Damages: Attorney's Fees as Damages in California Under Judicially-Created Exception(s) to the American Rule.

In the last post, we discussed a court's authority to award attorney's fees in an 'exceptional case' pursuant to a statute that applied to patent litigation. The applicable statute thus provided an exception to the so-called 'American Rule' in the Qualcomm case. The American rule provides that absent a contract or statute providing otherwise, each party to litigation must bear their own attorney's fees. The opposing 'English Rule' of course prescribes that the loser pays.

Under California law there are also three judicially-created exceptions to the American Rule, namely, the "tort of another" doctrine, Brandt recovery and as damage recovery in malicious prosecution/false imprisonment cases. In the last edition of the California Law Journal (Litigation Section) attorneys Marc Alexander and William Hensley provide a history and note that these exceptions are applied in order to make a prevailing party whole and are not recovered as fees per se but rather are recoverable as an item of damages.

The "tort of another" exception has been articulated as follows: "A person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fee, and other expenditures thereby suffered or incurred." Prentice v. North Amer. Title Guaranty Corp., 59 Cal.2d 618, 620 (1963). Alexander and Hensley point out that it is essential for a litigant in proving recovery of fees under this exception that he identify a "clear violation of a traditional tort duty between the tortfeasor who is required to pay the attorney fees and the person seeking compensation for those fees." Sooy v. Peter, 220 Cal.App. 3d 1305, 1310 (1990). In other words the recovery of attorney's fees based on the "tort of another" must actually be based upon a tort.

Another judicially-created exception concerns the recovery of Brandt fees which allows for the recovery of attorney's fees against insurance companies in bad faith actions. See Gray v. Don Miller Assocs, Inc. 35 Cal.3d 498 (1984). A year later, in Brandt v. Superior Court, 37 Cal.3d 813 (1985), the California Supreme Court held that insureds can recovery attorney's fees in an implied covenant breach action to recover contractually-based policy benefits and that in that context that the fees were recoverable as damages. Id. See also Cassim v. Allstate Ins. Co., 33 Cal.4th 780 (2004) (providing guidelines for calculating fees for 'apportioned' work for joint contract/tort issues). While Brandt also applies to insurance brokers, there has been a reluctance to extend Brandt to fiduciaries outside the insurance context (e.g., against lawyers). See Schneider v. Friedman, Collard Poswall & Varga, 232 Cal.App. 3d 1276 (1991).

The third judicially-created exception to the American Rule provide for recovery of fees as damages in malicious prosecution and false imprisonment cases as "sanctions against the abuse of process the two torts represent. See Brandt supra and Gray supra. When pursuing fees under any of these judicially- created exceptions to the American Rule, the party seeking recovery must prove the damages in their case-in-chief unless the parties can stipulate to a post-judgment adjudication of them by the court.

Similar to California, Washington courts have long followed the American Rule on the issue of any award of attorneys' fees [Rorvig v. Douglas, 123 Wn.2d 854 (1994)] finding that they are not recoverable by the prevailing party as a cost of litigation absent a contract, statute, or recognized ground of equity. Id. See also, Easterbrooks v. Abrahams, 200 Wn. 636 (1939) (fees incurred for proving wrongful eviction); Winters v. State Farm, 144 Wn.2d 869 (2001) (common fund exception). at 861.