Elizabeth Baruno et al. v. John F. Slane, Jr. et al. (2013)

SUPPLEMENTAL MEMORANDUM OF DECISION

As ordered by the court, the issue of the recoverability of attorneys fees by the plaintiffs for services rendered by Greenspan & Greenspan their attorneys in this action, was deferred pending the court's adjudication of liability.   The parties have now filed their supplemental briefs which address this issue.

The plaintiffs claim attorneys fees based on four theories:  1) attorneys fees are consequential damages and are necessary to make the plaintiffs whole;  2) breach of the fiduciary relationship between attorney and client warrant them;  3) mutuality of remedy arising out of the retainer agreement requires them;  4) the court has discretion to award them.   The court rejects each of these theories for the reasons that follow.

“With respect to the relevant legal principles, we have often explained that Connecticut adheres to the American rule regarding attorneys fees.   Under the American rule, in the absence of statutory or contractual authority to the contrary, a successful party is not entitled to recover attorneys fees or other ordinary expenses and burdens of litigation ․ (Internal quotation marks omitted.)  TES Franchising, LLC v. Feldman, 286 Conn. 132, 148, 943 A.2d 406 (2008), quoting Rizzo Pool Co. v. Del Grosso, 240 Conn. 58, 72, 689 A.2d 1097 (1997).   There are few exceptions.   For example, a specific contractual term may provide for the recovery of attorneys fees and costs ․ or a statute may confer such rights.”  (Internal quotation marks omitted.)  Total Recycling Services of CT, Inc. v. Conn. Oil Recycling Services, LLC, 308 Conn. 302, 306–27 (2013).

In addition, our courts have recognized a bad faith exception in Maris v. McGrath, 269 Conn. 844, 835–36 (2004), and the assessment of punitive damages in Label Systems Corp. v. Aghamohammadi, 270 Conn. 291, 335 (2004), and an exception based on equitable grounds in Mangiante v. Niemec, 98 Conn.App. 567, 570 (2006).

1. Consequential Damages

The plaintiffs' initial argument is predicated on the principle of consequential damages which have been defined as those damages that are indirect and which although not an invariable result of the offending act, were reasonably foreseeable at the time.  Milford v. Coppola Construction Co., 93 Conn.App. 704, 714 (2006).   Thus, the plaintiffs assert that their injuries were a reasonably foreseeable consequence of Slane's malpractice and ought to be compensated.¹

Plaintiffs have predicated this argument on the premise that the failure to make them whole “violates Connecticut public policy.”   While it is true that in this case, as in most negligence cases, the costs of litigation reduce the net amount actually received by the injured party, such is the consequence of the American rule save for the exceptions.   For example, the court knows of no other professional malpractice action in which attorneys fees are recoverable as an element of damages.   In fact the legislature has seen fit to closely regulate fees in personal injury and property damage cases by setting forth maximum fees on a graduated scale subject to waiver under certain specified conditions G.S. § 52–251(c).

The policy argument that to deny such fees as damages fails to protect the client's interests by giving them a “pyrrhic victory” or that it will produce a chilling effect on valid malpractice claims is contrary to Connecticut's well documented history of robust negligence litigation which has included professional malpractice claims.  “As our Supreme Court has stated:  [w]hen the General Assembly wanted to authorize the award of attorneys fees it knew how to do it.”  In re Andrews' Appeal from Probate, 78 Conn.App. 441, 450–51 (2003), rev'd on other grounds, 237 Conn. 12 (1996).   Because damages awards to plaintiffs have historically been reduced by contingent fees in a variety of recoveries based on negligence and professional malpractice, such reduction in a legal malpractice case cannot be against public policy.

2. Breach of Fiduciary Duty

Plaintiffs' principal contention in support of their claim for attorneys fees is that the attorney client relationship is a fiduciary one which Slane has violated by his conduct.   This issue was emphatically ruled out of the case by the court (Sommer, J.) on July 7, 2010 by order # 121.86 in granting the defendant's motion to strike the third count of the complaint.   The court held:  “As stated in Beverly Hills Concepts Schatz & Schatz, (sic) 247 Conn. 48, 56–57 (1998):  Professional negligence alone, however, does not give rise automatically to a claim for breach of fiduciary duty.   Although an attorney-client relationship imposes a fiduciary duty on the attorney ․ not every instance of professional negligence results in a breach of that fiduciary duty ․ Professional negligence implicates a duty of care, while breach of fiduciary duty implicates a duty of loyalty and honesty.   Taken most favorably for the plaintiffs, the factual allegations against the defendants do not state a claim for breach of fiduciary duty.” ²

