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Civil, Commercial and Complex Business Litigation

Winner Gets Attorneys' Fees? In North Carolina, Sometimes.

by Joshua Hiller on 01/27/14

Clients often ask me at the outset of case whether they will be able to recoup their attorneys’ fees should we prevail.  A reasonable question.  Unfortunately, under our American system of justice—as opposed to the legal systems in other countries—each side generally remains responsible for their own respective attorneys’ fees.  Win or lose. 

This remains the general standard in North Carolina as well.  However, there are some notable exceptions.  As I mentioned in another post, North Carolina reversed course under previous common law to allow for the enforcement of a reciprocal provision for the recovery of attorneys’ fees in business contracts.  Before the enactment of this law, even a contract that allowed for a prevailing party to recover its attorneys’ fees was deemed unenforceable.

A recent decision from Judge Murphy in the North Carolina Business Court this past week highlights another exception.  In Jacobson v. Walsh, 2014 NCBC 2, Judge Murphy awarded attorneys’ fees to the defending party based on the “Plaintiff’s failure to dismiss his breach of fiduciary duty claims against Walsh after Plaintiff stated in his deposition that the two never had a previous business relationship.”  Opinion at ¶ 95.   Judge Murphy rejected the plaintiff’s excuse that his allegation in the complaint of a previous relationship was “an oversight."  Judge Murphy concluded that this “oversight” caused the defendant to unnecessarily incur the costs and inconvenience of defending against two claims that lacked a justiciable issue of law or fact.”  Id. 

Judge Murphy applied NC Gen. Stat. § 6-21.5.  This section states that “[i]n any civil action, special proceeding, or estate or trust proceeding, the court, upon motion of the prevailing party, may award a reasonable attorney's fee to the prevailing party if the court finds that there was a complete absence of a justiciable issue of either law or fact raised by the losing party in any pleading.”  Judge Murphy concluded that this fee shifting statute applied because the “losing party persisted in litigating the case after a point where he should reasonably become aware that the pleading he filed no longer contained a justiciable issue." Op. ¶ 94 (quoting Sunamerica Fin. Corp. v. Bonham, 328 N.C. 254, 258, 400 S.E.2d 435, 438 (1991))

This example provides a word to the wise to litigants and counsel that may be tempted to continue to press unmeritorious claims in a case long after the record obliterates a genuine legal or factual issue.  It also provides some hope for a prevailing party to be compensated for the costs associated with defending against a frivolous claim or issue.  

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