Generally speaking, the two ways a party can recover attorneys’ fees if it is successful in litigation are: (1) by statute based on the claims asserted; or (2) by contract if the parties include a provision entitling the successful party to recover attorneys’ fees.  While parties often believe this entitles them to a dollar for dollar reimbursement for attorneys’ fees, Courts will award only “reasonable” attorneys’ fees.  Courts are often looked upon to analyze the reasonableness of attorneys’ fees.  A recent decision from the Commercial Division in Kings County provided a thorough analysis of the factors Courts look at in determining the reasonableness of attorneys’ fees.

In PNL Phoenix, LLC v. Janton Industries, Inc., et al. (J. Demarest), plaintiff PNL Phoenix, LLC had acquired a $1.2 million loan from Sovereign Bank as well as a $750,000 line of credit loan.  The borrowers were Janton Industries, Inc. and Designcore, Ltd. (as well as other guarantor defendants), were in default at the time plaintiff acquired the loans. After the defendants defaulted again under a subsequent forbearance agreement, plaintiff commenced two separate lawsuits – one seeking an order of seizure to recover collateral that secured the line of credit loan, and the other to foreclose on the $1.2 million loan.  Defendants claimed they had been making payments on both loans and had paid the balances down considerably. Ultimately, the defendants refinanced and paid off both loans.  However, one issue remained – plaintiff’s attorneys’ fees.

Under the loan documents, plaintiff was entitled to recover its reasonable attorneys’ fees and costs for having to enforce or effectuate any of the terms of the agreement and other loan documents.  As a result, plaintiff sought to recover $90,969.75 in attorneys’ fees and expenses (plus another $9,498.40 in connection with the settlement and application for attorneys’ fees).  Along with its application for attorneys’ fees, plaintiff’s counsel submitted an affirmation with his qualifications and experience, attached a document list of all papers filed in both actions, and provided contemporaneous time records showing the time billed by the firm.  Plaintiff’s counsel also noted that, while his hourly rate is normally $620/hour, he provided plaintiff with a 20% discount on his hourly rate.  Other attorneys who worked on the files for plaintiff also discounted their hourly rates by 20%.

In reviewing plaintiff’s attorneys’ fees, the Court noted that the attorneys’ fees must be “reasonable and warranted for the services actually rendered.” Kamco Supply Corp. v. Annex Contracting, Inc., 261 A.D.2d 363, 365 (2d Dep’t 1999). The Court must consider the following factors: “time and labor required, the difficulty of the questions involved, and the skilled to handle the problems presented; the lawyer’s experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved.” Matter of Freeman, 34 N.Y.2d 1, 9 (1974).

The defendants argued that plaintiff’s attorneys’ fees were unreasonable and inflated and that plaintiff engaged in unnecessary and frivolous litigation. As an initial matter, the Court found that plaintiff did not commence frivolous litigation.  Even if defendants were paying down the loans, they were still in default, plaintiff was permitted to accelerate the loans under the loan documents, and they even acknowledged their default in the forbearance agreement.

As far as defendants’ argument that certain filings by plaintiff (an unauthorized reply to an order to show cause) were unreasonable, the Court agreed because the Commercial Division Rules prohibit submission of a reply to an order to show cause absent prior approval of the Court. As a result, the Court struck 6.35 hours from plaintiff’s billings for the reply.  The Court, however, did not agree with defendants regarding a reply to an ex parte application, which is not prohibited.  The Court also found that the summary judgment motions filed in both cases were not duplicative of one another as defendants contended.

Next, the defendants argued that plaintiff’s invoices were not reliable because the time entries were commingled amongst the two actions and that plaintiff artificially separated the entries after the fact.  The Court did not have an issue with this and found that, due to the similarities between the two actions, the parties, and the loan documents, the fact that entries were commingled was to be expected.  The fact that the time entries were later separated was done merely as a convenience to the Court.

Defendants also argued that the discounted hourly rate of $496 was also unreasonable, far in excess of customary hourly rates in Kings County, and that the work was not so complex to require the time spent by a senior partner.  On these issues, the Court held that the hourly rate was reasonable but did find that some of the work, such as basic research and filing tasks, should have been performed by a less expensive attorney at the firm.  As a result, the Court reduced the plaintiff’s billings by 5%.  The Court also found some of the time performed by the senior partner to be excessive and knocked off an additional 10% from the total billings, and also reduced additional billings in connection with the application for attorneys’ fees.

In total, although plaintiff incurred approximately $100,000 in attorneys’ fees and costs, it only recovered $72,799.95 – an approximate 30% reduction in plaintiff’s attorneys’ fees.  Unfortunately, this type of reduction is not an uncommon occurrence.  Courts will often significantly reduce the total attorneys’ fees that can be recovered in a case because the Court believes the fees are unreasonable, even if the time spent was necessary.  The lesson to be learned for litigants is that important decisions, such as how or whether to proceed with litigation, should not be based on the possibility of recovering attorneys’ fees at the end of a case.