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Generally, parties in civil litigation must bear the cost of their own attorneys’ fees. This practice is known as the “American Rule” (as opposed to the “English Rule,” which allows for the liberal award of counsel fees to prevailing litigants). The rationale for this rule is “(1) unrestricted access to the courts for all persons; (2) ensuring equity by not penalizing persons for exercising their right to litigate a dispute, even if they should lose; and (3) administrative convenience.” In re Niles Trust, 176 N.J. 282, 294 (2003). In New Jersey, there is a strong public policy against shifting counsel fees and the Rules of Court only permit fee-shifting in eight enumerated circumstances. See R. 4:42-9(a) (permitting award of attorney’s fees in family action; out of court fund; probate action; mortgage foreclosure action; tax certificate foreclosure action; action upon liability or indemnity policy of insurance; as expressly provided by rules in any action; and all cases where attorneys’ fees are permitted by statute).
However, the New Jersey Supreme Court has held that prevailing plaintiffs in legal malpractice cases may recover attorneys’ fees because such fees are “consequential damages that are proximately related to the malpractice.” Saffer v. Willoughby, 143 N.J. 256, 272 (1996). This fee-shifting was later extended to claims against attorneys for intentional misconduct. See Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443 (2001). The rationalization behind these departures from the American Rule is the unique nature of the attorney-client relationship. See Saffer, 143 N.J. at 272.
On April 26, 2016, in Innes v. Marzano-Lesnevich, a sharply divided New Jersey Supreme Court held that attorneys may be liable for counsel fees to non-clients.
In Innes, the plaintiff, Peter Innes (a U.S. citizen), and his wife, Maria Jose Carrascosa (a Spanish national), were involved in a contentious divorce proceeding and custody battle over their daughter. During these proceedings, the parties entered into an agreement whereby Carrascosa’s attorney would hold the daughter’s passport in escrow. Carrascosa then discharged her attorneys and retained defendants, Madeline Marzano-Lesnevich, Esq., and Lesnevich & Marzano Lesnevich, Attorneys at Law. Carrascosa obtained the passport from defendants and, in December 2004, used the passport to remove the daughter from New Jersey to Spain.
Innes filed a complaint against defendants, alleging that they improperly released his daughter’s passport to Carrascosa. A jury determined that defendants were negligent in releasing the passport and awarded damages to Innes. Innes then sought an award of his attorneys’ fees in connection with the lawsuit, which the trial court denied.
In holding that Innes may be entitled to attorneys’ fees against defendants, even though he was never the defendants’ client, Justice Solomon, joined by Chief Justice Rabner and Justice Albin, explained that,
Here, defendants were holding [the daughter]’s United States passport as trustees and escrow agents. As such, they were fiduciaries for the benefit of both Carrascosa and Innes. Innes relied on defendants to carry out their fiduciary responsibilities under the Agreement and prevent Carrascosa from taking [the daughter] away from him. Defendants, however, breached their fiduciary obligation to Innes and released [the daughter]’s United States passport to Carrascosa without Innes’ written permission. Accordingly, consistent with our post-Saffer jurisprudence, Innes would be entitled to counsel fees if there had been a finding that defendants, as attorneys, intentionally breached their fiduciary responsibility to Innes, regardless of the existence of an attorney-client relationship.
In dissent, Justice LaVecchia, joined by Judge Cuff, warned that, by creating a new exception to the American Rule, this decision could open the floodgates to all fiduciary actors (i.e., doctors, agents, corporate officers, brokers, real estate agents, securities brokers, etc.) who engage in intentional misconduct. “If so, it would take significant effort by the Legislature to unravel the potential fee-shifting cracked open for argument by the majority.”
There’s an old adage that “hard cases make bad law.” See N. Sec. Co. v. United States, 193 U.S. 197, 400 (1904) (“Great cases like hard cases make bad law.”) (Holmes, J., dissenting). Here, this case was but one part of “one of the longest and most bitterly fought custody battles in the county .” At this time, it is not clear whether this new exception to the American Rule will be limited to the extreme factual background of this case, or whether it will be used to open the floodgates to fee-shifting to all cases involving a fiduciary.