Litigation is expensive. Unfortunately, there is no getting around this fact. Attorneys are specialists in a complicated field involving years of education which costs thousands of dollars. They must also pay annual state bar membership dues, malpractice insurance premiums, and comply with continuing education requirements, not to mention the other various costs of running a business. The rates attorneys charge must cover these costs of doing business.

Given the expense of litigation, many clients wonder if they can recover their attorneys’ fees. While the general rule is that each side pays its own attorneys’ fees, there are certain exceptions. 

The English Rule v. The American Rule

In England, traditionally, the loser in litigation pays the winner’s attorneys’ fees. While the American legal system has indeed borrowed many legal principles from our friends across the pond, this one stayed on the other side of the Atlantic. In America, the general rule is that each side pays its own attorneys’ fees, regardless of who prevails. This is especially true in North Carolina, where attorneys’ fees recovery is an extremely rare exception to a very solid rule.

Exceptions to the American Rule

The two exceptions to the American Rule, which apply in most – but not all – states, involve two primary factors: 1) written contract claims when the contract provides for the recovery of attorneys’ fees; and 2) state statutes that provide for the recovery of attorneys’ fees for specific claims. 

For example, North Carolina has over twenty statutes that allow for the recovery of attorneys’ fees. The following are just a few of the disputes in which a prevailing party may recover his or her attorneys’ fees in North Carolina:

• violations of the Unfair or Deceptive Trade Practices Act; 
• violations of the Wage and Hour Act;
• derivative shareholder actions;
• actions to enforce mechanic’s liens;
• business contract disputes that include reciprocal attorneys’ fees provisions (“business contracts” are contracts entered into primarily for business or commercial purposes and do not include consumer, employment, or government contracts);
• violation of the Trade Secrets Protection Act;
• breach of LLC operating agreements that include fee provisions;
• certain actions involving violations of open meetings law; 
• actions involving securities fraud;
• certain cases involving principals or teachers; and 
• proceedings involving the administration of a trust. 

Cases based on federal law and brought in federal court are governed by different statutes, which may also allow recovery of attorneys’ fees, albeit on a case-by-case basis.

Attorneys’ Fees Awards within the Court’s Discretion

Even though a statute may allow for the recovery of attorneys’ fees by the prevailing party, a court generally has significant discretion in determining the amount of the fee award. Courts often use the “lodestar method” to determine an appropriate amount. When applying the lodestar method, a court multiplies the number of hours reasonably expended by a reasonable hourly rate. The court will exclude what it believes are redundant or unnecessary hours, even if the attorney who did the work believes otherwise.

For example, if a court believes a motion could have reasonably required ten hours of work, even if the attorneys spent and billed for fifteen hours of work, the court could award fees for only ten hours. This is based on what would be deemed “reasonable” given the totality of the facts and circumstances. In making this determination, courts will frequently examine the standard hourly rates of similarly-situated attorneys in the same jurisdiction and case type.

In complex cases involving multiple claims, a court has discretion when attorneys’ fees are only recoverable for certain claims (rather than the complex case as a whole). In that scenario, the court will have to determine whether the time spent on pursuing the non-recoverable and recoverable claims overlap and whether the claims are inextricably woven or arise from a “common nucleus of law or fact.” If the claims are distinguishable and can be separated, the court would likely award fees only for the claims that allow recovery of fees. 

For example, if a statute allows for recovery of attorneys’ fees for breach of business contracts, but not for defamation, a party who prevails on both claims can only recover fees for both claims if the defamation claim arose from a common nucleus of law or fact as that of the breach of business contract claim. If the defamation occurred long after the breach of contract and was unrelated to the breach, a court would likely only award fees for the time spent pursuing or defending the breach of contract claim. Separating the fees in such a scenario is easier in theory than in practice, hence the broad discretion afforded the court. 

When to Seek Attorneys’ Fees: An Exercise in Futility?

To recover attorneys’ fees, a party must, first and foremost, win the underlying case. This could be at the end of trial or after a dispositive motion (i.e. a motion that ends the case), like a motion for summary judgment. In either event, the prevailing party seeking fees would need to file a motion for attorneys’ fees after judgment is entered in his or her favor. 

Attorneys’ fees may also be awarded in discovery disputes before the end of a case as a sanction for abuse of the discovery process. Discovery is the gathering and sharing of evidence before trial. It is meant to facilitate the resolution of cases before trial and to help the parties prepare for trial if there is no resolution. If a party abuses the discovery process by improperly withholding requested evidence, for example, a court could issue sanctions against the abuser in the amount of the fees the requester spent on attempting to obtain the information and seeking the court’s intervention. These fees are usually awarded at the same time the court rules on the discovery motion and help deter future improper behavior. 

As such, moving for fees is not always an exercise in futility – it can yield results under the right circumstances. 

Final Thoughts

Cost is an important factor in deciding to pursue litigation. Depending on the circumstances, spending $50,000 in attorneys’ fees to obtain a $10,000 judgment may seem a hollow victory. While attorneys’ fees may be recoverable in certain circumstances, it is safest, at the outset, to assume you will not be able to recover them. If you do recover attorney’s fees, it is unlikely you will recover all of your fees due to the court’s discretion to reduce the amount. It is also common practice in settlement agreements for each side to waive the right to recover attorney’s fees. 

Nonetheless, each case differs. An experienced attorney will analyze the facts of your claim to determine the likelihood of recovering your fees and, if recoverable, make sure you take the required steps to recoup them.