10/09/15

In a recent decision from the Eastern District of Virginia, the court provided guidance to litigants seeking attorneys’ fees under a "substantially prevailing party" provision in a contract.  The case,Route Triple Seven Limited Partnership v. Total Hockey, Inc., 2015 WL 5123302 (E.D. Va. Aug. 28, 2015), arose from a landlord-tenant dispute in which the tenant successfully defended a breach of lease claim, while losing its own counterclaim.  After entry of summary judgment in its favor, the tenant made a claim for attorneys’ fees pursuant to a lease provision that granted attorneys’ fees to the substantially prevailing party in any suit brought to enforce the lease.  Although the tenant had denied liability in its answer, the tenant had not specifically pled a claim for attorneys’ fees. Accordingly, the landlord argued that the claim was barred under Rule 9(g), which requires that all items of special damage be specifically pled.  The tenant argued, on the other hand, that claims for attorneys’ fees pursuant to a contract are properly made by motion under Rule 54(d)(2)(A), which provides that "claims for attorneys’ fees… shall be made by motion unless the substantive law governing the action provides for the recovery of such fees as an element of damages to be proved at trial."

In rejecting the landlords’ position that Rule 9(g) controls, the court noted the tension between the two rules, but ultimately determined that the rules do not actually conflict.  Id. at *3.  In reaching this conclusion, the court distinguished a prior Fourth Circuit decision holding that attorneys’ fees are an item of  special damage for Rule 9(g) purposes, noting that the decision arose in the context of an action under the North Carolina Unfair Trade Practices Act, which requires attorneys’ fees to be proven as an element of damages.  After reviewing the rules and applicable law, the court held that Rule 9(g) only applies where attorneys’ fees are an element of damage that must be proven as part of the underlying case:

In circumstances where the substantive law governing the claim provides that attorney’s fees are an element of damages that must be proven as part of the underlying case, attorneys’ fees are properly classified as special damages that must be specifically pled pursuant to Rule 9(g), and in that circumstance Rule 54(d)(2)(A) does not apply.  On the other hand, where, as here, a party seeks attorney’s fees pursuant to a contract, Rule 54(d)(2)(A) applies, and Rule 9(g) does not apply.

Id. at *4.  The court further noted that this conclusion was consistent with the purpose of Rule 9(g), which is to give notice to the opposing party of the nature of damages claimed in order to avoid surprise.  As the court explained, "[w]hen attorney’s fees are sought on the basis of a statutory right as an element of damages, the opposing party would lack notice that it could be liable for attorney’s fees but for inclusion of these special damages in the pleadings.  But when attorney’s fees are sought as recoverable costs at the conclusion of a dispute pursuant to a contractual provision between the parties, notice by way of pleading is unnecessary because, as here, the contract itself provides notice.”  Id. at *4.  The court also rejected the argument that the claim for attorney’s fees was somehow barred by res judicata when the counterclaim was dismissed on summary judgment without appeal.  The court noted that the issue was not raised, nor could it have been raised, prior to summary judgment because it did not vest until after summary judgment, when the tenant substantially prevailed in the dispute.

The decision in Total Hockey provides useful guidance to parties making claims for attorneys’ fees. The issue frequently arises during litigation, creating practical questions for lawyers with respect to what type of information must be produced to support the claim and when.  This case presents a bright line distinction depending upon whether the claim for attorneys’ fees is a substantial element of a cause of action.  If so, it must be pled under Rule 9(g) and proven at trial.  If not, it may be made by motion pursuant to Rule 54 following resolution of the substantive issues. 

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