Thereafter the plaintiffs filed their fourth revised complaint.   A close examination of the allegations contained therein fails to disclose any factual claims which could support liability based on breach of a fiduciary duty.   This court readily embraces Judge Sommer's ruling as the law of the case.³  Nevertheless, the plaintiffs invite this court to depart from stare decisis because the precedent set by the American rule is unreasonable.   The court is not at liberty to accept this invitation.⁴  In default of fashioning a new exception to the American rule the plaintiffs urge the court to apply the “equitable exception” invoked by the court in Mangiante v. Niemic, 98 Conn.App. at 567, supra.   In that case, the court approved the trial court's award of attorneys fees to the plaintiff in an action where the court found a breach of a trustee's fiduciary duty by depletion of trust funds.

In applying the “equitable exception” to the American rule the court stated:

“Despite the general rule, our Supreme Court has recognized exceptions for cases in which the party or its counsel has acted in bad faith;  see Maris v. McGrath, supra, 835–36;  and for cases in which attorneys fees are assessed as punitive damages.   See Label Systems Corp. v. Aghamohammadi, 270 Conn. 291, 335, 852 A.2d 703 (2004).   The court did not rely on either of these grounds in its ruling in this case, and the plaintiff has not argued that the court should have done so.

In addition to these oft-cited exceptions, our courts regularly have recognized limited equitable exceptions to the American rule.   See, e.g., Palmer v. Hartford National Bank & Trust Co., 160 Conn. 415, 420, 279 A.2d 726 (1971) (upholding award of equitable attorneys fees to beneficiary of trust where beneficiary brought action to protect corpus of trust);  Phillips v. Moeller, 148 Conn. 374, 376, 170 A.2d 904 (1961) (“[t]he allowance or refusal of counsel fees in an action against a trustee who acted in good faith in the matter concerning which the litigation was brought is within the discretion of the court”);  McKeever v. Fiore, 78 Conn.App. 783, 791, 829 A.2d 846 (2003) (“[a]ttorney's fees in foreclosure actions are within the court's equitable discretion and are subject to the control of the court”).

The decisions in these cases emphasize that the equitable nature of the underlying action provides a basis for the equitable award of attorneys fees.   Id. at 570–71.

Plaintiffs argue for the adoption of this equitable principle because the underlying action was one in equity which culminated in the issuance of injunctive orders.   While it appears that this exception has been limited largely to instances of misconduct by trustees and other fiduciaries it does not appear to have been applied routinely to injunctive type actions.   More importantly, the attorneys fees sought are in this action, not in the underlying action.   The fact that a legal malpractice case has been described as a “case within a case,” the underlying case does not change the nature of the malpractice action from one sounding in negligence to one sounding in equity.   In an analogous context in Burr v. Lichtenheim, 190 Conn. 351, 363 (1983), our Supreme Court distinguished between an underlying indemnity action and the separate action needed to establish the right to indemnification.  “The general rule is that, in the absence of express contractual terms to the contrary, allowance of (attorneys) fees is limited to the defense of the claim which was indemnified and does not extend to services rendered in establishing the right to indemnification.”   By the same reasoning, any right to invoke the “equitable exception” in the underlying action because of its equitable nature does not extend to the legal services rendered in the malpractice case to vindicate the negligent failure to exercise that equitable right in the former case.

3. Mutuality of Remedy

The court believes that this claim of law was addressed adequately at pp. 45–46 of the court's main Memorandum of Decision.   While the current brief offers points and authorities with some analysis, the result is the same.

The plaintiffs urge the court to “move forward and proclaim that in a contract between a lawyer and a client, provisions such as the legal fees and interest should be reciprocal and mutually enforceable even if not so stated therein.”   They ask the court to adopt the holding of the New York Appellate Division in Ween v. Dow, 35 A.D.3d 58, 63 (2006), wherein the court declared that an attorney's retainer agreement that was not reciprocal as to attorneys fees was fundamentally unfair to the client and therefore unenforceable.   Plaintiffs argue that “Connecticut cannot be less protective of clients than New York. There is no logical reason to so do.   Why favor the attorney over the client?   It is simply wrong!”   Whatever emotional appeal this statement may have, for the reasons set forth below this court is in no position to carve out a special rule of reciprocity for attorney retainer agreements based on principles of mutuality, logic or fairness.   That must be left to our appellate system or the legislature.

