By Gerald G. Knapton
Edited by Barbara Kate Repa
Law Practice Management
The "American Rule" requires parties to foot their own attorneys fees, regardless of who wins or loses. Exceptions arise, however, under fee-shifting statutes and contract provisions that award costs and fees for enforcement. Ordinarily, the party entitled to awards under these fee-shifting mechanisms must wait until the dispute is resolved before filing an application for attorneys fees. But in some situations you may be able to apply for interim fees.
A number of federal statutory schemes contain fee-shifting mechanisms—including the Civil Rights Act (42 U.S.C. § 1981); the Equal Access to Justice Act, or EAJA (28 U.S.C. § 2412); and the Employee Retirement Income Security Act, or ERISA (29 U.S.C. §1001). Such statutes generally award fees to the prevailing party, though some do so only for prevailing plaintiffs.
However, litigation can take a long time to conclude, and an appeal can add several years. Waiting for a final outcome—and for your fee—can become a source of tension. In some cases, though, you may qualify for interim attorneys fees under these statutes—even before a court reaches a final judgment on the entire action—on the ground that you are the prevailing party in some portion of the litigation.
For example, the U.S. Supreme Court noted that litigation under the Civil Rights Act often leads to a series of final orders and that "to delay a fee award until the entire litigation is concluded would work substantial hardship on plaintiffs and their counsel." (Bradley v. School Bd. of the City of Richmond, 416 U.S. 696 at 723 (1974).)
In the most important fee-shifting opinion, Hensley v. Eckerhart, the Court made clear that "plaintiffs may be considered 'prevailing parties' for attorney fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing the suit." The Court then declared this standard to be "generally applicable in all cases in which Congress has authorized an award of fees to a 'prevailing party.' " (461 U.S. 424 at 433 (1983).)
Decisions in cases brought under EAJA and ERISA have subsequently applied this standard. (See Animal Lovers Volunteer Ass'n, Inc. v. Carlucci, 867 F. 2d 1224 (1989) awarding interim fees under EAJA; Smith v. CMTA-IAM Pension Trust, 746 F.2d 587 (1984) awarding interim fees under ERISA.)
Recently, however, the U.S. Supreme Court limited the definition of "prevailing party." In Buckhannon Board & Care Home, Inc. v. West Virginia. Dept. of Health and Human Res. (532 U.S. 598 (2001)), the Court overruled 20 years of circuit court law and rejected the "catalyst theory" as a basis for determining prevailing-party status under federal fee-shifting statutes. Under the catalyst theory, a plaintiff may be considered a prevailing party when he or she achieves the desired result because the lawsuit brings about a voluntary change in the defendant's conduct without any judgment or court-ordered consent decree.
Thus, the catalyst theory would allow prevailing-party fees if unilateral action by a defendant renders the suit moot, without the court reaching any decision on the claims or even sanctioning an agreement between the parties. Rejecting this theory, the Court held that prevailing- party fee awards require some "alteration in the legal relationship of the parties." (532 U.S. at 604.) This need not amount to a decision on the merits of a claim, but it must involve some form of "judicial imprimatur." The Court also declared that an entirely private settlement will not support a prevailing-party award.
This narrowing of the definition of prevailing party certainly limits the possibilities for interim fee awards in some cases. But it by no means closes the door on interim-fee applications brought under related fee-shifting statutes. And it is questionable whether it applies at all to lawsuits brought under ERISA: That statute's fee-shifting language does not use the term prevailing party, and it provides that a court has discretion to allow an award of reasonable attorneys fees and costs to either party. (See Adams v. Bowater Inc., 313 F.3d 611 (2002).)
State Law Twists
Since 2001, Bell v. Farmer's Insurance Exchange has been the key case on the propriety of interim attorneys fees under California law. The Bell court made clear that, just as fee-shifting is appropriate only when specifically provided for by statute or contract, so too are interim awards. The court found that the fee-shifting language of California Labor Code section 1194 required a final judgment, and thus it did not provide for interim awards. (87 Cal. App. 4th 805 (2001).)
