taxable costs and disbursements allowed the victor) might be
superficially described as:
[(percent chance of success) x (likely award)] − cost of conducting
If that formula results in a positive number, it is rational for a
plaintiff to bring suit. (There may also be independent business reasons,
as for example to demonstrate to copyright violators that a violation
will be prosecuted as a deterrent).
The effect of a statute allowing for attorney's fees to be shifted to
the defendant is to modify the equation as follows:
[(percent chance of success) x (likely award)] − [(legal fees
element of cost of conducting the litigation) x (chance of loss)]
— other costs of conducting litigation.
This equation is more likely to result in a positive number, because the
cost to a plaintiff of conducting the litigation is less of a negative in
the equation, that is to say, less of a deterrent.
Fee-shifting statutes favoring plaintiffs are most effective in
modifying the calculus for lawsuits worth bringing on their merits. The
introduction of the new variable has a large effect if the chance of loss
is small (only 10%, for example) which would probably be considered a
lawsuit worth pursuing. Where chance of loss is higher, the effect of the
statute is reduced. For example, if the chance of loss is 90% or more
— a prototypical frivolous lawsuit — the fee statute will
have a substantially reduced effect. When there is added to the risk to
plaintiff the possibility of awarding defendants their fees for a
frivolous suit brought against them, the pressure on a plaintiff not to
bring actions without good cause increases substantially, and in effect
the English system is imposed.
Assuming the plaintiffs case meets the very low standard of
non-frivolousness, statutory fee awards obviously encourage the plaintiff
(treating the plaintiff and his lawyer as one economic entity for
purposes of this analysis) to sue and to demand settlement at a higher
level since the total net recovery will be greater if the plaintiff
obtains a judgment. Since the defendant will not collect statutory fees
if it wins (again assuming minimum standards of suit viability), the cost
of settlement will go up because the potential loss is greater.
Calculations become more complex when the benefits and detriments are
analyzed separately for the client and the attorney, whose interests are
not the same. They will also be affected by a judgment on how the court
will exercise its fee-granting discretion.
The probability of settlement will not in general be increased by the
availability of statutory fees because plaintiffs' willingness to settle
at a figure that would have been appropriate without the statutory fee
will be reduced. To settle plaintiff will demand more. Cf. Hans Zeisel,
Harry Kalven, Jr., and Bernard Buchholz, Delay in the Court 111-19 (1959)
(effect of delay on settlement). The psychological realities may actually
reduce the chances of settlement should the defendant, for example,
resent the added toll the law imposes on the damages actually caused by
it, or should it wish to discourage future, more costly suits. By
contrast, here plaintiffs might have sued in part to discourage
defendants from leading its insureds into smoking — as a kind of a
legal-medical prophylactic for diseases caused by smoking. Like
sophisticated factors may have impacts on litigation different from that
to be expected from a superficial economic analysis. In general,
however, the net effect of a statutory change permitting plaintiffs, but
not defendants, to obtain legal fees is
to increase the cost to possible malefactors and to encourage suits against
them — the apparent design of the legislature.
There are several policy reasons suggesting why attorney's fees might
be appropriately awarded in particular cases. In some cases, awards of
one side's attorney's fees can have the effect of punishing a losing
party. Cf. John T. Noonan, Persons and Masks of the Law 136-44 (1976)
(commenting on the de facto punishment in the 1928 decision by the New
York Court of Appeals which required Helen Palsgraf, whose annual income
was $416, to pay costs of $350 to victorious defendant Long Island
Railroad, which had millions in assets). In such cases, fee-shifting
serves to discourage suit.
Another objective is to encourage suit. For example, in the last thirty
years, courts have sometimes awarded fees under a "private attorney
general" theory that "worthy claimants should not be discouraged from
asserting rights embodying important public interests because of a lack
of financial resources." Incarcerated Men of Allen County Jail v. Fair,
507 F.2d 281, 285 (6th Cir. 1974). Since the Supreme Court's decision in
Alyeska, courts have been discouraged from allowing fees under a "private
attorney general" theory except when authorized by legislation. The
rationale behind this approach is similar to that embodied in decisions
requiring that litigants be allowed free access to court. See, e.g.,
Boddie v. Connecticut, 401 U.S. 371, 91 S.Ct. 780, 28 L.Ed.2d 113 (1971)
(state must waive filing fees for indigent applicants for divorce).
