Commercial Litigation and Arbitration

History of Prevailing Party Attorneys’ Fees (US vs. UK) in a Few Sentences — Good Quotes: (1) District Court Doesn’t Address All Factors; (2) Sanctions: Absence of Dismissal Motion Undercuts Claim Case Was Frivolous from Outset

Gibson v. Solideal USA, Inc., 2012 U.S. App. LEXIS 14415 (6th Cir. July 10, 2012):

It is true that some jurisdictions routinely award fees to the prevailing party.

Footnote 1. In Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714 (1967), the Supreme Court discussed one such example:

As early as 1278, the courts of England were authorized to award counsel fees to successful plaintiffs in litigation. Similarly, since 1607 English courts have been empowered to award counsel fees to defendants in all actions where such awards might be made to plaintiffs. Rules governing administration of these and related provisions have developed over the years. It is now customary in England, after litigation of substantive claims has terminated, to conduct separate hearings before special 'taxing Masters' in order to determine the appropriateness and the size of an award of counsel fees. To prevent the ancillary proceedings from becoming unduly protracted and burdensome, fees which may be included in an award are usually prescribed, even including the amounts that may be recovered for letters drafted on behalf of a client.

Id. at 717 (footnotes omitted).

Not so here. Courts in the United States have repeatedly rejected such an approach in favor of the long-established "American Rule," under which "the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser," absent some statute or enforceable contract providing therefor. Alyeska Pipeline Svc. Co. v. Wilderness Soc'y, 421 U.S. 240, 247 (1975); Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717-18 (1967) (restating the argument that "since litigation is at best uncertain one should not be penalized for merely defending or prosecuting a lawsuit, and that the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponents' counsel") (citing, inter alia, Arcambel v. Wiseman, 3 U.S. 306 (1796)). Nevertheless, Congress has "made specific and explicit provisions for the allowance of attorneys' fees under selected statutes granting or protecting various federal rights . . . [and] a court may assess attorney fees against a party under the court's inherent powers when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons." BDT Prods., Inc. v. Lexmark Int'l, Inc., 602 F.3d 742, 752 (6th Cir. 2010) (quotations omitted); see, e.g., Chambers v. NASCO, Inc., 501 U.S. 32, 52-53 (1991) (holding that an assessment of attorneys fees pursuant to a court's inherent power and the imposition of sanctions pursuant to Rule 11 do not constitute the prohibited fee-shifting schemes of the kind contemplated in Alyeska). Apparently cognizant of these provisions, Solideal asserts on appeal that it is entitled to attorney's fees and expenses under Federal Rules of Civil Procedure 11 and 54, 28 U.S.C. § 1927, and the court's inherent powers, and that the district court abused its discretion in declining to make such an award here. We disagree.

Rule 11

Solideal contends that the district court's statement that this case was not "frivolous at the outset" and did not involve bad faith constituted the application of an incorrect legal standard. However, these findings were an explanation of the court's rationale, not an exhaustive recitation of the Rule 11 standard. The district court determined that the case was not frivolous when filed, and on consideration of Solideal's dispositive motion, it determined that "the appropriate action" was dismissal without further sanctions. Consistent with the court's recitation and implicit rejection of Solideal's position that the lawsuit "amounted to harassment" and "contained allegations which were unlikely to have any evidentiary support," the court's decision addresses the relevant Rule 11 considerations and does not apply an erroneous legal standard. See Merritt, 613 F.3d at 626.

Solideal also maintains that the district court clearly erred in refusing to award fees because an inquiry conducted by any reasonably prudent attorney would have revealed that Gibson's claim was meritless. Solideal's position is puzzling. If, as Solideal now contends, Gibson's complaint was obviously foreclosed by existing law, it should have filed a motion to dismiss for failure to state a claim rather than incur the significant discovery expenses it now seeks to recover. See Jackson v. Law Firm of O'Hara, Ruberg, Osborne and Taylor, 875 F.2d 1224, 1230 (6th Cir. 1989) ("A party who seeks attorney's fees as a Rule 11 sanction must mitigate damages by acting promptly and avoiding any unnecessary expenses in responding to papers that violate the rule."). Moreover, it is not at all clear that Gibson's claim as stated was, in fact, foreclosed by existing law: in his complaint (verified before a notary by Gibson and reiterated in subsequent filings) Gibson asserted that he was terminated, at least in part, due to "his efforts to pursue a lawful claim pursuant to the Kentucky Workers' Compensation Statute." Such a claim may be cognizable under Kentucky law, even though Gibson had not yet filed a formal workers' compensation claim. See First Prop. Mgmt. Corp. v. Zarebidaki, 867 S.W.2d 185, 189 (Ky. 1993) ("[W]e agree with the Court of Appeals that the language of KRS 342.197 was not intended to require 'a formal claim' before the employee receives the protection of KRS 342.197 . . . ."); Bishop v. Manpower, Inc. of Cent. Ky., 211 S.W.3d 71, 75 (Ky. Ct. App. 2006).

Footnote 2. We note that Solideal's appeal appears to be premised on a mistaken belief that, if Rule 11 sanctions were merited, it would be entitled to recover all reasonable attorney's fees and expenses. Rule 11 — the purpose of which is deterrence, not compensation — calls only for an "appropriate sanction," and it does not instruct the court to shift the entire cost of litigation. Fed. R. Civ. P. 11(c)(1); Bus. Guides, Inc. v. Chromatic Commc'ns, Enters., Inc., 498 U.S. 533, 553 (1991); Rentz v. Dynasty Apparel Indus., 556 F.3d 389, 399-400 (6th Cir. 2009). "Rule 11 is not a fee-shifting statute. . . . A movant under Rule 11 has no entitlement to fees or any other sanction." Bus. Guides, 498 U.S. at 553 (alteration in original) (quotation omitted)

Undoubtedly, the district court's analysis could have been more thorough. Nevertheless, the court's conclusion that Rule 11 sanctions were not merited is not tantamount to a "clear error of judgment." See Jones, 617 F.3d at 850. The adequacy of a district court's order concerning sanctions "is determined by this Court's ability to understand its reasoning, not by the number of sentences it uses." Mich. Div.-Monument Builders of N. Am. v. Mich. Cemetery Ass'n., 524 F.3d 726, 740 (6th Cir. 2008) (quotation omitted). Here, the district court articulated its reasons for denying Solideal's Rule 11 motion: it rejected Solideal's arguments that "the lawsuit amounted to harassment and contained allegations which were unlikely to have any evidentiary support"; it determined that the complaint was not "frivolous at the outset" (i.e., when filed); and it found that Appellees had not acted in bad faith. Thus, the court addressed the central considerations under Rule 11, and we cannot say that it abused its discretion when denying Solideal's request for sanctions pursuant to the Rule. See Merritt, 613 F.3d at 626.

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