Commercial Division Blog

Posted: August 31, 2017 / Categories Commercial, Damages, Attorney Fees

Plaintiff Cannot Get Attorneys’ Fees Under CPLR 3220 Unless Action Goes to Trial

On August 30, 2017, the Second Department issued a decision in Saul v. Cahan, 2017 NY Slip Op. 06391, holding that a party cannot get attorneys’ fees pursuant to an offer to liquidate damages under CPLR 3220 unless the action goes to trial. This decision creates a split between the First and Second Departments on this issue.

The Second Department's decision did not discuss the First Department's March 2014 decision in Abreu v. Barkin & Associates Realty, Inc., 2014 NY Slip Op. 02146, in which it held that a defendant was entitled to attorneys' fees under CPLR 3220 even if the claims were dismissed before trial. (See our blog post here). Instead, the Second Department reasoned that:

In matters of statutory interpretation, the primary consideration is to discern and give effect to the Legislature's intention. The text of a provision is the clearest indicator of legislative intent and courts should construe unambiguous language to give effect to its plain meaning. An examination of the legislative history is proper where the language is ambiguous or where a literal construction would lead to absurd or unreasonable consequences that are contrary to the purpose of the enactment.

Moreover, under the American Rule as applied to statutory entitlement to attorneys' fees, the United States Supreme Court has held that we follow a general practice of not awarding fees to a prevailing party absent explicit statutory authority. New York public policy disfavors any award of attorneys' fees to the prevailing party in a litigation. Statutes authorizing an award of costs and sanctions are in derogation of common law and, therefore must be strictly construed.

CPLR 3220 states:

At any time not later than ten days before trial, any party against whom a cause of action based upon contract, express or implied, is asserted may serve upon the claimant a written offer to allow judgment to be taken against him for a sum therein specified, with costs then accrued, if the party against whom the claim is asserted fails in his defense. If within ten days thereafter the claimant serves a written notice that he accepts the offer, and damages are awarded to him on the trial, they shall be assessed in the sum specified in the offer. If the offer is not so accepted and the claimant fails to obtain a more favorable judgment, he shall pay the expenses necessarily incurred by the party against whom the claim is asserted, for trying the issue of damages from the time of the offer. The expenses shall be ascertained by the judge or referee before whom the case is tried. An offer under this rule shall not be made known to the jury.

The relevant phrase of CPLR 3220 stating that the claimant "shall pay the expenses necessarily incurred by the party against whom the claim is asserted, for trying the issue of damages from the time of the offer" demonstrates the Legislature's intent that, where the claimant has not accepted the offer, the commencement of a trial is a condition precedent to imposing liability upon the claimant for the opposing party's expenses. This phrase also defines the recoverable expenses as those "necessarily" expended "for trying the issue of damages." CPLR 3220 further provides that those expenses should be determined by the judge "before whom the case is tried." Accordingly, the plain language of CPLR 3220 does not explicitly authorize an award of attorney's fees and costs to a party, such as Cahan, who merely prevailed in seeking dismissal of a cause of action alleging breach of contract. Even if CPLR 3220 could arguably support an implied right to the attorney's fees and costs sought by Cahan, the public policy of the American Rule militates against adoption of that interpretation.

(Internal quotations and citations omitted) (emphasis added).