The Unamerican Rule on Attorneys' Fees - Lawyers

<strong>The</strong> <strong>Unamerican</strong> <strong>Rule</strong> on Attorneys’ FeesOur Civil System’s FailureBY SID A. HORWITZOur system of jurisprudence is solidly based on the fundamental principle that victims of another’stort or contract breach are to be made whole. <strong>The</strong> general rule of damages law requires thatmoney be awarded to place the plaintiff in the position he or she would be in if the tort or breachof contract had not occurred. Conversely, there is no reason why defendants who prevail indefeating a plaintiff’s claim should not be made whole.<strong>The</strong> equitable notion that parties be made whole is significantly undermined by the American<strong>Rule</strong>, which prohibits the award of attorneys’ fees except in limited circumstances. As theAmerican <strong>Rule</strong> has its genesis in common law, there is no reason why it could not and should notbe overruled by judicial fiat.SID A. HORWITZ is the senior litigation and managingpartner at Carmichael & Powell PC in Phoenix. He has31 years’ experience litigating numerous types of complexbusiness, construction and personal injury matters.He can be reached at s.horwitz@cplawfirm.com.34 A R I Z O N A AT T O R N E Y J A N U A R Y 2 0 1 0w w w. m y a z b a r. o r g / A Z A t t o r n e y

<strong>The</strong> Harm CausedOur judicial system fails victims of economictorts and defendants alike by notawarding attorneys’ fees to the prevailingparty. Unlike breach of contract cases, forwhich A.R.S. § 12-341.01 allows the prevailingparty to recoup his or her reasonableattorneys’ fees, parties in economictort cases have no such right. Unlikepersonal injury cases, there is no builtinmechanism for claimants to recovertheir attorneys’ fees through “painand suffering” damages, which are inreality artificial mechanisms to assurepayment of attorneys’ fees. In fact, thepersonal injury plaintiff achieves anunfair advantage over the personalinjury defendant, who has no opportunityto be made whole under anycircumstance. In economic tort cases,neither party has the ability to bemade whole.A major impediment to the fundamentalright to be made whole is theAmerican <strong>Rule</strong>, which denies the prevailingparty the right to recover attorneys’fees in many cases. <strong>The</strong> nonrecoverabilityof attorneys’ fees fostersnuisance litigation and “economicallymotivated” settlements, which havenothing to do with the merits. <strong>The</strong>nonrecoverability of attorneys’ feesalso encourages the stubborn defenseof valid cases in order to make theclaimant’s claim unprosecutable in practice.A plaintiff who must spend $25,000,$50,000 or $100,000 to “prevail” against adefendant at fault for an economic tort isstill a loser—and so is the defendant whomust spend $25,000, $50,000 or$100,000 to defeat an invalid claim.Social Goals AdvancedWhat harm is there is granting the prevailingparty in all cases the right to recoverreasonable attorneys’ fees and otherexpenses? What social policy could possiblybe advanced for denying prevailing partiesthe right to be made whole? Could it be todiscourage litigation or punish litigants forresorting to civil remedial law?This hardly seems like a lofty goal.Without the right to redress (and to defendthe right to redress), civilized society fallsinto anarchy, in which the law of the junglecontrols. Civil litigation should have thepositive attributes of both discouraging badbehavior and reducing the need for governmentalregulation and control throughtaxpayer-funded bureaucracies.Without the rightto redress (andto defend theright to redress),civilized societyfalls into anarchy,in which thelaw of thejungle controls.Of course, if the social policy to beadvanced is to discourage litigation, onemust ask why that is so, and whether weare accomplishing our goal. It sure doesn’tseem that we are; courts are as overloadedas ever with civil cases of all types.If we are going to have a civil case system,the role of judges should be to administerjustice. Unfortunately, the American <strong>Rule</strong>of attorneys’ fees hampers judges fromdoing just that.Barmat and Sparks<strong>The</strong> Arizona case of Barmat v. John andJane Doe Partners A-D 1 has illogicallyturned A.R.S. § 12-341.01 on its head sothat professional negligence cases (whichdirectly arise from and could not exist butfor a contractual relationship) are not economicallyviable to sue on or to defend.Cases against attorneys, accountants,architects, engineers, contractors, appraisers,insurance agents and a host of otherprofessionals are discouraged due to economics.