Recovery of Attorney Fees and Costs in Colorado
| Publication year | 1994 |
| Pages | 2041 |
1994, September, Pg. 2041. Recovery of Attorney Fees and Costs in Colorado
The expenses of litigation, primarily attorney fees, represent a significant factor in the decisions of attorneys and clients to commence, defend and settle lawsuits. These decisions should take into account the recoverability of these expenses from the adverse party. This article examines recovery of attorney fees and other litigation costs under Colorado law.
Colorado continues to follow the common law "American Rule," under which attorney fees generally are not recoverable absent a contract, statute or court rule.(fn1) Colorado courts recognize several judge-made exceptions to this rule.
Fee awards as a sanction against bad faith or obdurate behavior in the conduct of litigation represent the most open-ended of these exceptions to the American Rule. The U.S. Supreme Court has upheld fees awarded as a sanction for bad faith or vexatious disobeyance of a court order on the basis of the inherent power of courts.(fn2) Few Colorado cases have applied this exception.(fn3)
The bad faith exception probably requires that the misconduct be more egregious than merely groundless or frivolous action.(fn4) As an example, a bad faith denial of having been served resulted in an order making payment of fees and costs a condition of setting aside a default judgment.(fn5) A trial court's application of the bad faith exception will not be disturbed on appeal unless the record shows no reasonable ground for concluding that bad faith existed.(fn6)
A second major exception to the American Rule concerns misconduct causing litigation with a third party.(fn7) When the natural consequence of a wrongful act involves a party in litigation with others, the fees in that litigation can be recovered as damages proximately caused by the wrongful conduct.(fn8) For example, a landlord recovered a portion of the fees and costs incurred in a suit against a previous defaulting tenant from a realtor who negligently failed to present a prospective tenant's offer to the landlord, thereby forcing the landlord to seek substantial damages from the previous tenant.(fn9)
Most cases recognizing this exception involve torts.(fn10) In addition, the party seeking fees must have been without fault in the underlying transaction.(fn11) However, the fee claimant need not have been successful in the litigation with the third party.(fn12) Fees may even be recovered where the prior action settled, if the terms of settlement were reasonable.(fn13)
Other judge-made exceptions to the American Rule permit recovery of fees in slander of title actions,(fn14) actions for breach of trust,(fn15) recoveries against funds enhanced or preserved through litigation,(fn16) actions commenced without probable cause and primarily for a malicious purpose(fn17) and actions by private parties vindicating a strong public policy.(fn18) A party claiming exemplary damages may offer evidence of fees as a measure of the amount to be awarded.(fn19)
Whether the judge-made exceptions apply to fee claims against the state is unclear.(fn20) According to some cases, fees may be recovered against the state only on express statutory authority or at least some indication of legislative intent.(fn21) Colorado statutes contain no broad provision for fee shifting against the state, in contrast to federal legislation permitting fee recovery against the government.(fn22)
o court rules provide for fee awards. Only C.R.C.P. 11 and 3(a) expressly permit awards against attorneys as well as against parties.
C.R.C.P. 11 subjects attorneys and parties to mandatory sanctions, including fees, for signing a pleading where (1) the signatory did not reasonably inquire into the relevant facts and law; (2) the pleading was not well grounded in fact; (3) the pleading was not based on existing legal principles or a good faith argument for the modification of existing law; or (4) the pleading was filed for the purpose of causing delay, harassment or an increase in the cost of litigation.
Pre-suit investigation weighs heavily against Rule 11 sanctions.(fn23) In general, no sanction will be imposed if the pleading is withdrawn a reasonable time after the attorney or the party knew or should have known that he or she would not prevail.(fn24) The Colorado courts have not decided whether subjective bad faith must be shown to warrant sanctions under Rule 11.(fn25)
Exploring the enormous body of federal law under F.R.C.P. 11 would exceed the scope of this article. However, it is important to note that some differences between the Colorado and the federal versions of this rule limit the precedential value of federal cases. For example, the federal rule applies to every court filing, not simply to pleadings. Also, the federal rule does not preclude an award if a party files a voluntary dismissal of the questionable claim within a reasonable time. Furthermore, the fee sanction under the federal rule became mandatory in a 1983 amendment.(fn26) The sanction was not mandatory under the Colorado rule until 1987. The U.S. Supreme Court substantially amended F.R.C.P. 11, effective December 1, 1993, making federal precedent even less helpful when interpreting the Colorado rule.