4. The Court's Discretion

Plaintiffs entreat the court to exercise its discretion in fairness and in equity to award attorneys fees.   The court acknowledges the absence of Connecticut case law on the recoverability of attorneys fees in legal malpractice actions.  “Judicial discretion” has been defined as “a discretion to be exercised judicially rather than arbitrarily.   A discretion founded upon the facts and circumstances presented to the court from which it must draw a conclusion governed by the law.”   Ballentine's Law Dictionary, 3rd Ed. at 685.   The court disagrees with the plaintiffs that the creation of a legal malpractice exception to the American rule is a matter for this court's discretion.   Under similar circumstances our Supreme Court declined to engraft a new exception on the American rule by adding the private attorney general doctrine or the substantive benefit doctrine to justify the award of attorneys fees.   In so doing, the court focused on the constrains which apply to the rule making power of the court.   The court's discussion of the issue is particularly appropriate here.

“While recognizing that commentators have criticized the American rule in recent years, the court found it clear that Congress had not chosen to pass a statute abrogating the rule.”  Id., 260.   Instead, the court found that Congress had fabricated a statutory structure in which it had specifically delineated when a prevailing party is entitled to attorneys fees.   Having done so, “it is not for [the court] to invade the legislature's province by redistributing litigation costs in the manner suggested” by the plaintiffs.   Id., 271.   The court concluded that any exception to the American rule should properly be made by Congress and not the court.  Id., 262.

Likewise our legislature has not chosen to repudiate the American rule, but rather has made specific provisions for attorneys fees in selected cases.   For example, General Statutes § 52–251b allows the prevailing party in any civil action seeking damages for injuries arising out of a violation of General Statutes § 46a–58 (discriminatory practices) to also recover costs, including reasonable attorneys fees.   See also General Statutes § 52–251a (allowing attorneys fees in a small claims matter transferred to regular docket);  § 52–249 (allowing attorneys fees in an action for foreclosure).  “Indeed, the legislature has specifically authorized the recovery of reasonable fees and expenses not exceeding $7,500 against the state in a successful appeal of an administrative agency decision in a contested case for all but the most affluent of aggrieved persons.  General Statutes § 4–184a.   In view of this legislative policy of selecting the special situations where attorneys fees may be awarded, we [conclude] ․ that it is inappropriate for the judiciary to establish under the private attorney general doctrine a broad rule permitting such fees whenever a private litigant has at substantial cost to himself succeeded in enforcing a significant social policy that may benefit others.”   Doe v. Heintz, supra, 24–26.”  Doe v. State, 216 Conn. 85, 107–08 (1990).

Guided by this admonition this court declines to “step forward” to fashion such a new exception.   The court is not alone in its reluctance to circumvent the legislature or produce a court made rule of universal application.   In Banker v. Nighswander, Martin and Mitchell, 37 F.3d 866, 873 (2d cir.1994), the United States Court of Appeals for the Second Circuit applied the American rule from the substantive law of New Hampshire in declining to create an exception to the rule for legal malpractice cases.   The court stated:

“We decline his invitation to import an exception from other jurisdictions.   Nor do we find his contractual argument persuasive.   He contends that, because the promissory note contained an attorneys fee clause, he cannot be made whole if his recovery in the malpractice action is net of his attorneys fees.   That argument rests on a policy decision that should be considered (if at all) by the state's legislature or courts.   Absent bad faith on the part of the adverse party, we see no basis under New Hampshire law for an award of attorneys fees to the successful litigant in a legal malpractice action.   See Adams v. Bradshaw, 135 N.H. 7, 599, A.2d 481, 487–88 (1991) (listing “bad faith” exceptions to American rule), cert. denied, 112 S.Ct. 1560, 118 L.Ed.2d 208 (1992).  Banker does not demonstrate any inclination on the part of the Supreme Court of New Hampshire to augment in that way the remedies available under state law.”