<strong>The</strong> same is true of intentionaltort cases, such as interference with contract,trespass and conversion cases.<strong>The</strong> ethical attorney must advise suchclaimants that their $25,000, $50,000or possibly even $100,000 case is notworth pursuing—even where liability isfairly clear. By the same token, regardlessof the merits of their defense,defendants are motivated to settle casesfor purely economic reasons. This is anabomination of justice in a society thatshould have the laudatory goal of seeingdisputes adjudicated upon theirmerits.<strong>The</strong> Barmat decision usurped legislativeauthority, violated legislativeintent, illogically interpreted the lawand unjustifiably restricted claimants’access to the courts by diluting theiractual net recovery. <strong>The</strong> real effect ofthe Barmat decision is to chill socalledsmall claimants from pursuingjust claims against professionals whodo not properly perform their contractualobligations.In Sparks v. Republic National LifeInsurance Co., 2 the Arizona SupremeCourt employed logic that allowed for therecovery of attorneys’ fees in bad-faithcases against insurance companies.Although Barmat attempted to reconcileits holding with Sparks, there is no real distinctionbetween these two cases. <strong>The</strong>re isno express language in the insurance policywhich states that an insurer shall act in“good faith.” This is a duty that evolvedthrough common law decisions interpretingthe relationship between insurers andinsureds. In other words, it is implied-inlaw,not in-fact. Regardless of the semanticsemployed, if one employs the true“but for” test that Barmat purports tohold as being determinative, the said test ismet in a professional negligence context.<strong>The</strong> genesis of the relationship betweenattorneys and other professionals and theirw w w. m y a z b a r. o r g / A Z A t t o r n e y J A N U A R Y 2 0 1 0 A R I Z O N A AT T O R N E Y 35

<strong>The</strong> <strong>Unamerican</strong> <strong>Rule</strong> on Attorneys’ Feesclients is contractual in nature. “But for”the existence of that contract, there wouldbe no relationship, and there could be noclaim. Under the Sparks test, “as long asthe cause of action and tort could not existbut for the breach of contract,” attorneys’fees are awardable. In fact, A.R.S. § 12-341.01 does not require there to be abreach of any contractual duty; it merelystates that in any contested action arisingout of an express or implied contract, attorneys’fees are awardable.How Barmat Falls<strong>The</strong> Barmat analysis begins by acknowledgingthat a contract between a lawyerand client implies competent and ethicalrepresentation. In truth, all contractsincorporate the law by implication. Underthe ethical rules, which are an implied partof the attorney–client contract, “A lawyershall provide competent representation.”(See ER 1.1.) Despite its acknowledgmentthat the professional’s contract with hisclient necessarily incorporates the law,Barmat proceeds to circularly evade thelogical conclusion of such implication.First, the Arizona Supreme Courtanalogized a professional’s contractualrelationship with an ordinary negligenceaction by a bus passenger against his carrieror by a tenant against his landlord. Butan ordinary negligence action for personalinjuries is not equivalent to an actionbrought primarily for economic damagesby a client who enters into a contract withan attorney. Unlike personal injury cases,which allow for the award of pain and sufferingdamages, there is no such built-inmechanism in economic tort cases. 3Second, the Arizona Supreme Courtprovided no specific authority for its beliefthat the text of A.R.S. § 12-341 does notrequire “so broad of an interpretation.”