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Fee Shifting: Can Cost for In-House Lawyers Be Recovered?

Posted by Judie Bronsther | Aug 05, 2014 | 0 Comments

aThe "American Rule" is that parties pay their own legal fees for a dispute.  Fees can be shifted by contract or by statute, but fee-shifting remains in the minority in US lawsuits.  When legal fees are recoverable, the court (judge) normally evaluates and determines the amount of legal fees to be awarded to a successful party, based on detailed billing information submitted by outside counsel.

But what is the outcome if the prevailing party relied primarily on its in-house counsel, who was on the company payroll all the time and never submitted any bills?  In Holland v. Jachmann, Mass. App. Ct. No. 13-P-0280 (May 14, 2014), the Massachusetts Appeals Court held that the reasonable fees of in-house counsel can be recovered.

The underlying dispute included a particularly nasty set of actions by the losing party, and the court decided that the defendant had acted in an "unfair and deceptive" manner, violating the Massachusetts fair trade practice statute, so the fee shifting occurred and the other side was entitled to recover its legal fees.  But most of the work had been done by an in-house attorney who had not billed the company for his effort, and so the losing party argued that legal fees had not been "incurred" for the in-house attorney's effort.

The trial court had awarded attorneys' fees "on principles of fairness, the public policy served by fee awards, and case law upholding statutorily mandated fee awards even in the absence of billing."  The Appeals Court agreed, and noted that "having in-house counsel engaged in the present suit had a concrete financial impact on [the prevailing party], which we conclude 'incurred' a cost."  Also, there is a deterrent purpose in awarding attorneys' fees, and the losing party should not benefit simply because the prevailing party chose to use in-house instead of outside counsel.

About the Author

Judie Bronsther

Ms. Bronsther began her career in 1979 as an associate with Finley, Kumble, Wagner, Heine, Manley & Underberg specializing in corporate finance. In 1984, she joined forces with a client, Empire Securities, a brokerage house specializing in oil and gas transactions, and became Executive Vice President and General Counsel. In 1989, she joined Kaye, Scholer, Fierman, Hayes and Handler. Ms. Bronsther graduated from University of Rochester, magna cum laude, and New York University School of Law. Ms. Bronsther has written extensively on the subject of legal cost control and lectures frequently on this subject.

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