Fee Awards Under Consumer Statutes Can Go Beyond the Extent of a Plaintiff’s Success On His or Her Complaint

DeGarmeaux v. DNV Concepts, Inc., 448 N.J. Super. 148 (App. Div. 2016).  As Judge Manahan stated in his opinion for the Appellate Division in this case, “[t]he issue of reasonbleness of counsel fees has been the subject of numerous decisions.”  This opinion addressed what the panel viewed as an issue of first impression:  “whether prevailing plaintiffs in a Consumer Fraud Act (CFA) action are entitled to attorney’s fees incurred in defense of a counterclaim.”  The court determined that such a fee award, which the Law Division had included in the fee that it granted to plaintiffs’ counsel, was appropriate, since the complaint and the counterclaim were “inextricably intertwined.”  But the panel reversed the overall award for other reasons that are important to this case and to others under fee-shifting statutes such as the CFA.

Plaintiffs’ gas fireplace had been damaged by a storm, and plaintiffs went to defendant DNV Concepts, Inc., which did business as Bright Acre, to see about replacing the fireplace and getting help in filing an insurance claim.  Bright Acre assigned one of its employees, James Risa, to the job.  Besides working for Bright Acre, Risa operated his own installation service company, Professional Fireplace Services, and Bright Acre’s practice was to refer installation work to its employees who had their own installation companies.  Plaintiffs, however, were not told about that, and they believed that they were working with Bright Acre.

Based on a quote from Risa, plaintiffs agreed to a cost of $3,700 to install a new fireplace.  Plaintiffs paid the first installment of that sum to Professional Fireplace Services and also paid $2,450 to Bright Acre for the new fireplace.  Risa’s work on the installation was inadequate and untimely.  Plaintiffs contacted Bright Acre, but got no response.  Plaintiffs therefore hired another contractor to complete the installation.

Plaintiffs then sued Bright Acre, Risa, Professional Fireplace Services, and others on consumer fraud, negligence, the New Jersey Home Improvement Practices Act, and other theories.  Plaintifs contended that they were never told that Risa’s work was being performed on behalf of his own company, not as an employee of Bright Acre, with whom plaintiffs thought they were dealing.

Bright Acre counterclaimed on several grounds, the most important of which was an assertion that plaintiffs had wrongly altered the quote from Risa, which Bright Acre said was sent on Professional Fireplace Services’s letterhead.  Bright Acre relied on that argument both in defense of the CFA claim and on its counterclaim. Two differing versions of the quote, one on Professional Fireplace Services’s letterhead and one not, were presented to the jury.

Following a five-day trial, the jury returned a verdict in favor of plaintiffs on their CFA and other claims against Bright Acre, Risa, and Professional Fireplace Services.  The jury rejected Bright Acre’s counterclaim.  The jury awarded $4,790 on the negligence claim and $1,500 on the CFA and Home Improvement Act claims.

Plaintiffs’ counsel then applied for attorneys’ fees, which are mandatory when a plaintiff prevails in a CFA case.  Counsel sought $70,911.12, but the Law Division awarded only $20,000.  In its statement of reasons supporting its decision, the Law Divsion stated that it had “factored into its award the amount the jury ultimately awarded [p]laintiffs, particularly as to their consumer fraud claim.”

Both sides appealed the fee award, and Bright Acre also appealed the denial of its motion for judgment on the CFA claim and its counterclaim.  Judge Manahan applied the “clear abuse of discretion” standard of review that is applicable to appeals of fee awards.  He also noted that the CFA’s fee-shifting provision advances New Jersey’s strong “policy of ensuring that plaintiffs with bona fide claims are able to find lawyers to represent them and encourages counsel to take on private cases involving an infringement of statutory rights.”

Judge Manahan found the Law Division’s award of fees for plaintiffs’ successful defense of Bright Acre’s conterclaim to be appropriate, since the complaint and counterclaim were “intextricably intertwined” by virtue of the fact that Bright Acre’s argument about the alleged presence of Professional Fireplace Services’s letterhead on the quote given to plaintiffs was central to both Bright Acre’s defense to the CFA claim and Bright Acres’s counterclaim.  Judge Manahan found highly persuasive a Wisconsin case that had granted counsel fees for the successful defense of a counterclaim filed in response to a complaint under Wisconsin’s unfair trade statute.

But the overall ruling on fees by the Law Division could not stand.  Judge Manahan observed that the Law Division had “employed proportionality as a factor” in setting the fee award.  “In Szczepanski [v. Newcomb Med. Ctr. Inc., 141 N.J. 346 (1995)], our Supreme Court explicitly rejected a proportionality requirement between damages recovered and the attorney fee award, although noting the degree of success obtained remains an important factor.  Id. at 366.  We add that the level of success achieved should also be measured, in appropriate circumstances, by other means; such as here by plaintiffs’ attainment of a favorable outcome in defending the counterclaim.”  Other than considering fees for successfully defeating the counterclaim, the Law Division “did not employ that ‘success’ in determining an appropriate fee award.”

Moreover, since the Law Division’s statement of reasons did not refer to “the public policy of the CFA for fee-shifting; deterrence of fraudulent conduct, and encouragement of cousnel to undertake representation of plaintiffs.”  Quoting Szczepanski, Judge Manahan emphasized that a fee analysis must include “not only the damages prospectively recoverable and actually recovered, but also the interest to be vindicated … as well as any circumstances incidental to the litigation that directly or indirectly affected the extent of counsel’s efforts.”  Accordingly, a remand was required on the fee issue so that the Law Division could consider the entire picture that Szczepanski drew.

Judge Manahan took little time to reject Bright Acre’s cross-appeal regarding the denial of its mtion for judgment.  The standard of review on that isue was “whether the evidence, together with the legitimate inferences therefrom, could sustain a judgment in favor of the party opposing the motion.”  Judge Manahan observed that Bright Acre had argued its position vigorously to the jury, but the jury rejected that argument, presumably having taken into account the two differing writen quotations presented at trial.

Too often, in awarding attorneys’ fees, courts focus too much on comparing what consumer protection plaintiffs sought and what they achieved.  Sometimes that focus takes the form of a proportionality analysis, which compares the result achieved with the fee incurred to achieve it.  Such an analysis was expressly found improper by the Supreme Court in Szczepanski, and Judge Manahan’s opinion is a useful reminder about that.

Sometimes, however, unrealistically low fee awards are supported by references to “lack of success.”  But this panel’s opinion makes an important point (one also made by Szczepanski but not often invoked): “success” can come in many forms, and should not be limited to a mere comparison between what the plaintiff demanded for himself or herself and what he or she ultimately realized.  Success can also include, as here, defeating a counterclaim.  And it can also encompass creating a new rule of law, serving as a catalyst for changing a defendant’s conduct, or the vindication of other interests, including the purpose of consumer protection statutes.

“[C]ircumstances incidental to the litigation that directly or indirectly affected the extent of counsel’s efforts,” which Szczepanski cited as another factor that should inform a fee decision, should include the intensity of the defense.  Here, the Law Division observed that “a vigorous defense was marshalled against the claim by experienced counsel for the defense.”  A defendant that chooses a ferocious defense must expect, and must be expected to pay for, extra efforts by a successful plaintiff to overcome that vigorous defense.

Judge Manahan’s decision should be required reading for all counsel and judges in statutory fee-shifting cases, especially in the consumer area.