued and defends successfully must bear the burden of attorney’s fees in addition to all the aggravation, time lost and emotional trauma. All we, as attorneys, can say is that the “system” does not permit recovery of such fees, irrespective of the inequity.
Certain state and federal statutes permit recovery of legal fees as part of damages. The Wage Payment and Collection Law authorizes an employee who is seeking unpaid wages to recover attorney’s fees as well as a statutory penalty of twenty-five percent of the amount in controversy if successful.
Likewise, in consumer fraud cases brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, a prevailing victim of fraud may be awarded attorney’s fees as part of damages. The court has the authority to order payment of attorney’s fees based upon a balancing of the circumstances in domestic relations cases.
Under federal law, several statutes mandate awarding of fees to prevailing parties or, in the alternative, authorize the court to award fees based upon equitable considerations. Most prominent of these types of cases are civil rights actions generally known as Section 1983 cases against municipal or governmental officers for violation of civil rights.
Attorney’s fees will also be awarded as part of the damages resulting from certain wrongful acts. For example, if an insurance company wrongfully cancels a policy, fees relating to the underlying case may be recovered. Similarly, in false arrest cases or in cases where there is a wrongful failure by an insurance carrier to defend, counsel fees incurred may be recovered as damages.
Parties to a contract may stipulate that upon default, attorney’s fees are recoverable by the non-defaulting party. The most popular use of this provision is in promissory notes and equipment leases. Banks routinely have fee shifting provisions in loan documents. They are also seen in real estate sales agreements and leases. Any contract may contain a provision requiring a losing party to pay the legal fees of a prevailing party in the event of a dispute. A carefully drafted agreement may actually serve to prevent litigation by increasing the risk of damages in the event of unsuccessful litigation.
In summary, the American rule prevails with notable exceptions as outlined above, while Congress and various state legislatures continue to study the issue.
– Bill Brennan