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Court Enforces Exception to the American Rule on Attorneys’ Fees

It’s a rule familiar to all litigants – one that probably discourages some plaintiffs from pursuing well-founded cases where judgment is likely to be expensive and that frustrates many a defendant dragged into court with little or no basis: the so-called “American Rule” that each party to litigation pays its own attorneys’ fees.  (In contrast, the “English Rule” followed in most other countries requires the loser to pay the prevailing party’s attorneys’ fees.)

On Tuesday, the Court of Appeals offered hope for these types of litigants, affirming a trial court’s decision in McLennan v. Josey to award attorneys’ fees to a plaintiff where there was never any doubt that plaintiff was entitled to substantive relief, but defendant fought anyway.

In North Carolina, as the Court noted, the only way around the American Rule is to identify a statute that allows a party to recover attorneys’ fees – even an agreement between the parties is insufficient unless there is an applicable statute that authorizes the award. In McLennan, the plaintiff requested an award of costs and attorneys’ fees after being awarded summary judgment in a boundary dispute, relying on N.C. Gen. Stat. § 6-21.5 for the award of attorneys’ fees.  Section 6-21.5 allows the trial court to award a “reasonable attorneys’ fee” to the prevailing party “if the court finds that there was a complete absence of a justiciable issue of either law or fact raised by the losing party in any pleading” (emphasis added).  The mere fact that the party loses, even on a motion to dismiss or motion for summary judgment, is not sufficient to establish a lack of justiciable issues, and a party who argues in good faith for an extension, modification, or reversal of law cannot be required to pay attorneys’ fees under the statute.  Rather, to award fees a court must find that the party either (1) should have been aware at the time the complaint was filed that the pleading contained no justiciable issue or (2) continued to litigate after the point where he should have become aware that the pleading filed no longer contained a justiciable issue.

In McLennan, the defendants argued that their counterclaim presented a justiciable issue because they contended in good faith that they were the fee simple owners of the property at issue.  The Court disagreed, relying in large part on the trial court’s findings that the defendants knew as far back as 2009 that the deed description by which they obtained their property did not include the more than 200 acres belonging to the plaintiffs that were the subject of the boundary dispute.

It’s unclear how broad an impact the opinion will have on establishing that a party “should have been reasonably aware” of the lack of justiciable issues. The Court also noted that the fact that matters establishing title are contained in the county register of deeds vault, which made the result foreseeable and a routine application of settled law.  Moreover, the Court recognized that there are limits on the fees to which the statute extends, reversing the trial court’s order insofar as it awarded fees associated with an earlier appeal of the denial of summary judgment and fees incurred in litigating a second related case.  Nonetheless, the opinion gives at least a glimmer of hope to litigants stuck in frivolous litigation that they may, in fact, be able to recover their fees incurred.

–Liz Hedrick

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