To collect punitive damages, lawyers can charge the opponent the costs of appeal
Traditionally, reasonable attorneys’ fees can be recovered from the losing party in a lawsuit when punitive damages are awarded. The ability to recover those costs may extend to attorney fees incurred when the losing party unsuccessfully appeals the case, the Ohio Supreme Court ruled today.
In a 5-2 decision, the Supreme Court reversed a ruling by the Eighth District Court of Appeals that attorney fees expended on an appeal cannot be recovered from the other party unless a State law specifically allows it.
In the case of Cruz vs. English Nanny & Governess Schoolattorneys representing an alumnus are entitled to collect the $463,000 in attorney fees awarded by the trial court, which includes the hours billed to represent their client on appeal.
Writing for the majority of the Court, Justice Melody Stewart noted that the traditional “American rule” requires each party to pay their own attorneys’ fees. However, there are three exceptions, including allowing the prevailing party to collect fees from the opponent when a jury awards punitive damages. In this case, punitive damages were assessed against executives and affiliated businesses linked to the Chagrin Falls-based nanny school.
Judge Stewart said “prevailing parties who have been awarded reasonable attorneys’ fees as well as an award of punitive damages may also recover attorneys’ fees they incur in successfully defending their judgments on appeal” .
Chief Justice Maureen O’Connor and Justices Patrick F. Fischer, Michael P. Donnelly and Jennifer Brunner joined in Justice Stewart’s opinion.
In a dissenting opinion, Justice Sharon L. Kennedy held that the majority overturned more than 150 years of precedent by expanding the US rule to include recovery of appellate attorney fees. She said the Eighth District correctly concluded that appellate attorney fees could only be recovered where permitted by law. She warned that today’s ruling will have a ‘chilling effect’ on defendants who appeal against an unfavorable ruling for fear of incurring even more attorneys’ fees.
Judge R. Patrick DeWine joined in the opinion of Judge Kennedy.
Bitter dispute leads to legal battle
Sheilagh Roth founded the English Nanny & Governess School in 1985 to train certified professional nannies and governesses. The nanny school also operated English Nannies, a placement agency which placed graduates of the school with families requesting a nanny or governess.
In 2011, Christina Cruz graduated from nanny school. Bradford Gaylord, director of the placement agency, arranged for Cruz to interview for a nanny position. Cruz was invited to spend a weekend with a single father of two young daughters. Over the weekend, Cruz witnessed what she believed to be the father engaging in sexual activity with one of the girls.
Cruz called Heidi Kaiser, a placement agency coordinator, to report what she had witnessed and discussed whether to report the alleged abuse to social services. Kaiser forwarded the conversation to Gaylord. Gaylord and Roth ordered staff members to tell Cruz not to report the incident, and Gaylord reportedly said that if Cruz reported the alleged abuse, he would make sure she never worked as a nanny.
Cruz reported the alleged abuse. Kaiser was fired a week after the incident, and the placement agency stopped arranging job interviews for Cruz. In a letter about two months after the incident, Gaylord told Cruz that the reason he couldn’t place her in a job was because of “the current economy” and that business was “extremely slow. “.
Cruz and Kaiser sued the nanny school, placement agency, Roth, and Gaylord in Cuyahoga County Common Pleas Court. After a 26-day trial in 2015, the jury found in favor of both women and awarded compensatory and punitive damages. Since punitive damages were part of the verdict, the jury allowed the trial judge to award the women attorney’s fees to be paid by the Nanny School parties.
The attorneys requested approximately $540,000 in attorney fees, and the trial judge ultimately awarded approximately $125,000. The judge also reduced the amount of damages the jury awarded to the women.
School appeal judgment
The nanny school appealed the judgment against them. The women also appealed, arguing that the trial judge wrongly reduced their damages and attorney’s fees. The Eighth District upheld the verdict against the nanny school and found that the trial court improperly reduced damages and costs.
When the case returned to trial court, the women’s lawyers asked the trial judge not only to calculate the fees they should have received for trial work, but also to pay them for the time they worked on the call. The trial judge agreed and awarded $463,000 in attorney’s fees.
