We got a lot of good follow-up questions last week after our webinar covering cannabis litigation in the current down market. One of them related to the recovery of attorneys’ fees and how likely that is to happen. Potential recovery of attorneys’ fees is an important consideration at the outset of any case, but can especially make an impact on whether to pursue a lawsuit or not when businesses are hurting. It not only impacts a party’s overall ability to litigate (on the hope of recovering the costs later on), but also impacts the entire dynamic of the case because the stakes are higher.
The general “American Rule” for attorneys’ fees
Under the American Rule, which is followed in most states, the default is that each party is responsible for its own fees, regardless of the outcome of the case. The theory behind this default rule is that it would promote access to the courts and avoid situations where a party may essentially financially bully another party by driving up litigation costs and creating the threat that one will foot the entire bill.
Exceptions to the general rule
Of course, there are situations where recovery of attorneys’ fees is granted:
- Contractual agreements. Parties may include attorneys’ fees clauses in their agreements that allow for the recovery of attorneys’ fees by the prevailing party in any dispute relating to those agreements. We’ve seen the gambit of these provisions – some are good and some are really bad. If this is the intention by both sides, it’s important to make sure these kinds of provisions are fully negotiated and clear.
- Arbitration agreements and rules. In a similar vein, whether recovery of attorneys’ fees in the arbitration setting is possible depends on the arbitration agreement and maybe the rules of the arbitration forum. For example, the American Arbitration Association (AAA) has its own set of guidelines on attorneys’ fees and specific procedures for seeking them.
- Statutes. Sometimes, statutes allow for awards of attorneys’ fees to the prevailing party. For example, consumer protection laws or intellectual property infringement laws allow for them as a matter of law.
- “Equitable” doctrines. Sometimes, certain situations in litigation can provide for recovery of attorneys’ fees related to a specific procedural dispute. For example, if a party isn’t complying with their discovery obligations, a motion to compel is often accompanied by a request for attorneys’ fees in preparing that motion. This is to discourage bad faith behavior by parties in active litigation.
Court/Arbitrator considerations for attorneys’ fees requests
Most situations call for an award of attorneys’ fees to the “prevailing party.” Unfortunately, what constitutes a prevailing party often isn’t clear, and some of it can change depending on your decisionmaker. The prevailing party is generally the party who succeeds on a significant portion of its claims or defenses. But where there are multiple claims and multiple damages amounts, this gets amorphous.
And, even where fees are deemed recoverable, the judge or arbitrator will often exercise their discretion to determine whether the fees requested are reasonable. Factors we know to be considered include: the complexity of the case, the experience of the attorneys, and whether the amount of time spent was reasonable. It’s not uncommon for decisionmakers to decide to cut some amount of time billed, or reduce the hourly rate of an attorney to decrease the fee award. So, while some recovery is of course better than no recovery, it’s important to be prepared for that.
Understanding the rules and exceptions governing the recovery of attorneys’ fees is important for any lawsuit. Parties entering into cannabis litigation or arbitration should consult with experienced legal counsel to ensure they’re clear on whether recovery of their attorneys’ fees is possible, in order to make informed decisions down the road.