Private attorney general suits have the advantage to the state of
reducing the burden on its underfunded prosecutorial staffs. Without
private suits the state policy would not be enforced in many instances. An
important example is qui tam suits based on frauds against the
government. See, e.g., False Claims Act of 1986, Pub. L. 99-562, 100
Stat. 3153 (codified as amended at 31 U.S.C. § 3729-3733 (2001))
(authorizing qui tam enforcement in False Claims Act suits).
Another advantage of plaintiff attorney fee awards is that they serve
to allocate costs in so-called "common fund" cases. Alyeska, 421 U.S. at
257. In some jurisdictions, fees may be awarded where a party secures a
"substantial benefit" to another party or to the public. See generally
Serrano v. Priest, 569 P.2d 1303 (Cal. 1977) (explaining substantial
2. Statutory authorization of attorney's fee awards
Rule 54 of the Federal Rules of Civil Procedure lays out the procedure
for applying for attorney's fees. It states in relevant part that:
(d)(2)(A). Claims for attorney's fees and related non-taxable expenses
shall be made by motion unless the substantive law governing the action
provides for the recovery of such fees as an element of damages to be
proved at trial.
(d)(2)(B). Unless otherwise provided . . . the motion must be filed and
served no later than 14 days after entry of judgment; must specify the
judgment and the statute, rule, or other grounds entitling the moving
party to the award; and must state the amount or provide a fair
estimate of the amount sought.
Section 349(h) of Article 22-A of the New York General Business Law
provides statutory authority for the award of attorney's fees in this
case. This section contains language both creating liability and allowing
the recovery of attorney's fees by plaintiffs. The applicable part of
section 349 reads:
(h) In addition to the right of action granted to the attorney general
. . . any person who has been injured by reason of any violation
of this section may bring an action is his own name to . . .
recover his actual damages[.] The court may award reasonable
attorney's fees to a prevailing plaintiff.
N.Y Gen. Bus. Law 349(h) (Consol. 2001).
3. Procedural considerations in awarding attorney's fees
Courts may enter judgment on the merits and then rule on attorney fees
or Rule 54 costs later. Rule 58 of the Federal Rules of Civil Procedure
states that "[e]ntry of judgment shall not be delayed, nor the time for
appeal extended, in order to tax costs or award fees." Fed.R.Civ.P.
58. A court may grant judgment before awarding attorney's fees and
costs, since attorney's fees and costs are "wholly collateral" to a
judgment on the merits. FCC v. League of Women Voters, 468 U.S. 364,
373-74, n. 10, 104 S.Ct. 3106, 82 L.Ed.2d 278 (1984); accord
Fed.R.Civ.P. 54(d)(2)(B) (parties may
seek attorney's fees after judgment has been issued by filing and serving a
motion within 14 days after judgment is entered). Taxing of "costs" is
also distinguished from the judgment on the cause of action. See
Buchanan v. Stanships. Inc., 485 U.S. 265, 268,
108 S.Ct. 1130, 99 L.Ed.2d 289 (1988) ("A sharp distinction between the
judgment on the merits and an award of costs under Rule 54(d) also is
evident in Rule 58's instruction that `[e]ntry of the judgment shall not
be delayed for the taxing of costs.' Thus it is apparent that the Rules
`attemp[t] to divorce the process of entering judgment from that of
determining and assessing the costs.'") (citing 10 Wright, Miller, &
Kane, Federal Practice and Procedure § 2679, 392 (2d ed. 1983)).
The actual award of attorney's fees may take place some time after
entry of the main judgment. Rule 54(d) "imposes no time limit apart from
an implicit requirement of reasonableness." Hairline Creations. Inc. v.
Kefalas, 664 F.2d 652, 655 (7th Cir. 1981), aff'd on other grounds,
465 U.S. 752 (1984). See also White v. New Hampshire Dep't of Employment
Sec., 455 U.S. 445, 454, 102 S.Ct. 1162, 71 L.Ed.2d 325 (1982)
(permitting petitioner's request for attorney's fees under the Civil
Rights Attorney's Fees Awards Act, 42 U.S.C. § 1988, four and-a-half
months after winning judgment on the merits).
In the instant case the parties postponed a hearing on the attorney fee
issue to permit discovery on the matter to go forward. The present order
awarding attorneys fees is timely.
