The Expanding Availability Of Attorneys Fees in Washington Civil Litigation: Consider Equitable Grounds and Bad Faith

Background

Andrew M. McKenzie, Edmonds Lawyer

Since the 1700s, the American legal system has largely clung to a tradition of not automatically awarding attorneys fees to the party who prevails in court.  In Washington, the general rule has been that the prevailing party does not get their attorneys fees unless a statute or a contract with the losing party specifically allows it.  Policy makers, lawyers, judges, and lay people have long grappled with the question of whether it is best to award attorneys fees or not.  On one hand, the availability of a fee award can reduce or eliminate financial barriers to litigating and seeking justice, because a party with limited financial means has at least the prospect of being made whole if they litigate.  The costs of a successful suit can make even a complete victory on the merits bittersweet for the winner: for example, maybe the court awarded $50,000 in damages but you had to spend $100,000 to get through to the judgment, and your “victory” was in fact a net financial loss.  On the other hand, making attorneys fees automatically awardable to the prevailing party can create incentive to needlessly run up legal costs by overlitigating, and can disincentivize parties from litigating even though they believe in good faith that their legal position is the right one: the prospect of things going wrong at trial and having a huge adverse award of fees for losing may dissuade the financially vulnerable litigant from mounting a legitimate claim or defense.

Over the generations, lawmakers and courts have occasionally stepped in to expand the availability of attorneys fees in litigation.  Washington precedent acknowledges that attorneys’ fees can be awarded as part of the costs of litigation on a “recognized equitable basis.”   Generally speaking, there are four equitable grounds for awarding attorneys fees: (1) bad faith conduct of the losing party; (2) preservation of a common fund; (3) protection of constitutional principles; and (4) private attorney general actions. 

Pre-Litigation Bad Faith As Ground For Fee Award

A recent published appellate case, Dalton M, LLC v. North Cascade Trustee Services, Inc., held that pre-litigation bad faith which forces a plaintiff to file suit in a quiet title action can constitute an equitable ground for recovery of attorneys fees.  In Dalton, borrowers obtained a mortgage, secured by a deed of trust (“Trust Deed”) encumbering two real estate parcels.  One of the parcels (“P1”) was later purchased at a tax sale following the borrowers’ failure to pay taxes.  The tax sale extinguished the Trust Deed as to P1, but left the Trust Deed intact as to the second parcel (“P2”).  Later, the lender’s trustee under the Trust Deed commenced non-judicial foreclosure of both parcels, despite title reports indicating that P1 was now owned by someone else.  Following the purported sale of both parcels to the foreclosing lender, the owner of P1 brought to the trustee’s attention that there was a mistake, and demanded a deed transferring any of the lender’s interest in P1 to P1’s owner.  Although the lender never contended that it was the rightful owner of P1, the lender never rectified the cloud on P1’s owner’s title.  In exasperation, the owner of P1 sued the lender to quiet title to P1, and sought damages for slander of title.  In the lawsuit, the lender denied that the owner of P1 should have its title quieted.  At trial, the lender conceded that the plaintiff owned P1.  The trial court found in favor of plaintiff.  On appeal, the lender contended that mere knowledge that P1 was transferred to a new owner did not mean the lender should have known of the tax sale and that the tax sale stripped the lender’s lien.  The Division III of the Court of Appeals rejected that argument, stating that given the information in title reports that there was a new owner, the lender or one of its agents “needed to at least investigate the possible interest held by [plaintiff].  A party acts in bad faith when it ignores red flags of concern.”  The court went on to explain that the lender “continued to act in bad faith when refusing to release its interest in [P1] once [plaintiff] notified the [lender] of the cloud on title.”  The court looked to other jurisdictions and treatises in noting, “Commentators and federal decisions promote fees for prelitigation bad faith when a defendant causes unnecessary litigation by unjustifiably resisting an indisputable claim.”  The court also reviewed other related Washington precedents, and determined “that [plaintiff] may recover reasonable attorney fees incurred for the bad faith conduct of [the lender] in failing to recognize the valid claim of [plaintiff] and failure to clear title.”

Lessons From Dalton

Dalton is a potentially groundbreaking case which could lead to significant changes in the availability of attorneys fees in Washington when neither a contract nor a statute creates a right to attorneys fees.  Litigants may be tempted to assume that Dalton opens the floodgates to awards of fees to the prevailing party in every case.  However, Dalton’s holding is not so broad.  A party wishing to obtain or threaten an award of attorneys fees should be prepared to explain why the other side’s conduct was not a mere good faith disagreement, but true bad faith in the face of an “indisputable claim.”  In those instances, however, Dalton could become a powerful tool to coerce cooperation from an opposing party, by raising the prospect of financial punishment for bad faith.

The lawyers at Beresford Booth have a wealth of experience in civil litigation.  We would be happy to assist you in both pre-litigation resolutions and actual representation in litigation.

To learn more about civil litigation, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.

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