<strong>The</strong> legislative intent of A.R.S. § 12-341.01 could not be more clear: It is to“mitigate the burden of the expense of litigationto establish a just claim or a justdefense.” A.R.S. § 12-341.01 does not distinguishbetween implied-in-law andimplied-in-fact duties. This is judicial rhetoric,which was employed in Barmat toevade the broad intent of the Legislatureto allow prevailing parties in claims arisingout of contracts, express or implied, torecover attorneys’ fees to mitigate the burdenof litigation.Third, as for the Arizona SupremeCourt’s citation to the Wagenseller case asevidence of legislative intent, that case infact indicates an intent contrary to theholding in Barmat. Wagenseller quotedSenator Walsh, who stated that the purposeof A.R.S. § 12-341.01 “would bringArizona more in line with a portion of theBritish system where they have less litigationthan the United States.” 4 Under the“English <strong>Rule</strong>,” attorneys’ fees are awardedto all litigants as costs. 5 If the ArizonaSupreme Court truly believes the ArizonaLegislature intended to bring Arizonamore in line with the English <strong>Rule</strong>, itshould broadly interpret A.R.S. § 12-341.01 so as to be consistent therewith.Fourth, the Arizona Supreme Court’sreliance on Salt River Project AgricultureImprovement and Power District v.Westinghouse Electric Corp. 6 is misplaced.Salt River Project held that where a party’sdamages were primarily “economic” innature as opposed to representative of personalinjury or property damage, theCourt would look to the contract in determiningthe remedies of the parties. If anything,Salt River Project supports thenotion that an economically damagedplaintiff has claims that are essentially contractualin nature. Under this logic, attorneys’fees should be recoverable underA.R.S. § 12-341.01.ConclusionJustice Oliver Wendell Holmes, Jr., oncewrote that “<strong>The</strong> life of the law has notbeen logic: It has been experience.”Regardless of whether law should be governedby logic or experience, it is supposedto be about fairness. <strong>The</strong> effect of theBarmat decision is to discourage plaintiffswith just, albeit so-called small, claimsfrom obtaining a fair and full recovery andto discourage defendants from contestingnuisance lawsuits.<strong>The</strong> effect of our <strong>Rule</strong>s of CivilProcedure, including pleadings, motions,discovery, disclosure, depositions, pre-trialprocedures and trial, has been to causeeven the smallest of claims to conservativelyresult in attorneys’ fees of nothing lessthan $25,000 (based on “reasonable”hourly rates). Does this mean that a personwho has a claim for “only” $10,000,$20,000 or $30,000 or even more may aswell just “forget about it” because the economicsdo not justify resort to the courtsystem?It is high time for the American <strong>Rule</strong> todisappear into the sunset. Let us adopt arule whereby all prevailing parties, plaintiffsand defendants alike, may achieve a full andAZfair recovery and be made whole. ATendnotes1. 747 P.2d 1218 (Ariz. 1987).2. 647 P.2d 1127 (Ariz. 1982).3. In furtherance of the goal of limiting recovery so as to discouragelitigation, in Reed v. Mitchell and Timbanard, P.C., 903 P.2d 621(Ariz. Ct. App. 1995), the Arizona Court of Appeals held thatemotional distress damages are not recoverable in cases againstprofessionals involving purely economic injury. According to theArizona Court of Appeals, distress only results from physicalinjury. As a matter of common sense, everyone knows that economicdamage causes stress. A court probably could take judicialnotice that economic difficulties cause stress and distress. <strong>The</strong> Reedcase simply employs another fiction to limit recoverability in casesinvolving professionals.4. See Wagenseller v. Scottsdale Mem’l Hosp., 710 P.2d 1025, 1046(Ariz. 1985).5. See Rambow, Note, Statutory Attorneys Fees in Arizona: An Analysisof A.R.S. Section 12-341.01, 24 ARIZ. L. REV. 659, 661 (1982).6. 694 P.2d 198 (Ariz. 1984).36A R I Z O N A AT T O R N E Y J A N U A R Y 2 0 1 0w w w. m y a z b a r. o r g / A Z A t t o r n e y