Circuit Split Widens on Recovering Attorney Fees as Costs
By Carl A. Aveni, Litigation News Contributing Editor – October 25, 2016

The U.S. Court of Appeals for the Fourth Circuit weighed in and widened the growing split on whether attorney fees are considered costs under Rule 41(d), which provides that defendants can recover theircosts from a prior suit upon refiling. The federal appellate courts have split, however, on whether those costs include attorney fees. The question whether to dismiss and refile under Federal Rule of Civil Procedure 41 is now more complicated, and potential attorney fees as costs will depend on the forum of the suit.

Citing Rule 41(d), two circuits have ordered plaintiffs to pay defendants' attorney fees as costs upon refiling. Under that same provision, another circuit has flatly rejected recovery of attorney fees as costs. Faced with this split, the Fourth Circuit embraced a third option, ruling that attorney fees can be costs in some instances, but not others, depending upon the basis for the underlying claims and what initially prompted the dismissal and refiling.

The Rule Gives No Indication
In the most recent decision, Andrews v. America's Living Ctrs., LLC, the Fourth Circuit held attorney fees are recoverable at the beginning of a refiled action but only if:  (1) the prior dismissal was vexatious; or (2) the underlying claims allowed for fee-shifting at verdict.  Regarding the first prong, the appellate court acknowledged the rule itself "does not explicitly permit attorney fees." Nevertheless, the court reasoned one purpose of Rule 41(d) is "to serve as a deterrent for forum shopping and vexatious litigation" including "attempts to gain any tactical advantage by dismissing and re-filing the suit."

Explaining the second prong, the court turned, by analogy, to Rule 68(d), which awards costs following a rejected offer of judgment. In that context, if the statute underlying the claim describes attorney fees as recoverable costs to the prevailing party, courts regularly adopt that definition for purposes of Rule 68(d) fee-shifting as well.  

"The distinction can be important," says John A. Sensing, Wilmington, DE, cochair of the Practice Points Subcommittee of the ABA Section of Litigation's Commercial & Business Litigation Committee. By themselves, "[c]ourt costs are usually not all that significant," Sensing explains. "Obviously, attorney fees add a lot of expense. That's something with a lot more teeth in it," continues Sensing.

Nevertheless, this ruling alters the dynamics of Rule 41, warns Sensing. "If you have a situation where you're the plaintiff, and you know you might be on the hook for attorney fees, you might be a lot less likely to dismiss and refile."

No Agreement Between the Circuits
"It seemed like there were some unnecessary gymnastics going on in order to announce a new standard" observes Carey Menasco, New Orleans, LA, cochair of the Section of Litigation's Professional Services Liability Litigation Committee. "The court has always had the ability to penalize vexatious litigants by awarding attorneys' fees, separate and apart from Rule 41(d)." 

Indeed, the Fourth Circuit acknowledged in Andrews that other circuits have split on this question. As the court recognized, "[t]he Eighth and Tenth Circuits, for example, have both upheld an award of attorney fees under Rule 41(d), albeit without much explanation," and without any of the Fourth Circuit's multipronged analysis.

The Sixth Circuit has taken the opposite approach, ruling attorney fees can never be Rule 41(d) costs whatsoever. Thus, in Rogers v. Wal-Mart, the Sixth Circuit reasoned:  "Where Congress has intended to provide for an award of attorney fees, it has usually stated as much and not left the Courts guessing. Further, the law generally recognizes a difference between the terms 'costs' and 'attorney fees' and we have no desire to conflate the two terms." Of all the federal circuits, only the Seventh Circuit has ruled similarly.

This divergence of approaches can lead to inconsistent results depending on where suit is filed. "The split in authorities is troubling," Menasco cautions, "as what is supposed to be a uniform rule may be applied differently depending on the forum. An amendment [to the rule] may be in order," he adds.

An Early Roadblock
In the interim, refiled actions will face an additional hurdle in some circuits, says Adrian K. Felix, Miami, FL, cochair of the Section's Young Advocates Committee. "If a case was dismissed and then the same action refiled, the defendant would move to stay the case until such time as the costs of the prior case had been repaid. At which point the court could rule, or look into the issue of whether the defendant was entitled to fees in the prior case."  

Menasco agrees, but notes the new standard may curb spurious suits. "There's really not a serious mechanism to deter plaintiffs from refiling frivolous lawsuits other than waiting for the 12(b) motion process to play out," she notes. "If you have a 41(d) mechanism, you could get the case stopped, force them to pay attorney fees and put a halt to the case at the outset."

In the meantime, it appears unlikely any aggrieved plaintiff will challenge the circuit split to the U.S. Supreme Court, Sensing adds. Since the expense of such a high court challenge would likely dwarf the attorney fees at issue, Sensing concludes "it would take a very motivated plaintiff, indeed."

Keywords: Rule 41(d), dismissal, refiling, fee shifting, attorney fees

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