Fee Awards and the Prevailing Party

January 2012Articles In the Zone

Clients often ask whether they are entitled to an award of attorneys’ fees in bringing or defending a particular cause of action. Unless provided for by agreement, by statute or by court rule, the answer is generally “No.” One rule does permit an award of fees, at a court’s discretion, to a party seeking to enforce a court order. The party must be a “prevailing” party to entitle it to an award. However, to be “prevailing,” a party does not have to be entirely successful.

In Malden Real Estate v. Cycle Craft, Inc., decided in early January 2012, the Appellate Division of the Superior Court of New Jersey awarded a commercial tenant attorneys’ fees, even though the tenant did not succeed on all of its claims against its landlord. New Jersey courts have adopted a two-prong test to determine the prevailing party in a civil action. First, the party must demonstrate that the action was causally related to securing the relief obtained; a fee award is justified if a party’s efforts are a necessary and important factor in obtaining the relief. The second prong requires a party to establish that the relief granted had some basis in law. A party may be considered prevailing, even though a final judgment may not have been entered in that party’s favor, so long as the party has won substantially the relief originally sought in its complaint.

In this case, a shopping center tenant purchased its business from a predecessor and assumed an existing lease. Shortly thereafter, and under the doctrine of eminent domain, the state condemned a portion of the center for road widening purposes and paid the landlord approximately $650,000 as compensation. This resulted in the elimination of several parking spaces used by the tenant’s business and affected access to the area of the center directly in front of the tenant’s business. The tenant initially sued the landlord, alleging breach of its lease and seeking damages resulting from both the elimination of the parking spaces and the negative impact on its business caused by the road project. The parties settled, providing for the landlord to pay the tenant approximately $15,000 and to reduce the tenant’s rent on a monthly basis. The settlement was memorialized in a court order.

The problems continued. Several years later, the landlord sued the tenant for unpaid rent and common area maintenance (CAM) charges, both of which had been withheld by the tenant. The tenant counterclaimed, alleging breach of the settlement agreement, breach of the implied covenant of good faith and fair dealing, and a violation of the New Jersey Consumer Fraud Act. The trial judge found the landlord had breached the terms of the settlement agreement and the implied covenant of good faith and fair dealing; the lower court awarded the tenant a retroactive rent abatement but determined the tenant owed the landlord for unpaid CAM charges. That court also dismissed the tenant’s Consumer Fraud Act claim. Finally, the trial judge denied both parties’ demands for attorneys’ fees.

lthough the tenant was required to pay the landlord the balance of the CAM charges it had withheld, the tenant prevailed on its claimed breach of the settlement agreement. The Appellate Division concluded the tenant should be considered the prevailing party on the breach of settlement claim, which was supported by the lower court’s award of damages to the tenant in overcharged rent to offset the unpaid CAM charges. The court found the tenant’s counterclaim was necessary to enforce the terms of the settlement agreement and to secure relief from the landlord’s excessive rent charges, thus satisfying the first prong of the two-prong test. The tenant met the second prong because the trial judge granted the relief of rent abatement pursuant to the settlement agreement. Buttressing that determination was the trial judge’s finding that the landlord did not act in good faith in attempting to remedy the traffic issues caused by the construction project. Accordingly, while the tenant did not prevail on all its claims, it did prevail on its claims to enforce the settlement agreement and therefore was entitled to a fee award.

While not necessarily a topic of this article, the Appellate Division upheld the trial judge’s finding that the New Jersey Consumer Fraud Act did not apply to the tenant’s claims. While the landlord may have breached the terms of its settlement agreement, no aggravating circumstances were found to exist in that breach; substantial aggravating circumstances must be present in addition to the breach to trigger an award under the Consumer Fraud Act.

This case confirms that fee awards may be had, even in circumstances in which the disposition of a dispute does not result in complete victory.

For more information, please contact John L. Grossman.