The American Rule On Legal Fees

Written by Posted On Tuesday, 16 June 2015 11:52

Question: I obtained a home inspection before I took title to the house and in reliance on the inspection report, I bought the house. I have now discovered that the inspector missed a lot of items, and it may cost me over $20,000 to correct. If I sue the inspector and win, will I be able to recover my legal fees?

Answer: You have two hurdles. Every home inspector's report I have reviewed always contain a what is known as an exculpatory clause: "we are only liable up to the cost of the inspection". Obviously, that's not going to help you if you only paid a few hundred dollars for the inspection. The courts generally have taken the position that where the exculpatory provision is conspicuous and presented at a time when the buyer has a meaningful choice, courts have honored the provision, in the absence of gross negligence.

So unless you are able to prove gross negligence, you may lose your case.

The second hurdle is known as the American Rule of legal fees. In most cases, each side pays its own costs and lawyer. In England -- and many other countries -- if you win the case, the loser not only has to pay his/her attorney but reimburse you for your lawyer's fees.

As early as 1796, the United States Supreme Court made it clear the attorney's fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing for fees to the prevailing party. (Arcambel v.Wiseman).

What's the rationale behind the American Rule? According to a 1967 Supreme Court decision, "since litigation is at best uncertain one should not be penalized for merely defending or prosecuting a lawsuit, and that the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponent's counsel". (Fleischmann Distilling v Maier Brewing).

However, as the court noted, there are a few exceptions to this rule.

statutes: consumer protection laws generally contain provisions for the prevailing party to be awarded legal fees. Recently, the DC City Council enacted major amendments to the condominium act. One provision specifically states that unless otherwise provided in the condo legal documents, the substantially prevailing party in an action between the association and a unit owner shall be entitled to recover reasonable attorney's fees. The Council's committee report explained the rationale: "this should discourage the filing of meritless lawsuits given the risks of losing. But it should also help make parties hole when they are forced to bring legitimate claims in court." This, of course, is opposite to the rationale behind the American rule.

contracts: many contracts, such as the GCAAR Regional Sales Contract in use in the Washington metropolitan area, specifically state that the prevailing party will be entitled to receive attorneys fees from the losing party;

common fund: if, for example, an attorney brings a class action lawsuit which results in money going to a group of individuals who were members of that class, it would be unfair -- and an unjust enrichment to those class members -- if the lawyer was not able to recover the legal fees spent in pursuing that litigation, and

punishment: if a court finds that one party in a lawsuit was engaged in such outrageous conduct that punishment is necessary, the Judge has the authority to require that person to pay the legal fees of the opposing party. But from my experience and research, this is rarely used by the courts.

A handful of states have enacted legislation making any contract language granting attorney fees to be reciprocal. So that if your contract with your plumber, for example, states that the plumber will be awarded legal fees if she is successful, those laws provide that the prevailing party -- regardless of the contract language -- will be eligible to recover the fees they paid to their attorney.

This is a provision I have attempted for several years to get the DC Council to consider; thus far, however, with no success.

Rate this item
(7 votes)
Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.