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Litigants have begun winning headline-making attorney fee awards, including costly judgments against business owners for everything from deceptive marketing practices and unpaid overtime wages to painting over a mural or violating a customer's civil rights. Government has taken a hit, too, paying about $700,000 to lawyers who contested San Diego’s water treatment program, and more than $400,000 against the county over flawed environmental reviews.
These awards reflect a historic shift in the law, away from what was once among the most important differences between the American and English systems of justice. It used to be that under "American Rule" both sides paid their own legal fees, win or lose. The winner's attorney was paid out of the judgment, while the loser escaped liability for the prevailing party's legal bills. This contrasted with the "English Rule," where the losing party in a civil lawsuit was liable for the winner's attorney fees, on top of the judgment.
In theory, the American Rule affords broader access to the legal system by making it more feasible to hire a lawyer. The victim of a personal injury or other civil wrong can retain an attorney on a contingent fee basis. There is no risk that a loss at trial will leave the plaintiff liable for the defendant's attorney fees, as in England.
But the American Rule is eroding as politicians enact increasing numbers of "fee-shifting" laws, in which the winner gets legal fees from the loser, on top of any judgment. Such laws often apply equally to plaintiff or defendant. Cases where a court loss can now trigger liability for an opponent's legal fees include debt collection violations, fraudulent evictions, bad faith theft of trade secrets, failure to provide required corporate or partnership records and filing a lawsuit to stifle speech.
In addition, as the awards against the city and county show, several fee-shifting laws grant attorney fees when government acts wrongly, providing recourse against agencies that violate the Public Records Act, wrongly regulate a small business, improperly deny a retirement benefit or mishandle an eminent domain proceeding. These and other attorney fee recovery laws delegate prosecution to private citizens by providing fee awards to litigants who win civil rights, consumer and environmental suits. In addition, many contracts, whether for a home purchase or a business deal, provide that if a dispute arises out of the transaction, the loser must pay the winner's attorney fees.
These new fee-shifting laws are championed by tort reform advocates, who predict that making litigation more risky for plaintiffs will eliminate frivolous lawsuits. But such laws can actually embolden attorneys to file nuisance suits. Under an Arizona fee-shifting statute, the prevailing party can recoup legal fees on any contract dispute, including oral and implied contracts. It is often too costly to litigate a minor claim long distance, but that is even more true in Arizona, where "go away money" to settle a meritless claim is likely to include the other side's legal fees.
So although the American Rule is still called a rule, there are now so many exceptions that inking a business deal or bringing a lawsuit can trigger unanticipated liabilities. In this new environment, it is wise to assess whether a transaction or court claim could harbor unseen potential debts for a future opponent's legal bills. These hidden threats are now another risk to be anticipated when doing business.
Pamela Lawton Wilson is an attorney whose practice includes land use, political and media law matters at the civil firm of Sullivan Wertz McDade & Wallace in Downtown San Diego.
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