Clients who are new to litigation often ask whether they can recover attorneys’ fees. The answer is: it depends. In general, under the “American” rule, attorneys’ fees are not recoverable unless they are expressly allowed by statute or contract.
In most commercial litigation matters, particularly ones related to construction, a contract clause providing for attorneys’ fees to the prevailing party is more frequent than a statutory entitlement.
So, what does it mean to be a “prevailing party” in litigation? An Illinois appellate court recently addressed the issue. In APX Development Group, Inc. v. 606 Properties, LLC, APX entered into a contract with 606 Properties to purchase a parcel of real estate.[i] The contract provided the proration of property taxes would be based on a certain percentage of the most recent full year tax bill.[ii] However, the property had previously been used as a church, which meant it had been tax-exempt.
The parties entered into a “reproration agreement” to modify the proration provision as a safeguard against the possibility the future real estate taxes would be higher than originally estimated.[iii] If the county assessor determined a tax liability exceeding $100 was assessed during the time 606 Properties owned the property, it would be responsible for that liability.[iv]
After the sale closed in 2020, APX notified 606 Properties that the county assessor had assessed the property for tax years 2018 and 2019 for $17,404.46 and $8,550.88, respectively.[v] Based on the assessment, APX sent a demand letter to 606 Properties to pay the total tax liability of $25,995.34.[vi]
But 606 Properties refused to pay, which resulted in a breach of contract suit in the Circuit Court of Cook County. Instead, 606 Properties argued there was a mutual mistake of material fact during the formation of the reproration agreement which required either rescission or reformation of the agreement.[vii]
After APX filed a motion for summary judgment, 606 Properties moved to dismiss the complaint because it had contacted the county treasurer’s office. The county treasurer adjusted the 2018 and 2019 tax bills to $0. 606 Properties requested an award of attorneys’ fees as the prevailing party.[viii] After additional briefing, APX asserted a claim for attorneys’ fees as well.[ix]
The trial court eventually entered judgment in favor of APX and awarded it $993.98, which represented penalties and interest due on 606 Properties’ portion of the 2019 tax obligation.[x] However, the court denied APX’s request for attorneys’ fees based on its finding that neither party was a prevailing party.[xi] APX appealed.
In analyzing the issue of whether either party should be considered a “prevailing party,” the court recognized a “party is considered to be a prevailing party if [it] succeeds on any significant issue in the litigation which achieves some of the benefit the parties sought in bringing suit.”[xii] To qualify as a “prevailing party,” a plaintiff must succeed in obtaining some relief from the defendant against whom attorneys’ fees are sought.[xiii]
Applying these principles, the court determined the final judgment awarding APX $993.38 – despite being significantly less than the amount of damages sought in the complaint – constituted a clear benefit to APX and opined how a “prevailing party inquiry does not turn on the magnitude of the relief obtained.”[xiv] As a result, the court reversed the trial court’s judgment and remanded the case for purposes of ascertaining the amount of reasonable attorneys’ fees to award APX.[xv] The attorneys’ fees are likely to be higher than the judgment.
Takeaways and Recommendations
This case provides an example of the risks to a defendant who has meritorious defenses to many of a plaintiff’s claims but does not obtain a 100% defense verdict. While a defendant may be pleased a plaintiff may only obtain a judgment equal to 4% of its claimed damages like in APX, when a prevailing party attorneys’ fee provision is in play, the defense must be mindful of the potential for attorneys’ fees which, depending on the nature of the dispute, could be significant.
So, what is a defendant to do? This situation could arise in complex construction litigation where a party predicates its claimed damages on multiple, often voluminous, change orders. In such a situation, a defendant should assess each item of damage to determine if there are any change orders that are not disputed. The defendant could then extend a settlement offer for the undisputed change orders in exchange for a partial release. This will eliminate the potential for a judgment to include damages which are not disputed, which could arguably allow a plaintiff to assert that it “prevailed.”
If a plaintiff will not agree to give a partial release, then a defendant should document, with specifics, its offer to settle the undisputed amount of the claim. In that case, if the plaintiff’s judgment consists of the damages which were undisputed before trial, the defendant could potentially, and persuasively, argue the plaintiff did not prevail since it lost on all disputed issues. Indeed, it would seem to be inequitable to allow a plaintiff to proceed to trial on claims that have no merit and lose but succeed on claims that were not disputed to obtain an attorneys’ fee award.
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[i] APX Development Group, Inc. v. 606 Properties, LLC, 2023 IL App (1st) 221080-U. Note: The opinion was filed under Illinois Supreme Court Rule 23, meaning it may be cited as persuasive authority, but it is not precedential.
[ii] APX Development Group, Inc at ¶5.
[iii] Id. at ¶6.
[v] Id. at ¶7.
[vii]Id. at ¶8.
[viii] Id. at ¶¶11, 13, 14.
[ix] Id. at ¶18.
[x] Id. at ¶19.
[xii] Id. at ¶23.
[xiii] Id. at ¶24.
[xiv] Id. at ¶26.
[xv] Id. at ¶¶28, 31.