Jury Trials for Attorney Fees In Breach of Contract Case

So, one of the risks of fighting a non-compete is the provision that require employees to pay for their former employer’s attorneys fees if they lose the case:  Seems fair.  But, of course if fairness were the issue, the provision would be reciprocal and provide attorney’s fees for prevailing employees.  And the standard for the amount is “reasonable attorneys fees,” and we know reasonableness is truly in the eye of the beholder. The first take away is to beware of fee shifting provisions, and if you have a chance to actually negotiate your agreement, make sure the fee shifting is a true mutual obligation.

Recently, I tried a case in which the former employer proved a breach of the agreement and sought attorneys fees in the amount of  $750,000+.  (Of course, this was a 6 year case.)  And much of my experience is in litigating cases with fee shifting statutes, and those fees are awarded by the court and not the jury.  But, the fee petition was so large, three times what the damages for breach were, and it seemed to me that an attorney’s fees claims should be a jury issue. A one week trial on lost profits, but an half hour hearing on three-quarters of a million dollars.  So, I researched the issue and found that the issue of attorneys fees in contract cases may trigger Seventh Amendment rights.

The Constitution of the United States provides for trial by jury for suits at common law. See Ross v. Bernhard, 396 U.S. 531 (1970). Civil actions for breach of contract and for those seeking money damages are legal in nature and “triable to a jury.” Id. at 543. “An action for breach of contract seeking money damages is an action at law.” Sapp v. Wheeler, 402 S.C. 502, 507, 741 S.E.2d 565, 568 (Ct. App. 2013), citing Silver v. Aabstract Pools & Spas, Inc., 376 S.C. 585, 590, 658 S.E.2d 539, 541-42 (Ct. App. 2008).  So, at this point, it can be pages of yada yada yada, but, you get the point that the constitution requires claims for damages based upon breach of contract to be tried to juries.

But, the language of the contract is critical to this argument.  In our case the attorneys’ fees provision is not a “prevailing party” provision, but reads instead as follows:

In the event Employer must enforce any of the rights herein granted to it through an attorney, Employee shall be liable for any and all reasonable attorney’s fees, expenses and court costs incurred in connection with the enforcement of the Employer’s rights hereunder.

This language presents a “stand alone” claim for damages for breach of contract.  So, why does that matter?  Because the cases say it matters, including the following: Carolina Power & Light Co. v. Dynegy Mktg. & Trade, 415 F.3d 354, 356 (4th Cir. 2005) (“We hold that a claim for legal costs based on a contractual provision that is not limited to expenses incurred during the underlying litigation is an element of damages to be proved at trial under the substantive law governing the action….”), abrogated on other grounds by Ray Haluch Gravel Co. v. Cent. Pension Fund of Int’l Union of Operating Eng’rs & Participating Emp’rs, 134 S. Ct. 773 (2014); Lynch v. Sease, 2006 U.S. Dist. LEXIS 25756 (E.D. Ky. May 2, 2006) (“Unlike ‘prevailing party’ attorneys’ fees that are collateral to the merits of an action and which do not accrue until the litigation is actually brought, attorneys’ fees under the contract between the parties in this case arose upon breach of the agreement by Lynch.”); Broom v. Kountze, 2014 U.S. Dist. LEXIS 160501, at *7 (D. Neb. 2014) (finding that since attorneys’ “fees are sought as damages caused by an alleged breach of contract,” it is a legal issue to be tried to a jury); United Prairie Bank-Mountain Lake v. Haugen Nutrition & Equip., LLC, 813 N.W.2d 49, 59 (Minn. Sup. Ct. 2012) (“When a party seeks attorney fees under the express provisions of a contract, the fees are an agreed element of damages available under the contract and are not collateral.”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Knudsen, 749 F.2d 496, 498, (8th Cir. 1984) (attorney’s fees “constitute part of [plaintiff’s] contractual claim,”); Timken Alcor Aero. Techs., Inc. v. Alcor Engine Co., 2010 U.S. Dist. LEXIS 66744, at * (N.D. Ohio 2010) (for a party to receive attorneys’ fees pursuant to an attorneys’ provision in a contract that lacks “prevailing party” language, the party must present evidence of accrued attorneys’ fees to the jury); Rockland Trust Co. v. Computer Associated Intern., Inc., 2008 U.S. Dist. LEXIS 61687, 2008 WL 3824791, *5 (D. Mass. Aug. 1, 2008) (“[C]ourts have differentiated between claims for attorney’s fees based on ‘prevailing party’ contractual provisions and claims for attorney’s fees based on other types of contractual provisions…when a party seeks attorney’s fees stemming from a breach of contract, courts have found the issue of attorney’s fees to be an element of damages.”); Pace Airlines, LLC v. Prof’l Settlement Servs., LLC, 2010 U.S. Dist. LEXIS 123009, at *9 (N.D. Ohio 2010) (attorneys’ fees not stemming from statute are an element of compensatory damages for the jury to consider); Stonehenge Land Co. v. Beazer Homes Invs., LLC, 893 N.E.2d 855, 869 (Ohio Ct. App. 2008) (“If the [attorneys’] fees are damages, then the availability and amount of such fees have to be determined by the jury”); Lee v. Mulford, 269 Va. 562, 567, 611 S.E.2d 349, 352 (Va. 2005) (a party has every right “to insist that the issue of attorney’s fees be submitted to a jury”). See also Vingcard A.S. & Vingcard Sys. v. Merrimac Hospitality Sys., 59 S.W.3d 847, 866 (Tex. Ct. App. 2001) (“The issue of whether a party is entitled to recover attorney’s fees is a question of law for the court to determine, while the amount to be awarded is a question of fact for the jury.”); Intercontinental Group P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 659 (Tex. Sup. Ct. 2009) (attorneys’ fees under written contract is a question for jury); O.C.G.A. § 13-6-11 (2014) (Georgia statute allows jury to decide whether a party receives his attorneys’ fees).

So, the question becomes, is the fee provision in your non-compete a “stand alone” claim for attorneys fees?  It can make a difference, and there is a pretty good chance that an appellate court in South Carolina may get its shot at answering this question definitively for South Carolina.  The response of many lawyers is that the process is impractical.  But juries determine damages in lost profit cases, and the lawyer must in open court justify his fee for the cause under consideration.  But, practicality is not the test for adherence to such an important constitutional mandate. 

(BTW, the court reduced the attorney fee award significantly from that sought, but still a hefty award.  But, although no written order has been issued, the court did not indicate a specific response to the argument outlined above.)

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