4. Federal Law on attorney's fees
In federal court, state substantive statutes providing for attorney's
fees are governed by state substantive law. See Chambers v. NASCO. Inc.,
501 U.S. 32, 52, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); Riordan v.
Nationwide Mut. Fire Ins. Co., 977 F.2d 47, 53 (2d Cir. 1992). See also
Erie R. Co. v. Tompkins, 304 U.S. 64, 77, 58 S.Ct. 817, 82 L.Ed. 1188
(1938) (federal courts should apply state substantive law where decision
is based on state statute). Nevertheless, absent some overriding reason
in policy or contrary state rulings, it is appropriate for federal courts
to rely on federal practice in awarding fees under state substantive
In computing fees due under a federal statute, courts generally use the
"lodestar" method, following the court of appeals for the Third Circuit
in Lindy Bros. Builders v. American Radiator & Standard Sanitary Corp.,
487 F.2d 161, 168 (3d Cir. 1973). It is based on an initial
determination of hours expended multiplied by counsel's normal hourly
rate. This number may then be modified to account for factors such as the
quality or difficulty of the work. The court of appeals for the Fifth
Circuit favored a separate test in Johnson v. Georgia Highway Express,
488 F.2d 714, 717-19 (5th Cir. 1974), which required weighing of twelve
factors in determining fees: The time and labor required, the novelty and
difficulty of legal questions; the skill required to litigate the case;
any preclusion of other employment from acceptance of the case; the
customary fee if any; the fixed or contingent nature of the fee; any time
limitations imposed on the attorney; the amount in controversy and the
result obtained; the experience, reputation, and ability of the
attorneys; the desirability or undesirability of the case; the nature and
length of the professional relationship; and the awards allowed in
The Supreme Court approved consolidation of the two standards in
Hensley v. Eckhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983).
Hensley states that "[t]he most useful starting point for determining the
amount of a reasonable fee is the number of hours reasonably expended on
the litigation multiplied by a reasonable hourly rate." 461 U.S. at 433.
Courts, however, are also encouraged to use the Johnson factors in
determining reasonable hours and rates. Id. at 434 n. 9. Lodestar
calculations, widely used for federal statutes, provide useful reference
points in calculating state fee amounts.
Applying controlling law, this court briefly examined the issue of fee
awards under section 349 and issued the following memorandum to guide the
parties in preparing to argue the fee issue:
In determining statutory fees under section 349 of New York's General
Business Law, the following criteria may be considered:
(1) The fees allowed should be sufficient to attract excellent
attorneys who will devote their full resources, appropriate to the
(2) Fees should not be so great as to encourage poor cases to be
litigated or excessive resources dedicated to the job on the theory
that defendants will be "compelled" to settle because of the threat of
huge fees, or on the gamble that the large fee may be allowed in an
occasional "successful" suit, overcoming losses when litigations fail.
(3) Fees should not be disproportionate to the probable value of the
case. Probable value is reflected to a considerable degree in the
reality of what was obtained in the actual suit.
(4) Cost of support to the lawyers by advice from experts, work of
paraprofessionals technicians, and other resources is appropriate.
These billable fee expenses must be distinguished from costs under Rule
54(d) of the Federal Rules of Civil Procedure. Expert fees for
preparation of reports, depositions and testimony are not available as
(5) Generally, the fee should not be greater than counsel actually
would earn were the case "successful" since it is compensation to the
client for its potential out-of-pocket expenditures. The attorney's
experience, ability and reputation should be considered in determining
the fee that probably would have been earned. Where the recovery is
relatively small or the contribution to the law is great this limit
should not be observed.
(6) The fee should be reduced by a proportion that would not have been
necessary had other theories not been incorporated in the suit. Leeway
for imaginative use of other supporting theories should be allowed. The
and imaginative expansion of the law by plaintiffs counsel should not
(7) Unnecessary inefficiency or wasteful overstaffing, or duplicative
work should not be rewarded or encouraged. Legal research, writing, and
litigation in a new field almost always will lead up some blind alleys
and require backtracking; the fee should recognize this aspect of the
lawyer's creative work.
(8) The hourly rate or percentage of recovery, or combination of the
two, should not exceed the norm for the legal community (national,
regional or local as may be appropriate).
(9) The specifics of any contingency or other fee arrangement with the
client are not decisive but may be considered.
(10) An actual payment of attorneys' fees is not a condition precedent
to a recovery.