Show Me the Money: Recent Developments Concerning Attorneys’ Fees in Virginia & Practical Tips
This article, co-authored by Kirk M. Sosebee and Alicha M. Grubb, appeared in the Spring 2019 issue of the VBA Journal. Click here to read the formatted publication version in PDF.
Attorneys’ Fees in Virginia
Attorneys’ fees are a topic near and dear to lawyers’ hearts. After all, what could be more important than getting paid for the work we do? And what could be better than forcing the other party to pay our fees? In construction cases, as in all litigation, attorneys should keep the prospect of attorneys’ fees in mind, and should pay close attention to recent developments in the law concerning attorneys’ fees in Virginia.
In Virginia, the default rule on attorneys’ fees is the American Rule, where each party pays its own attorneys’ fees and the winner cannot usually recover its fees from the loser.[i] Nevertheless, attorneys’ fees are available to the prevailing party under several statutes in Virginia,[ii] as well as by contractual arrangement between the parties.[iii]
In the construction context in particular, many contracts contain provisions that provide for an award of attorneys’ fees to the prevailing party. Virginia courts will generally uphold these provisions as written.[iv]
Whenever one of these statutes or contractual provisions is in play, the parties should keep the possibility of attorneys’ fees in mind from the outset of the case, and should pay attention to new developments in the law.
Recent Developments in Virginia Case Law
Lambert v. Sea Oats Condo. Ass’n, 293 Va. 245 (2017)
In Lambert, the Supreme Court of Virginia held that the Circuit Court of Virginia Beach abused its discretion by artificially limiting the amount of attorneys’ fees awarded to less than the amount of damages recovered by the plaintiff. In the Circuit Court, Ms. Lambert sought and was awarded $500 in her suit against a condo association. She sought over $9,500 in attorneys’ fees, but the judge stated that he felt obliged to limit the award of attorneys’ fees because the amount in controversy was so low, and so awarded only $375 in attorneys’ fees.
Lambert appealed to the Supreme Court, which noted that courts are allowed to consider the results obtained in a case, and may compare this amount to the amount of damages sought, in order to measure the effectiveness of the attorney’s representation.[v] But the Court ruled that courts may not use the amount of damages sought or recovered as a limit on the amount of attorneys’ fees awarded.[vi] The Supreme Court remanded for an award of reasonable attorneys’ fees.
Takeaway: The amount of damages recovered is not an automatic limit on the amount of attorneys’ fees that may be awarded, even when the attorneys’ fees sought are over 19x the amount of damages recovered.
Winding Brook Owner’s Ass’n v. Thomlyn, LLC, 96 Va. Cir. 173 (Cir. Ct. 2017)
At closing argument, the plaintiff asked the jury for damages of $11,610.88, which the jury awarded in full. The plaintiff then asked the court for an award of around $120,000 in attorneys’ fees and costs. The Hanover Circuit Court held that the amount sought was reasonable, given the complexity of the case and the steps required because of the defendant’s actions. The Court ultimately awarded $117,155.81 in attorneys’ fees and $514.55 in costs.
Takeaway: Based on the complexity and length of a case, courts may award attorneys’ fees of over 10x the amount of damages recovered.
Graham v. Cmty. Mgmt. Corp., 294 Va. 222, 805 S.E.2d 240 (2017)
Ms. Graham was sued by the Community Management Corporation in the Circuit Court of Fairfax County, under a contract containing a provision that provided for an award of attorneys’ fees to the prevailing party. The Community Management Corporation asked for attorneys’ fees in its complaint, but Graham never asked for attorneys’ fees in any of her pleadings despite having filed two demurrers, several pleas in bar, and an answer. Graham ultimately obtained a defense verdict, and then filed a subsequent suit against the Community Management Corporation seeking to recover her attorneys’ fees incurred in defending the first suit.
The Supreme Court held that the plain language of Rule 3:25 prevents Ms. Graham from obtaining attorneys’ fees because she did not make a demand for them in a counterclaim, cross-claim, or responsive pleading in the first suit.[vii] The Court held that Ms. Graham’s failure to raise her entitlement to attorneys’ fees in one of these pleadings constitutes a waiver of her attorneys’ fees claim.
The Court noted that it is important for both parties to know early on in the case whether attorneys’ fees are on the table, because it can affect the parties’ decisions on whether to pursue a claim, dismiss it, or settle it.[viii] This notice also keeps parties from having to speculate throughout the case about what claims ultimately might be brought against them.[ix]
Takeaway: Prevailing parties will not be able to recover attorneys’ fees if they do not follow the requirements of Rule 3:25 and fail to ask for attorneys’ fees in their pleadings.
