By Tim Faith, Esq.
A contractual claim for shifting of attorney’s fees to the non-prevailing party is enforceable if the actual fees incurred by the attorney are reasonable, based on application of the eight factors in MRPC 1.5(a), the ratio of the attorney’s fees in relation to the overall recovery to the prevailing party, and the prevailing hourly rates of similar attorneys providing similar legal services, which, under the district court Guidelines, sets forth ranges of reasonable fees based on the experience of the attorney in practice.
Opinion By: J. Hollander
A dispute arose concerning two partnerships that own real estate, where the Plaintiff, Hansei Wei, alleged that the Defendants, Xiaodong Xu, Guanhua Xu, and Cruikshank Ersin, had engaged in conduct which makes it not reasonably practicable to carry on the business of the partnerships, and for the court to order a dissolution and winding up of the affairs of both partnerships, which generally involves the sale of the property owned by each partnership, and the distribution of such property to the partners after the payment of attorney’s fees. The Defendants did not respond to the litigation and did not oppose the motion for summary judgment filed by the Plaintiff. At issue in the pleading was the award of attorney’s fees to the Plaintiff as the prevailing party.
In general, Maryland follows the “American Rule” that each party bears the cost of their own counsel, unless the parties have an agreement that permits fee shifting to the non-prevailing party, or there is some other basis for fee shifting such as a statute, bad faith conduct by the non-prevailing party, or defense of a malicious prosecution claim. However, the amount of an award of attorney’s fees is limited by a variety of considerations within the discretion of the trial court, including that such fees be limited to the actual fees incurred, that the fees be reasonable, and that sufficient records of the amounts billed be submitted to the court for consideration.
Where there is a contractual fee-shifting provision, Maryland courts generally look to MPRC 1.5(a)’s factors to determine reasonableness, which includes:
- the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
- the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment of the lawyer;
- the fee customarily charged in the locality for similar legal services;
- the amount involved and the results obtained;
- the time limitations imposed by the client or by the circumstances;
- the nature and length of the professional relationship with the client;
- the experience, reputation, and ability of the lawyer or lawyers performing the services; and
- whether the fee is fixed or contingent.
In federal district court, the court will also consider compliance with applicable Local Rules, which include Local Rule 109.2(b) for the federal district court in Maryland, which includes detailed requirements for billing submissions and the use of Guidelines for determining whether the rates charged by counsel are reasonable.
A federal court will also consider the total amount of attorney’s fees in relation to the recovery for the prevailing party.
The court found that the total fees for the litigation for the two partnerships was reasonable in relation to the likely recovery for the plaintiff from the litigation (where attorney’s fees would be 17%-24% of the plaintiff’s expected recovery). In addition, the court examined the documentation submitted with the petition for fees, and noted that the submission included a detailed description of the work performed at each stage of the litigation, biographies of the attorneys involved, itemized records by date, service rendered, individual, time, rate, charge, and associated with each matter, a summary of fees, and the engagement letter with the client. In addition, the court compared the hourly rates of the billable work to Guidelines within the local rule and found that the attorney billable rates were within the “reasonable” ranges set by the Guidelines based on the experience of each individual. However, the court declined to pay certain costs – totaling $83.21 – finding that these specific fees did not fit within the definition of taxable costs under federal statute (28 USC § 1920).
Full opinion available HERE
Tim Faith is a practicing business law and estates planning attorney, and also an associate professor at The Community College of Baltimore County, where he teaches business law, legal writing, and torts. Tim also serves as the chair of the Maryland Business Law Developments blog, a service of the Business Law Section of the MSBA.