Trial courts have considerable latitude in fashioning sanctions under Colorado's Rule 11.(fn27) The Rule does not limit sanctions to an award of fees and litigation expenses.(fn28) For example, one court awarded a party an amount equal to the increase in the premium for professional liability insurance incurred as a result of the suit.(fn29)
Sanctions under Rule 11 can be imposed on the attorney or the party represented.(fn30) A sanctioned attorney is a real party in interest and must appeal in his or her own name.(fn31) A client may be sanctioned on the basis of a "nexus between the proscribed conduct and a specific undertaking by or knowledge of the client that the rule is being violated."(fn32) No reported Colorado case has addressed the issue of either attorney liability to a client based on a fee award against the client or the validity of a client's indemnification of an attorney who suffers Rule 11 sanctions.
C.R.C.P. 37 (as amended April 14, 1994, effective January 1, 1995) permits an award of fees and other costs against a party who engages in discovery abuses, including: (1) failure to disclose information required by C.R.C.P. 26 (as amended April 14, 1994) and bad faith refusal to admit the genuineness of a document or the truth of requests for admission;(fn33) (2) lack of success in opposing a motion to compel discovery;(fn34) and (3) failure of a party to attend a deposition, answer interrogatories or respond to a request for inspection.(fn35) C.R.C.P. 30(g) also permits fees to be awarded for failure to attend a deposition and for failure to serve a subpoena for attendance at a deposition. A party's willful or bad faith failure to pay fees and costs awarded under Rule 37, as distinguished from inability to pay, could result in dismissal of the action.(fn36)
C.R.C.P. 56(g) authorizes an award of fees against a party who presents a summary judgment affidavit in bad faith or solely for the purpose of delay. The language appears to make a fee award mandatory. No reported Colorado case interprets Rule 56(g).
Colorado Appellate Rule 38(d) permits an award of attorney fees and single or double costs as a sanction for frivolous appeals.(fn37) An appeal is frivolous where no rational argument can be made on the evidence or law presented, or where the appeal was prosecuted for the sole purpose of harassment or delay.(fn38) For example, the appellate court imposed sanctions for relitigation of issues already settled in the case,(fn39) and for presenting arguments not raised in the trial court.(fn40) An appeal is unlikely to be found frivolous where other jurisdictions accept an asserted legal theory, even though Colorado does not.(fn41)
C.R.C.P. 107(d) provides that if a person is found guilty of contempt of court, reasonable attorney fees may be awarded to the damaged person. The court must make specific findings explaining what contempt occurred in its presence, or give notice and a hearing regarding contempt committed elsewhere.(fn42)
Fees may be awarded under C.R.C.P. 3(a) to a defendant where the plaintiff fails to file a complaint within ten days after service.
Under C.R.C.P. 41(a)(2), a trial court may award costs and fees to a defendant as a condition for the voluntary dismissal of a claim.(fn43)
Approximately eighty statutes provide for recovery of attorney fees in Colorado.(fn44) Most fee provisions deal with a specific type of claim, such as filing a mechanics' lien for more than the amount due,(fn45) knowingly receiving too much water on irrigated land(fn46) or improperly withholding an employee's wages.(fn47) Attempting to examine all of these statutes would exceed the scope of this article. In federal diversity cases, state statutes relating to cost and fee awards control.(fn48)
The great majority of fee claims arise under CRS § 13-17-101 et seq. ("the statute"), which authorizes an award of fees where an action lacks "substantial justification." An action lacks substantial justification if it is substantially frivolous, substantially...
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