(September 1, 2015) Whether it’s the plaintiff walking into the office to discuss filing a lawsuit, or the defendant sitting down to discuss a recent complaint, a common question often pops up at that first meeting: how can I get the other side to pay for my legal expenses? And it’s a fair question, no doubt, given how expensive litigation can be. But time and again, Michigan courts, including the Kent County Business Court, hold that fees are generally not recoverable from an opposing party, unless expressly allowed by a contract, statute, court rule, or other common law.
For example, the Kent County Business Court recently addressed this issue in Karczewski v. Market Center Title Co.1 In that case, the plaintiffs, two real estate agents for Keller Williams, were offered the opportunity to become members in defendant Market Center Title Company. As part of their buy-in to Market Center, the plaintiffs-agents signed a subscription agreement stating that they would “indemnify and hold harmless [Market Center] from and against all damages, losses, costs and expenses (including reasonable attorneys’ fees) they may incur by reason of the failure of the [agents] to fulfill any of the terms or conditions of this subscription.” After determining that the real estate agents breached the subscription agreement, the Kent County Business Court enforced this broad contractual language in ruling that the real estate agents must pay Market Center’s reasonable attorney fees.
While the Karczewski case involved a claim for attorney fees under a contract, the case of Speet v. Sintel, Inc., another case decided by the Kent County Business Court, addressed a claim for attorney fees under a statute.2 There, plaintiff Larry Speet sued defendant Sintel, Inc., for the recovery of sales commissions. Mr. Speet claimed that, by failing to pay him commissions owed under their agreement, Sintel also violated Michigan’s Sales Representative Commission Act, a statute codified at MCL 600.2961. That statute includes a provision that a court must award reasonable attorney fees and court costs to the prevailing party in a lawsuit. After concluding that Sintel did, in fact, breach its agreement to pay Mr. Speet his commissions and, in turn, finding that Sintel violated its obligations under the Commission Act, the Court enforced the language of the Act and held that Sintel must pay Mr. Speet’s reasonable costs and attorney fees. The Court did so only after first noting that, “[a]s a general rule, ‘attorney fees are not recoverable as an element of costs or damages unless expressly allowed by statute, court rule, common-law exception, or contract.’” But because a statute – the Commission Act – provided for the recovery of fees, the Court found support for allowing Mr. Speet to recover his reasonable fees from Sintel.
There are numerous other statutes that provide for the recovery of legal fees. For example, a successful claim for statutory conversion – requiring a plaintiff to establish that the defendant converted property to his or her own use and found at MCL 600.2919a – gives the court the authority to award the plaintiff costs and attorney fees. But unlike the Commission Act, where an award of fees to the prevailing party is mandatory, an award of legal fees for a successful statutory conversion claim is discretionary and the Court may, or may not, choose to award them. The Kent County Business Court did just that in Jackson v. Spencer, choosing to not award plaintiff his legal fees despite his successful statutory conversion claim.3
Other examples of statutes providing an opportunity for a plaintiff to recover legal fees include portions of Michigan’s Business Corporation Act (for example, MCL 450.1497 states that the court may order a corporation to pay the plaintiff’s attorney fees in a derivative action if the proceedings benefitted the corporation); portions of the No-Fault Act (for example, MCL 500.3148 states that a claimant’s attorney is “entitled” to recover attorney fees from an insurer that unreasonably refuses to pay or delays in paying first-party benefits); the Michigan Consumer Protection Act (MCL 445.911); and Michigan’s Civil Rights Act (MCL 37.2802).
So to answer that common first question, no, you generally cannot recover your legal expenses from the opposing party. However, Michigan businesses can create the opportunity to recover fees by inserting appropriate language into their contracts. In addition, it is important to identify, at the outset of any case, potential statutory remedies that could shift the legal expense of the case onto the other side. Having the ability to pursue the opposition for legal fees presents not only the opportunity to actually recover those fees from the other side should the case go to trial, but also the opportunity to obtain a favorable settlement earlier in the case, thereby saving on litigation expenses.
1 Case No. 13-04651-CBB.
2 Case No. 12-09225-CKB.
3 Case No. 13-04271-NZB.More Publications