Similarly, the California Civil Code does not provide for interim awards. Section 1717(a) provides that when a contract awards costs and fees incurred in enforcing the contract, the party determined to be the prevailing party shall be entitled to attorneys fees. The statute describes the prevailing party as "the party who recovered a greater relief in the action on the contract." (Cal. Civ. Code Â§ 1717(b)(1).) Thus, courts have consistently interpreted section 1717 as requiring a final resolution of the underlying contract claim before any fees may be awarded. (Presley of S. Calif. v. Whelan, 146 Cal. App. 3d 959 (1983); Snyder v. Marcus & Millichap, 46 Cal. App. 4th 1099 (1996).)
However, a number of California's fee-shifting statutes do allow for interim awards. Section 2032 of the Family Code, for example, provides that in certain proceedings the court may award reasonable attorneys fees to one party to ensure that each party has adequate representation. The statute also directs courts to award whatever amount is reasonably necessary "for maintaining or defending the proceeding during the pendency of the proceeding." (Cal. Fam. Code §§ 3120—21.) Thus, courts routinely make interim awards under this statute. (See In re Marriage of Drake, 53 Cal. App. 4th 1139 (1997).)
California's private attorney-general statute (Cal. Code Civ. Proc. Â§ 1021.5) might also allow for interim awards. It provides that courts "may award attorneys' fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest." More important, and unlike Civil Code section 1717, this fee-shifting provision does not require a prevailing-party determination. Accordingly, a number of decisions have affirmed attorneys fees awards under section 1021.5 while recognizing the prospect of continuing litigation. (Laurel Heights Improvement Ass'n v. Regents of Univ. of Cal., 47 Cal. 3d 376 (1988); Bouvia v. County of Los Angeles, 195 Cal. App. 3d 1075 (1987).)
Moreover, though the catalyst theory was originally a federal doctrine, it has been accepted by many states, including California. The California Supreme Court has reaffirmed its legitimacy in the state, declining to follow the U.S. Supreme Court's rejection of the theory in Buckhannon. For example, in 2004 the state Supreme Court refused to require "a judicially recognized change in the legal relationship between the parties" as a prerequisite for obtaining attorneys fees under section 1021.5. (Tipton-Whittingham v. City of Los Angeles, 34 Cal. 4th 604 at 608 (2004) and its companion case, Graham v. DaimlerChrysler, 34 Cal. 4th 553 at 568 (2004).)
Instead, the court adopted a three-part test to determine whether awards under a catalyst theory are appropriate. It directed that a plaintiff must establish that: the lawsuit was a catalyst motivating the defendants to provide the primary relief sought; the lawsuit had merit and achieved its catalytic effect by threat of victory, not by dint of nuisance and threat of expense; and that the plaintiffs reasonably attempted to settle the litigation before filing the lawsuit. Though in practice this test is difficult to meet, it leaves the door open to interim fee awards under section 1021.5, including those sought under a catalyst theory.
Despite the absence of prevailing-party language in ERISA's fee-shifting provision, it is now clear that the Ninth Circuit not only has adopted the Hensley court's prevailing-party standard for fee awards under ERISA but also has adopted the Buckhannon requirement that such awards are proper only upon "a material alteration of the legal relationship of the parties." (Mardirossian v. Guardian Life Ins. Co. of Am., 457 F. Supp. 2d 1038 at 1041—42 (2006).)
The court awarded interim attorneys fees to an ERISA plaintiff after the underlying claim was remanded to the insurance company for reconsideration. It reasoned that such an award was proper, even without a decision on the merits of the plaintiff's challenge to the denial of the claim, because the plaintiff had "succeeded on a significant issue in the litigation" by establishing that the insurance company's benefits determination violated ERISA and had "achieved part of the relief he sought"—namely, a redetermination of the benefits claim. These successes rendered the plaintiff a prevailing party who was entitled to an interim fee award. (Mardirossian, 457 F. Supp. 2d at 1044.)
Another recent California district court case shed light on EAJA awards in the Ninth Circuit, holding that "entry of a final, nonappealable judgment is not necessary" before an attorneys fee award may be granted under EAJA. (League for Coastal Prot. v. Kempthorne, 2006 U.S. Dist. LEXIS 94530 at 11.) Accordingly, the court granted an EAJA interim fee award to the plaintiffs after an appeal of the plaintiffs' summary judgment victory was stayed. It also noted that the plaintiffs were prevailing parties because they had been granted all the relief sought in their summary judgment motion.
