The bar to obtain attorney fees for vexatious conduct is high, a state supreme court has cautioned. The decision overturned a lower court’s fee award of $237,440 despite evidence that the litigation was filed for the purpose of delay and was filed after the limitations period ended. ABA Section of Litigation leaders advise that because courts are reluctant to award attorney fees, practitioners seeking them should develop compelling grounds.
In River Ridge Development Authority v .Outfront Media, LLC, et al., the River Ridge Development Authority sued to prevent Outfront Media, LLC, an outdoor advertising company, from constructing several roadside billboards near a business park known as the River Ridge Commerce Center. During the litigation, the Indiana Department of Transportation designated the road near the proposed billboards a scenic byway, which prevented construction of the billboards. River Ridge immediately dismissed its lawsuit.
Outfront Media and other defendants then moved for attorney fees, arguing that River Ridge sued merely to buy time until the scenic byway designation. Additionally, Outfront Media contended that River Ridge acted in bad faith by opposing the fee motion on the grounds that the trial court lacked jurisdiction to award attorney fees despite precedent to the contrary.
The trial court agreed and ordered River Ridge to pay $237,440.63 in attorney fees. It reasoned that “the timing of the dismissal, with prejudice, is more than coincidental. It is disconcerting.” The trial court also found that River Ridge acted in bad faith by litigating claims which it knew were time barred because River Ridge had not petitioned for judicial review within 30 days of the billboard permits being granted, as required under Indiana law.
It concluded that River Ridge’s conduct was “in bad faith, obdurate, harassing, and fully supports assessing costs and attorney fees.” In so holding, the trial court relied on three exceptions to the American Rule, which requires each party to pay its own attorney fees: (1) Indiana’s General Recovery Rule, which allows fees awards when a party litigates claims or defenses that “frivolous, unreasonable, or groundless” or litigates actions in bad faith; (2) the obdurate behavior exception, which permits fees awards for pursuing a “baseless claim” upon a court finding that the conduct is “vexatious and oppressive in the extreme and a blatant abuse of the judicial process”; and (3) the court’s own inherent authority to sanction parties.
The Indiana Court of Appeals reversed.
The Indiana Supreme Court concluded that the trial court abused its discretion in awarding fees, finding that none of the grounds relied upon by the trial court applied. Turning first to the common law obdurate behavior exception and Indiana’s General Recovery Rule, the court explained that both theories require the fee-seeking party to be the “prevailing party.” Since River Ridge voluntarily dismissed its lawsuit, Outfront Media did not prevail on the merits of the case and was thus not a “prevailing party” entitled to fees.
As to the court’s inherent sanctions power, the supreme court explained that could only be invoked upon a finding “that a party has acted in bad faith and such conduct is calculatedly oppressive, obdurate, or obstreperous.” In other words, “the law does not insulate a party that behaves in extreme bad faith before voluntarily dismissing its complaint.”
The supreme court held that standard was not met. It discounted the trial court’s verbatim acceptance of Outfront Media’s proposed findings and conclusions, finding it less likely that they “were the result of considered judgment.” The supreme court also distinguished losing on the merits from bringing a case with no supporting facts whatsoever, with only the latter circumstance justifying a bad faith finding.
Though River Ridge had failed to timely seek judicial review, the supreme court found that it had defensible arguments, including that the zoning and billboard permits were ultra vires and void, and issued without the requisite authority. The court further found no evidence that suggested River Ridge knew the scenic byway designation would ever be made when it filed its complaint. Lastly, the supreme court held that though River Ridge’s argument that the trial court lacked jurisdiction to award attorney fees was unsupported, it was one argument out of many and did not evidence a pattern of behavior that would warrant an award of fees. Accordingly, the supreme court reversed the award of attorney fees.
“Under their inherent authority, courts are able to preserve the integrity of the judicial process,” notes John M. Barkett, Miami, FL, cochair of the Section of Litigation’s Ethics & Professionalism Committee. “The bar for awarding attorney fees in derogation of the American Rule requires bad faith conduct. That showing was simply not made in this case,” observes Barkett.
“Courts are generally hesitant to award sanctions or attorney fees,” comments Michael S. LeBoff, Newport Beach, CA, cochair of the Section’s Professional Services Liability Litigation Committee. “You really need compelling grounds to be successful on such a motion,” he explained. Practitioners should proceed with caution. “Be sure you have a sufficiently developed fact basis when making your motion,” LeBoff advises. “You must be very logical and not allow emotions or frustrations with opposing counsel dictate your decision. One worry beyond not having your motion granted is it if draws a motion for sanctions or fees against you in response,” he warns.
