Traditionally, the “American Rule” has prevailed in New Jersey, meaning each side pays their own legal fees in a lawsuit. (This is contrasted with the “British Rule” where the loser of the litigation pays all fees.) There are public policy reasons for the American Rule (from In re Niles Trust, 176 N.J. 282, 294 (2003)):
- Unrestricted access to the courts for all persons;
- Ensuring equity by not penalizing persons for exercising their right to litigate a dispute, even if they should lose; and
- Administrative convenience.
The primary argument made for the British Rule is that shifting the burden of all legal fees to the loser will restrict cases filed to those most important — the risk of losing a marginal case is not worth the time and expense. Courts have limited resources and the British Rule acts to optimize the use of those resources.
New Jersey has a number of “public policy” fee shifting statutes and common law bases for fee shifting. In these cases, should the plaintiff prevail the defendant would be liable for the plaintiff’s attorneys fees and costs. Some of them are:
- Frivolous litigation
- Wrongfully evicted tenant
- Failure to comply with notice provisions of the alimony termination statute
- Law Against Discrimination actions (and for the defendant in unsuccessful LAD actions brought in bad faith)
- Claims under the NJ Civil Rights Act
- Insurance Fraud
- Family Leave Act violations
- Conscientious Employee Protection Act claims (and for the defendant where CEPA claims are baseless and are not dropped timely)
- Health Care Professional Responsibility and Reporting Enhancement Act violations (to the State)
- Mistaken imprisonment
- Permanent injunctions under the NJ Antitrust Act
- Consumer Protection Leasing Act violations
- Tort Claims Act
- Consumer Fraud Act
- Will contests
The logic behind fee-shifting statutes is to make bringing a lawsuit easier in cases of allegedly egregious conduct.
The NJ Supreme Court recently created another fee-shifting situation in Innes v. Marzano-Lesnevich (A-16-14). The underlying case in this malpractice action was a divorce. In a nutshell, the wife was a citizen of Spain and the daughter was a dual citizen of Spain and the US. The parties reached an agreement whereby the daughter would stay in the US and her passports were to be held in escrow by the wife’s attorney only to be released upon the husband’s written permission. She changed attorneys to the defendant in this case who gave the passport back to the wife. The wife and daughter left the country for Spain in 2005 where they remain. The husband is unable to even contact his daughter.
The husband sued the attorney for damages and attorneys fees. The Supreme Court, in a 5-2 split decision, granted the attorneys fees to the husband. While the court reaffirmed its support of the American Rule, in this case, the defendants had a trustee and fiduciary duty to the husband (even though they were not his attorneys) and intentionally breached that duty.
Fee shifting cases, as I’ve mentioned before, are good cases to mediate. Even small damages can turn into huge liabilities. Many fee shifting cases involve experts and complexity requiring a lot of depositions — expensive cases for both sides even without the risk of losing and paying the other side’s fees.
If you have a fee-shifting case, contact me to find out more about mediation.