The nanny school appealed the award of attorney’s fees to the Eighth District. In 2020, the Eighth District ruled that appeal fees could not be added. The court said appellate attorney fees can only be added by a trial court if a state law allows the award of such fees for a particular type of lawsuit. Since the women’s lawsuit was not tied to a law allowing for appellate attorney fees, they could not be added, the court ruled.
The women’s lawyers appealed the decision to the Supreme Court, which agreed to hear the case.
Supreme Court Review Fee Rules
The Eighth District relied on the Supreme Court’s 2008 decision Klein v. Moutz decision, and two subsequent Court of Appeal decisions that followed Klein. Today’s notice explained that the issue Klein was a couple’s lawsuit against a landlord who failed to return a security deposit as required by state law.
“In Kleinas well as cases involving other remedial legislation, we did not explicitly limit the recovery of appellate attorney fees to cases in which remedial legislation was involved,” Judge Stewart wrote.
While the Klein decision did not prevent the women’s attorneys from collecting fees for the appeal, the Court looked to traditional attorney fee rules to determine what allowed the award. The Court explained that under centuries of common law, courts use the American rule, in which each party pays its own attorney’s fees.
The US rule contains three exceptions that require the losing party to pay attorneys’ fees. Exceptions are where a law creates an obligation to pay the prevailing party’s fees; a losing party acted in bad faith; or where the parties have contractually agreed that the loser will pay.
The opinion noted that the award of punitive damages fits the exception in this case that a party acted in bad faith and must pay the opposing party’s costs. The Nanny School argued that the rule only applies to costs incurred at trial, but does not apply to appeal costs. The Court disagreed.
“Furthermore, nothing at common law prohibits successful parties who have been awarded punitive damages at trial from recovering reasonable attorneys’ fees they incurred in defending their judgment on appeal,” the court said. .
The notice noted that for the other two exceptions – a law or a contract requiring payment – there is no indication that cost recovery is limited to litigation costs only. The Court noted that the rule would be undermined if the party found to be in bad faith suffered no consequences for continuing to raise the winning party’s legal costs and delaying payment of the judgment through appeals.
The Court remanded the case to the Cuyahoga County Common Pleas Court to reinstate the trial court’s decision regarding attorney fees.
Poorly developed fee rule, strong dissent
In her dissent, Justice Kennedy said the majority overturned a “fundamental principle” of the law that requires parties to pay their own attorneys’ fees unless the legislature specifies the circumstances in which attorneys’ fees on appeal must be paid by the losing parties. She noted that the General Assembly has enacted laws to guarantee the losing party the right to a first appeal against the decision of a lower court.
The dissent said lawmakers expressed certain instances where appellate attorney fees may be awarded, including RC 2323.51(A)(2)(a), which allows for recovery where a court finds that a party filed a frivolous appeal.
“The General Assembly, which created the substantive right of appeal, did not authorize attorneys’ fees as a sanction for the legitimate appeal of a judgment, but authorizes them only in cases of abuse of the right to appeal,” the dissent said.
The dissent also disagreed with the majority’s assessment that the trial court was entitled to include appeal costs when it revised its award to attorneys. The Eighth District’s “mandate” to the trial court was to recalculate the original court costs, but it did not order the trial court to add costs, the dissent said.
Additionally, the dissent argued that exceptions to the U.S. rule have historically only been applied to trial court attorneys’ fees. Justice Kennedy wrote that the Ohio Supreme Court recognized appellate attorney fees only in cases where it determined whether a law authorized such fees. This case is different, the dissent said.
“Today, for the first time, however, this court does not base an award of appellate counsel on the interpretation and application of any statute. The majority bases this decision on its own expansion of the common law,” Justice Kennedy wrote.
The dissent concluded: “Now, in all cases in which attorneys’ fees are awarded at the trial court level, when awarding punitive damages, an award of attorneys’ fees on appeal will necessarily follow. And it’s easy to predict the result – a chilling effect on a litigant’s substantive right of first appeal.
2020-1247.Cruz vs. English Nanny & Governess SchoolBrief Opinion No. 2022-Ohio-3586.
See the video of the pleadings of this case.
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