Who Will Pay My Legal Fees?

One of the first questions a client will ask his lawyer when he is sued or when he must file suit to protect his rights is this: "Can I make that SOB pay my legal fees?" It is a reasonable question. Litigation can be expensive, and it is fair to ask, at least rhetorically, why one should have to pay out of one’s own pocket just for the vindication of her legal rights. Yet in the end, until lawyers can afford to work for free, someone will have to pay the freight.

The so-called "American Rule," which is also the Pennsylvania rule, is that in the absence of a statutory or contractual provision to the contrary, each party to a lawsuit pays his own legal fees. This is not much of a problem for a business forced to defend a claim covered by liability insurance. Typically, the business pays legal fees up to the amount of its deductible, and the insurer pays the rest. In situations where there is no insurance coverage, the costs can be considerable.

Although the business-cum-defendant usually fails to appreciate it in the moments after being served with a lawsuit, the American Rule is essentially a pro-business rule. The policy behind the rule usually goes unstated, but as a practical matter the rule tends to favor business over the consumer, and big business over small business. This is because the party with the greater ability to finance litigation up front has a tremendous advantage over a party without comparable finances. As a result, many dubious claims succeed where the defendant is simply without the funds to mount a defense, and many meritorious claims are never filed, merely for lack of funds.

A number of statutes have been enacted in Pennsylvania to shift the burden of litigation costs to the opposing party, such that one unfortunate party might ultimately be responsible for the payment of both parties’ legal fees. In Pennsylvania, the most widely available fee-shifting statute is set forth in the Pennsylvania Judicial Code at 42 Pa.C.S.A. §2503(9), which provides that a party may be awarded counsel fees when the conduct of another party in commencing a case or "otherwise" was "arbitrary, vexatious or in bad faith" -- i.e., frivolous. As a practical matter, however, while it is unfortunately commonplace for parties to assert that their opponents’ positions are frivolous, it is very rare that a case is quite so clear cut.

On its face, Section 2503(9) would appear to benefit defendants who are sued on questionable claims. In practice, Section 2503(9) is a dog with more bark than bite. Typically, even when a judge is inclined to dismiss a case as being factually or legally insufficient, that judge usually will not be inclined to say that the case is so lacking in merit to justify the imposition of both parties’ legal fees upon the plaintiff who, after all, has just lost her case if sanctions under Section 2503(9) are under discussion in the first place. Further, even when counsel fees are ultimately awarded under Section 2503(9), they will be awarded only at the very end of the case, as part of the "taxable costs." In other words, the defendant who is required to defend against a frivolous claim will have to pay his own fees up front, and will only be able to make a claim for the recovery of those fees at the conclusion of the case, often against a party with no ability to pay those fees.

Effective July 1, 2002, the Pennsylvania Rules of Civil Procedure were amended to include Rule 1023.1, et seq., which provide for various sanctions, including the award of attorneys fees if a claim or defense is presented for an improper purpose, is not warranted either by existing law or by a non-frivolous argument for the modification of an existing law, or is not likely to have evidentiary support. On paper, Rule 1023.1 would appear to be a benefit primarily to parties who are required to defend against frivolous civil actions. In practice, though, there remains a strong unwritten presumption that each party will bear her own legal fees, and judges remain understandably reluctant to depart from the "American Rule."

In most courts, judges are somewhat less reluctant to shift the responsibility for legal fees in the context of a contempt petition. Contempt petitions are commonly filed against parties alleged to have violated a court order, whether that order is an injunction, a custody order, or a property distribution order or agreement entered as part of a divorce decree. Judges do not generally take kindly to the violation of their orders, and if it is reasonably clear that a party has willfully violated a court order, it can be expected that the court will order the offending party to pay or reimburse the fees of the party who was required to seek judicial enforcement of the court order. Generally speaking, however, a court will not enforce by way of contempt an order or judgment for the payment of money damages. Accordingly, if a defendant is unable or unwilling to pay a monetary judgment, the court generally will not make him pay the legal fees the plaintiff has incurred in collection of the judgment.

Most statutes which allow for attorneys’ fees were enacted not with the idea of helping business or discouraging frivolous litigation, but with the idea of helping aggrieved individuals pay for their day in court against business or corporate defendants. Consumer statutes, such as the Pennsylvania Unfair Trace Practices and Consumer Protection Law, civil right statutes such as Federal Title VII and the Pennsylvania Human Relations Act, and employee protection statutes, such as the Pennsylvania Wage Payment and Collection Law, all provide that a plaintiff may be awarded her legal fees in addition to other damages if the plaintiff succeeds on her claim. In addition, the Pennsylvania Contractor & Subcontractor Payment Act provides for the award of counsel fees to the substantially prevailing party in any proceeding to recover payments under that Act.

The rationale behind most of these fee-shifting statutes is two-fold. First, particularly in the case of civil rights statutes, Congress and the Pennsylvania State Legislature intended to empower discrimination victims to pursue their claims by giving their attorneys some hope of being paid at the tail ends of the cases. It can be said that these statutes are actually designed to encourage litigation, with the idea being that a plaintiff who brings such claims is benefiting the public at large by attacking discrimination. These statutes allow plaintiffs who could not otherwise afford to pay their lawyer to get their day in court. Second, these fee-shifting statutes tend to produce a positive practical result. That is, by establishing a risk that business might have to pay not just the plaintiff’s claims, but also both parties’ costs of litigating a case through trial, a fee-shifting statute can give business that extra incentive to settle cases that should be settled. The question remains why this rationale should not be applied to all civil cases, and to Plaintiffs as well as Defendants.

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