Saturday, May 30, 2020

Within The Guardrails

The Indiana Supreme Court reversed an award of attorney's fees, concluding that the litigation was not meritless or brought in bad faith

The guardrails of zealous advocacy must leave ample room for a party to make its case. But when a party veers off course by intentionally introducing groundless arguments, harassing other parties, or acting in bad faith, courts can punish the behavior.

Generally, the American Rule requires each party to pay its own attorney’s fees. While this rule has narrow exceptions that allow a court to order one party to pay another’s fees, it is a hefty burden to demonstrate that such an award is warranted.

Today we discuss three grounds that permit a court to shift attorney’s fees under Indiana law and find that, on this record, the parties seeking fees failed to show that any exception applied. We thus find that the trial court’s decision to award attorney’s fees was an abuse of discretion and reverse.

The three exceptions

First, the common-law “obdurate behavior” exception empowers a court to order a prevailing party, under certain circumstances, to pay the opposition’s attorney’s fees. See Kikkert v. Krumm, 474 N.E.2d 503, 505 (Ind. 1985). Second, the General Recovery Rule, Indiana Code section 34-52-1-1, similarly allows an award of attorney’s fees “to the prevailing party” based on another party’s actions during litigation. I.C. § 34-52-1-1(b). And finally, courts are inherently authorized to sanction parties by shifting fees, even if no other exception applies. See In re Estate of Kroslack, 570 N.E.2d 117, 121 (Ind. Ct. App. 1991).

Here, the trial court concluded that it could award attorney’s fees to the Defendants under all three grounds. We hold, however, that the trial court’s decision was an abuse of discretion. Neither the common-law obdurate behavior exception nor the General Recovery Rule—both of which require a “prevailing party”—allow an award of attorney’s fees when a party voluntarily dismisses its complaint, as RRDA did here. And the court’s inherent authority does not authorize the award because the record lacks evidence to show that RRDA litigated in bad faith and that its conduct was calculatedly oppressive, obdurate, or obstreperous. We thus reverse the trial court’s order.

As to "prevailing party"

we conclude the Defendants cannot recover attorney’s fees under either exception—there was never a favorable judgment on the merits due to RRDA voluntarily dismissing its claim.

As to "bad faith"

Here, the Defendants have failed to show that, by raising its “jurisdiction” argument, RRDA’s conduct rose to this level. Thus, the trial court’s ultimate “bad faith” conclusion is unsupported.

Chief Justice Rush authored the opinion. (Mike Frisch)

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