As crass as it may sound, the key to a successful law practice is getting paid. Generally, each party pays its own attorney fees, regardless of who wins. But there are some important exceptions to this rule and all attorneys anxious to get paid should be well-versed in them.
California follows the “American Rule,” as codified in CCP §1021, under which each party generally agrees on and pays its own attorney fees. In case you were wondering, this rule is called the “American Rule” to distinguish it from the approach taken in England, in which attorney fees are normally awarded to the prevailing party (the “English Rule”).
The effect of the American Rule has been diluted by the exceptions found in statutes, contracts, and equitable doctrines:
Statutes. There are many statutes that now provide for the award of attorney fees in particular circumstances. These so-called “fee-shifting statutes,” don’t apply to broad categories of cases, such as routine personal injury actions, but most litigation involving important statutory rights does raise the possibility that fees may be shifted from the losing to the prevailing party. You’ll need to explore this possibility because it can change the stakes and tactics in any litigation dramatically.
Contracts. Many contracts also provide for fee shifting. Again, this is one of the first things you should explore when handling a case involving a written contract. Although the terms of the fee-shifting provision generally control its meaning and scope, be aware of CC §1717, which makes all such fee provisions reciprocal in actions brought to enforce the contract and also imposes certain nonwaivable terms; for example, there can be no prevailing party (and hence no fee award) if the action is voluntarily dismissed before trial.
Equitable doctrines. The American Rule is also subject to several judicially created exceptions, including:
- The “private attorney general” doctrine (i.e., courts can exercise their inherent equitable authority and award fees to litigants who successfully pursue public interest litigation that vindicates important constitutional rights; codified and extended by CCP §1021.5);
- The “common fund” doctrine (i.e., when a litigant’s efforts create or preserve a fund from which others derive benefits, the litigant may require those passive beneficiaries to bear a fair share of the litigation costs by paying those costs directly out of the fund);
- The “substantial benefit” doctrine (extends the common fund doctrine to litigation that has not resulted in a pecuniary recovery but has resulted in substantial benefit to an identifiable class of persons);
- The “third party tort” or “tort of another” doctrine (i.e., attorney fees may be awarded in certain instances when a party commits a wrongful act that he or she can reasonably foresee would cause another to defend or prosecute a lawsuit involving a third party); and
- The doctrine of equitable apportionment of attorney fees (i.e., party who incurs attorney fees in winning a suit that creates a fund from which others derive benefits may require those passive beneficiaries to bear a fair share of the litigation costs).
All of these exceptions are explained in individual chapters in CEB’s California Attorney Fee Awards.
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