McIntosh v. Flint Hill Sch., No. CL-2018-1929, 2018 Va. Cir. LEXIS 321 (Cir. Ct. Sep. 17, 2018)
Ms. McIntosh filed a complaint for declaratory relief in the Circuit Court for Fairfax County, seeking to invalidate the one-sided attorneys’ fee provision in the Enrollment Contract between her and child’s school. This provision read “We (I) agree to pay all attorneys’ fees and costs incurred by Flint Hill School in any action arising out of or relating to this Enrollment Contract.”[x] The Court held that this attorneys’ fee provision was substantively unconscionable, because the provision subjects the parents to attorneys’ fees, whether they prevailed in litigation against the school or not, and whether the fees sought are reasonable or not.[xi] The Court also found that the attorneys’ fee provision was void as against public policy because the award of attorneys’ fees contemplated by the provision was not limited to reasonable fees or to a prevailing party, and because the provision significantly barred “potentially meritorious resort to the courts by Plaintiff” and flouted “the corollary principle expressed in the Rules of Professional Conduct not to punish the prevailing party in litigation with payment of the loser’s expenses.”[xii]
Takeaway: A draconian, one-sided “challenger pays” attorneys’ fee provision will likely not be enforced by Virginia courts.
Meuse v. Henry, No. 170604, 2018 Va. LEXIS 132 (Oct. 4, 2018)
This case involved an arbitration where the defendants prevailed on all counts.[xiii] The arbitrators found that the plaintiff’s claims lacked reasonable cause and were brought for an improper purpose, and awarded attorneys’ fees of $900,900.00 and costs of $8,300.00 to the defendants. The Circuit Court for the City of Alexandria confirmed the arbitration award. The Supreme Court upheld the Circuit Court’s confirmation of the arbitration award, and summarily upheld the arbitrators’ award of attorneys’ fees and costs.
Takeaway: Even very large awards of attorneys’ fees in arbitration will likely be upheld by courts in Virginia, absent extraordinary circumstances.
Practical Tips to Recover as Much Of Your Fees as Possible
To the extent a party intends to seek attorneys’ fees, that party should be attentive to the hours spent and billed, and to how those hours are billed. Claiming attorneys’ fees in Virginia starts with the pleading. Rule 3:25 of the Virginia Supreme Court Rules requires that a party seeking to recover attorneys’ fees “include a demand therefore in the” complaint, counterclaim, cross-claim, third party pleading, or in a responsive pleading.[xiv] The party must also “identify the basis upon which [it] relies in requesting attorney’s fees.”[xv] Failure to demand attorneys’ fees constitutes a waiver and is an absolute bar to recovery.[xvi] Virginia law further requires pre-judgment notice to the other party on the face of a pleading.[xvii] Good practices could include emphasizing the demand for attorneys’ fees in all caps or bold lettering stating “Rule 3:25 Notice” and then listing the legal basis for the demand.
Claimants should also be mindful that courts in Virginia adhere to the general rule that attorneys’ fees must be reasonable and necessary.[xviii] Virginia courts will first consider the lodestar figure, which is determined by multiplying the number of reasonable hours expended times a reasonable hourly rate, and then subtracting fees spent on unnecessary claims, while considering the overall success of the parties.[xix]
The reasonable hourly rate is determined by the prevailing market rate where the court sits.[xx] The most important evidence for proving the reasonable hourly rate is expert testimony, usually by affidavit, as to the prevailing market rate in the area. The court will also consider the difficulty of the case and the experience of the attorneys.[xxi]
After determining the reasonableness of an attorneys’ fees claim, Virginia courts then consider whether all the fees were necessary. Courts have discretion to deduct unnecessary fees, if a claim, defense, motion, or attorney action was “frivolous, spurious, or unnecessary.”[xxii] Although attorneys should advocate zealously for their clients, attorneys should be careful not to bill for services that are unnecessary to the client’s litigation.
Virginia courts will discount block billing, travel, vague or redacted billing, double billing, and clerical work.[xxiii] Attorneys should be careful to keep detailed and segregated billing entries that do not contain confidential or privileged information that would later need to be redacted. Attorneys should bill separately for separate causes of action even within the same case. When it comes time to submit the fee petition, attorneys would do well to self-audit their bill for problematic entries.
When preparing the fee petition, attorneys should keep track of their time and costs related to the fee petition, because those fees are also recoverable.[xxiv] Attorneys should also submit affidavits from themselves and from experts as to the reasonableness and necessity of the hours expended and the hourly rate. Once the petition is filed, attorneys should expect courts to fly speck the billing records submitted with the fee petition.
Attorneys should always consider the possibility that attorneys’ fees might be available to one or more of the parties in the case. These fees will not be limited by the amount in controversy, and in fact, might dwarf the amount awarded as damages at trial. Considerations of attorneys’ fees should help guide critical decisions on whether or not to bring a claim, defend it, or settle it.
[i] Reineck v. Lemen, 292 Va. 710, 721 (2016).