It is noted that like Connecticut, New Hampshire has few exceptions to the American rule which in addition to bad faith include (i) fees incurred to litigate what a court has already decreed;  (ii) fees incurred to defend against a patently unreasonable claim.   Also like Connecticut, New Hampshire has no legal malpractice exception.  Adams v. Bradshaw, 599 A.2d 481, 487–88 (1991).   This position is in line with the prevailing rule in the United States that a plaintiff cannot recover attorneys fees incurred in prosecuting a legal malpractice action.  3 Legal Malpractice, 2012 Ed. by Mallen & Smith, § 21:14 at 57.

For all of the foregoing reasons Greenspan and Greenspan's application for attorneys fees is denied.

BY THE COURT

A. WILLIAM MOTTOLESE, J.T.R.

FOOTNOTES

FN1. In some jurisdictions such attorneys fees are considered incidental damages because they flow from the malpractice, Foster v. Duggin, 695 S.W.2d 526 (1985, Tenn.).   Other jurisdictions award them “in order to make the party whole.”  Rudolf v. Shayne, Dachs, Stanisci, Corker and Sauer, 867 N.E.2d 385 (N.Y.2007);  accord Saffer v. Willoughby, 670 A.2d 527 (N.J.1996) (awarded as consequential damages)..  FN1. In some jurisdictions such attorneys fees are considered incidental damages because they flow from the malpractice, Foster v. Duggin, 695 S.W.2d 526 (1985, Tenn.).   Other jurisdictions award them “in order to make the party whole.”  Rudolf v. Shayne, Dachs, Stanisci, Corker and Sauer, 867 N.E.2d 385 (N.Y.2007);  accord Saffer v. Willoughby, 670 A.2d 527 (N.J.1996) (awarded as consequential damages).

FN2. Contrary to the statement which appears at p. 20 of the plaintiffs' brief, the cause of action for breach of fiduciary duty was not “subsumed” into the cause of action for malpractice..  FN2. Contrary to the statement which appears at p. 20 of the plaintiffs' brief, the cause of action for breach of fiduciary duty was not “subsumed” into the cause of action for malpractice.

FN3. “Where a matter has previously been ruled upon interlocutorily, the court in a subsequent proceeding in the case may treat that decision as the law of the case, if it is of the opinion that the issue was correctly decided, in the absence of some new or overriding circumstance.  State v. Hoffer, 174 Conn. 452, 462–63, 389 (1978);  State v. Mariano, 152 Conn. 85, 91–92, 203 (1964), cert. denied, 380 U.S. 943 (1965)” (alternate citations omitted).  Breen v. Phelps, 186 Conn. 86, 99 (1982)..  FN3. “Where a matter has previously been ruled upon interlocutorily, the court in a subsequent proceeding in the case may treat that decision as the law of the case, if it is of the opinion that the issue was correctly decided, in the absence of some new or overriding circumstance.  State v. Hoffer, 174 Conn. 452, 462–63, 389 (1978);  State v. Mariano, 152 Conn. 85, 91–92, 203 (1964), cert. denied, 380 U.S. 943 (1965)” (alternate citations omitted).  Breen v. Phelps, 186 Conn. 86, 99 (1982).

FN4. “As this court has stated many times, ‘[t]he true doctrine of stare decisis is compatible with the function of the courts ․ [T]here is no question but that [a] decision of this court is a controlling precedent until overruled or qualified ․ [S ]tare decisis ․ serve[s] the cause of stability and certainty in the law—a condition indispensable to any well-ordered system of jurisprudence ․’ (Citations omitted;  internal quotation marks omitted.)  White v. Burns, 213 Conn. 307 (1990)” (alternate citations omitted).  Conway v. Wilton, 238 Conn. 653, 659 (1996)..  FN4. “As this court has stated many times, ‘[t]he true doctrine of stare decisis is compatible with the function of the courts ․ [T]here is no question but that [a] decision of this court is a controlling precedent until overruled or qualified ․ [S ]tare decisis ․ serve[s] the cause of stability and certainty in the law—a condition indispensable to any well-ordered system of jurisprudence ․’ (Citations omitted;  internal quotation marks omitted.)  White v. Burns, 213 Conn. 307 (1990)” (alternate citations omitted).  Conway v. Wilton, 238 Conn. 653, 659 (1996).

Mottolese, A. William, J.T.R.