The Supreme Court of Virginia released three decisions in recent months that provide added guidance on attorney’s fees awards. While these are state court decisions, it is Virginia law, not federal law, that governs attorney’s fees awards on matters arising under Virginia law in the federal courts. For example, attorney’s fees awarded by a federal court under the Virginia Business Conspiracy Act are governed by Virginia state law. Also, fee awards by a federal court pursuant to a Virginia contract claim where the contract includes an attorney’s fees provision are governed by Virginia state law.
We have posted multiple times on attorney’s fees awards in the Eastern District. For example, D. Mauler, New Trends in Attorney’s Fees Declarations? (November 15, 2016); D. Mauler and J. Kurz, E.D. Va. Whacks Attorneys’ Fees Claim: Further Split on Court Revealed (September 30, 2016); D. Mauler, Recent Opinion Highlights Differing View in EDVa on Appropriate Hourly Rates (September 22, 2015). While there are obvious overlaps in the consideration of attorney’s fees under federal precedents as opposed to Virginia law, separate consideration of recent developments at the Supreme Court of Virginia merits attention.
The Prevailing Standard for Attorney’s Fees Awards Under Virginia Law
As the starting point, the party claiming legal fees must plead a claim for the award of fees. in Graham v. Community Management Corp., Record No. 161066 (Oct. 12, 2017), the Supreme Court confirmed that Rule 3:25 requires in most matters pleading the claim for fees (the few exceptions are covered in subpart A of the Rule). In Graham, the prevailing defendant had not requested attorney’s fees in any pleading, including her pleas in bar, demurrers and answer. After the defense verdict, she returned with a claim for fees based on the employment contract that was the basis for the plaintiff’s original claim. The Fairfax Circuit Court held that the claim was waived when not pled, and the Supreme Court, applying the “express language of Rule 3:25(C),” affirmed.
A party seeking an award of fees then has the burden of proving a prima facie case that the fees were reasonable and necessary. A party may not recover fees for duplicative work or for work that was performed on unsuccessful claims. In determining whether the prima facie case is established, the factfinder may consider some or all of the seven factors identified in Chawla v. BurgerBusters, Inc., 255 Va. 616 (1998):
In determining whether a party has established a prima facie case of reasonableness, a fact finder may consider, inter alia, (1) the time and effort expended by the attorney, (2) the nature of the services rendered, (3) the complexity of the services, (4) the value of the services to the client, (5) the results obtained, (6) whether the fees incurred were consistent with those generally charged for similar services, and (7) whether the services were necessary and appropriate.
Chawla involved an attorney’s fees provision in a commercial lease. Both parties sought fees. A threshold issue was where the initial burden of proof fell – on either the party seeking fees must or the defending party to prove the fees were unreasonable. Relying on Seyfarth Shaw v. Lake Fairfax Seven Ltd. Partnership, 253 Vas. 93 (1997), the Supreme Court held that “the party claiming legal fees has the burden of proving prima facie that the fees are reasonable and were necessary.”
Lambert v. Sea Oats Condominium Association, Inc.
In an April 2017 decision, Lambert v. Sea Oats Condominium, 293 Va. 245 (2017), the Plaintiff sought recovery of $500 from her condominium association after she paid to repair an exterior door. Ms. Lambert lost in the general district court but prevailed when she took the case to the circuit court. In pursuit of her claims, she spent more than $9,500 in attorney’s fees to win $500. She claimed recovery of her attorney’s fees pursuant to the statutory provision in Va. Code § 55-79.53. The circuit court awarded only $375 reasoning that the fee award should be proportional to the damages.
The Supreme Court rejected the circuit court’s analysis. Courts may consider the amount of damages a plaintiff recovers, and they do so within the scope of the “results obtained” factor. The Court directed, however, “that merely applying a ratio between the damages actually awarded and damages originally sought will not satisfy the reasonableness inquiry.” The issue is “the necessary costs of effectively litigating a claim.” The Court determined that the circuit court abused its discretion by failing to consider all the relevant factors, and it remanded the case back to the circuit court, directing the trial court to include “an award of the cost of the amount of reasonable attorney’s fees incurred at trial and in this appeal.”
Justice Mims, the author of the Sea Oats opinion, uses his footnotes to provide broader guidance on attorney’s fees. For example, in footnote 1 he observes that attorney’s fees may be decided by a jury, and he suggests that the review of a jury verdict on fees should not be any different than the typical appellate review of determinations of punitive damages, physical pain, suffering or mental anguish. Citing a 1959 decision, the Court observed that jury decisions are not disturbed “unless it appears that [they were] influenced by partiality, prejudice, corruption of the jury, or some mistaken view of the evidence.” The footnote stops short, however, of providing a definitive statement of the standard of review applicable to a jury decision on attorney’s fees because, as the opinion observes, there was no jury award at issue in the Sea Oats case.
In his footnote 7, Justice Mims discusses the use of experts in the proof of the reasonableness of attorney’s fees. While there is no per se requirement of an expert, the footnote instructs that proving that the requested fees are reasonable “may require supplying an expert who was undertaken a detailed evaluation of its attorneys billing records to testify about what amount is reasonable.” The opinion adds that “the likelihood that such testimony is necessary will often be proportional to the complexity of the case.”
A final point from Sea Oats addresses the pleading requirements when the plaintiff is seeking attorney’s fees. The condominium association argued that because Ms. Lambert had not identified in her complaint the amount of fees she sought she should later be precluded from claiming any fees. The Supreme Court rejected the argument instructing that “the party who may be entitled to an award of attorney’s fees is merely required to notify the opposing party that it will seek them if it prevails, as required by Rule 3:25(B).”
Denton v. Browntown Valley Associates, Inc.
In Denton v. Browntown Valley Associates, Record No. 160999 (Va. Aug. 31, 2017), a decision also authored by Justice Mims, the Supreme Court made clear that the fees incurred in litigating the reasonableness of the underlying attorney’s fees are themselves recoverable. For example, if the fee claim is for $50,000, and the proponent must spend $20,000 to prove the reasonableness of the fees, the total of $70,000 is recoverable. The opinion explains, “The attorney’s fees that the prevailing party incurs while litigating the issue of attorney’s fees are no different from those it incurs while litigating any other issue on which it prevails.”
At the beginning of the discussion about attorney’s fees, the Denton opinion cites both Chawla and Sea Oats for the identification of the “seven nonexclusive factors for courts to consider when weighing the reasonableness of an award of attorney’s fees.” Relying on Sea Oats, the Denton opinion repeats the principle that fees necessary to prove the reasonableness of the underlying attorney’s fees are recoverable applies to the fees incurred on appeal as well.
With Sea Oats, Denton, and Graham, the Supreme Court of Virginia is rounding out its discussion of attorney’s fees awards. The Seyfarth Shaw and Chawla opinions summarized the law to 1998, and provided us with the 7-factor analysis. Subsequent decisions, now capped with the three recent opinions, confirm the test for reasonableness, explain further necessary fees, comment on the need for a fees expert, and clarify the pleading requirements. Denton adds that fees-to-prove-fees are recoverable, and that this extends to fees on appeal.
Despite this, the Court’s attorney’s fees mosaic is not yet fully complete. Justice Mims provided some guidance on the review of jury verdicts on attorney’s fees and on the desirability, but not the necessity, of expert testimony to assist a jury. But the Sea Oats opinion stops short of explicit instructions because there was no jury verdict at issue in that case. The more complete mosaic may have to wait until the Supreme Court has before it the review of a jury verdict on attorney’s fees.