The U.S. Supreme Court, meanwhile, has continued narrowing its definition of prevailing party. It recently held that prevailing party status "does not attend achievement of a preliminary injunction that is reversed, dissolved, or otherwise undone by the final decision in the same case." (Sole v. Wyner, 127 S. Ct. 2188 at 2195 (2007).) Accordingly, the Court refused to award attorneys fees to a civil rights plaintiff who won a preliminary injunction but who was subsequently denied a permanent injunction after a full adjudication on the merits. As the Court explained: "A plaintiff who achieves a transient victory at the threshold of an action can gain no award under [a "prevailing party"] fee-shifting provision if, at the end of the litigation, her initial success is undone and she leaves the courthouse emptyhanded." Because the district court eventually rejected the same claim on which the preliminary injunction was granted, the Supreme Court expressly limited its holding: "We express no view on whether, in the absence of a final decision on the merits of a claim for permanent injunctive relief, success in gaining a preliminary injunction may sometimes warrant an award of counsel fees." (127 S. Ct. at 2196.)
California courts, however, have continued to clarify the rule that no prevailing party can be identified for purposes of awards under Civil Code section 1717 until there is a final resolution of the underlying contract claims. In Estate of Drummond (149 Cal. App. 4th 46 (2007)), the court refused to grant an interim award to the defendants after the plaintiff's contract claims were dismissed on the grounds that he lacked standing to bring those claims in the probate court.
The court noted that, because the plaintiff could still bring a claim in the proper department of the same court, the underlying contract action remained unresolved. It also noted: "We can conceive of cases where a party obtaining dismissal of contract claims on purely procedural grounds might be found to have prevailed on the contract, even though the dismissal was without prejudice, because the plaintiff had no other means to obtain relief under the contract. Thus it might be shown that litigation in the proper forum would entail greater expense, inconvenience, or risk than the plaintiff was willing to hazard, or that a new suit wherever brought would be subject to a bar such as the statute of limitations." (149 Cal. App. 4th at 53.)
Acosta v. Kerrigan (150 Cal. App. 4th 1124 (2007)) presents an instructive contrast. In that case, the governing occupancy agreement provided that all disputes arising under it be submitted to arbitration. The agreement further provided that if any party instead brought a legal action or administrative proceeding to resolve the matter, the responding party would be entitled to all damages, costs, expenses, and attorneys fees incurred. After successfully petitioning to compel arbitration—but with the underlying dispute still unresolved—the defendant sought an award for attorneys fees incurred in compelling arbitration. The court granted those fees, noting that the defendant was not seeking to recover fees as a prevailing party under section 1717 but was instead "seeking fees incurred while enforcing an independent provision of the contract, fees to which he is entitled even if he loses the case on the merits in the arbitration." (150 Cal. App. 4th at 1132.)
Under California Rule of Court 3.1702, you may ordinarily file an application for attorneys fees up until the time you have to file an appeal after a final judgment, or 40 days after notice of remittitur under Rule 8.276(d) for appeals. An interim application, however, may be filed at any time—once you have achieved the sort of victory for which the court is likely to award such fees.
But the groundwork for a successful application may be established much earlier. In Acosta, the groundwork was laid in the occupancy agreement itself. Its language was crucial. Without the express provision for fees incurred as a result of compelling arbitration, an interim award almost certainly would not have been awarded.
Moreover, counsel in Acosta exercised another important bit of foresight. The trial court in that case initially denied the defendant's motion to compel arbitration, but this ruling was reversed on appeal. At a post-appeal status conference, the trial court ordered the matter to arbitration and stayed the civil action. At that conference, counsel had the presence of mind to ask the court to reserve jurisdiction regarding a request for costs on appeal and a motion for attorneys fees. The court issued a minute order, reserving jurisdiction on those issues. Otherwise, counsel might well have had to wait for fees until the end of the case, as the agreement provided that "any dispute regarding any aspect of this occupancy agreement" was to be arbitrated.
Gerald G. Knapton (email@example.com), a partner in the Los Angeles office of Ropers Majeski Kohn & Bentley, focuses on litigation management, cost control, and fee disputes.
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