[ii] Examples of statutes in Virginia that provide for an award of attorneys’ fees to a prevailing party include the Virginia Consumer Protection Act, Va. Code Ann. § 59.1-207.14; Virginia’s Business Conspiracy statute, Va. Code Ann. § 18.2-500; Virginia’s Religious Freedom statute, Va. Code Ann. § 57-2.02(D); Virginia’s Freedom of Information Act, Va. Code Ann. § 2.2-3713(D); and Virginia’s Trade Secrets Act, Va. Code Ann. § 59.1-338.1.
[iii] See Ulloa v. QSP, Inc., 271 Va. 72, 81 (2006) (“parties are free to draft and adopt contractual provisions shifting the responsibility for attorneys’ fees to the losing party in a contract dispute.”). There are a few other areas where courts in Virginia have the ability to award attorneys’ fees, as well. See Carlson v. Wells, 281 Va. 173, 188-89 (2011) (“we have permitted a prevailing party, who prosecuted a cause of action for malicious prosecution or false imprisonment, to recover attorney’s fees. We have held that where a breach of contract has forced the plaintiff to maintain or defend a suit with a third person, he may recover the counsel fees incurred by him in the former suit provided they are reasonable in amount and reasonably incurred. We have permitted a trustee, who defended his trust in good faith, to recover attorney’s fees from the estate, and we have approved an award of attorney’s fees in certain cases involving alimony and support disputes even though such awards of attorneys’ fees were neither authorized by statute nor by contract. We concluded that in a fraud suit, a chancellor, in the exercise of his discretion, may award attorney’s fees to a defrauded party.”) (internal quotations and citations omitted).
[iv] See Ulloa, 271 Va. at 81. Nevertheless, a manifestly one-sided and unconscionable attorneys’ fee provision will be struck down. See McIntosh v. Flint Hill Sch., No. CL-2018-1929, 2018 Va. Cir. LEXIS 321, at *17-25 (Cir. Ct. Sep. 17, 2018).
[v] Lambert, 293 Va. at 254-56.
[vi] Id. at 257.
[vii] See Va. Sup. Ct. R. 3:25(B) (“Demand. –A party seeking to recover attorney’s fees shall include a demand therefor in the complaint filed pursuant to Rule 3:2, in a counterclaim filed pursuant to Rule 3:9, in a cross-claim filed pursuant to Rule 3:10, in a third-party pleading filed pursuant to Rule 3:13, or in a responsive pleading filed pursuant to Rule 3:8. The demand must identify the basis upon which the party relies in requesting attorney’s fees.”), 3:25 (C) (“Waiver. –The failure of a party to file a demand as required by this rule constitutes a waiver by the party of the claim for attorney’s fees, unless leave to file an amended pleading seeking attorney’s fees is granted under Rule 1:8.”).
[viii] Graham v. Cmty. Mgmt. Corp., 294 Va. 222, 231 (2017) (quoting Stockman v. Downs, 573 So. 2d 835, 837 (Fla. 1991).
[x] McIntosh, 2018 Va. Cir. LEXIS 321 at *3.
[xi] Id. at *21.
[xii] Id. at *23-24.
[xiii] Meuse v. Henry, No. 170604, 2018 Va. LEXIS 132, at *17-19 (Oct. 4, 2018).
[xiv] Va. Sup. Ct. R. Rule 3:25.
[xvi] Id. See also Graham, 294 Va. at 225-26.
[xvii] Fed. R. Civ. P. Rule 54(d)(2).
[xviii] Chawla v. BurgerBusters, Inc., 255 Va. 616 (1998).
[xix] Hernandez v. Trawler Miss Vertie Mae, Inc., 41 Va. Cir. 171, 172-72 (Newport News 1996); see e.g., Dewberry & Davis, Inc. v. C3NS, Inc., 284 Va. 485 (2012); RECP IV WG Land Investors, LLC v. Capital One Bank (USA), N.A., 93 Va. Cir. 282 (Fairfax Cnty. 2016).
[xx] Hernandez, 41 Va. Cir. at 173 (citing Trimper v. City of Norfolk, 58 F.3d 68, 76 (4th Cir. 1995). See also RECP IV WB Land Investors, LLC, 93 Va. Cir. at 321-22. In determining whether the number of hours expended are reasonable, Virginia courts start with the twelve “Johnson” factors adopted by the United States Supreme Court. Hernandez, 41 Va. Cir. at 173. These factors are (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to properly perform the legal service; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and results obtained; (9) the attorney’s experience, reputation, and ability; (10) the undesirability of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Id; see also RECP IV WG Land Investors, LLC, 93 Va. Cir. at 328.
[xxi] See Hernandez, 41 Va. Cir. at 173-74.
[xxii] Dewberry & Davis, Inc., 284 Va. at 496.
[xxiii] See RECP IV WG Land Investors, LLC, 93 Va. Cir. at 329.
[xxiv] Id. at 339.