Attorney Fees

Common Law Exceptions

Common law in the United States has provided four traditional exceptions to the American Rule: bad faith doctrine, common fund doctrine, the private attorney general exception, and exception by contract agreement. Bad faith doctrine provides for attorney fees when a party willfully disobeys a valid court order, or when a party has acted “in bad faith, vexatiously, wantonly, or for oppressive reasons” (F. D. Rich Co. v. Industrial Lumber Co., 1974, p. 129). The common [Page 58]fund doctrine allows a prevailing party to obtain attorney fees when the litigation produces or creates a fund of money, or obtains a benefit, for others as well as the prevailing party. The private attorney general exception to the American Rule promotes the common good by allowing private litigants to identify statutory violations (for example, of environmental protection laws) and to force compliance through private litigation. The private attorney general exception was ultimately eliminated by the Supreme Court in Alyeska Pipeline Service Co. v. Wilderness Society (1975), in which the Court ruled that the authority to establish a private attorney exception rested with Congress, not the courts. Finally, the parties may negotiate a settlement for a cause of action and include in that settlement provisions for fee switching as a part of the contractual agreement.

Courts occasionally exercise their powers to provide for attorney fee shifting to resolve cases more equitably. In actions against insurance companies, for example, it is not uncommon for prevailing plaintiffs to ask for, and courts to award, attorney fees as an equitable remedy, when the insurer has breached its duty to defend, or when the insurer has breached the insurance contract. Individual jurisdictions will also create local exceptions to the American Rule through the exercise of equitable powers. In an illustrative situation, in New York State, the Shindler Rule provides that “if, through the wrongful act of his present adversary, a person is involved in earlier litigation with a third person in bringing or defending an action to present his interests, he is entitled to recover the reasonable value of attorney's fees and other expenses thereby suffered or incurred” (Shindler v. Lamb, 1959, p. 765; 1961).

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