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North Bergen Rex Transport, Inc. v. Trailer Leasing Co.

158 N.J. 561, 730 A.2d 843 (1999)

CONTRACTS; ATTORNEYS’ FEES; REASONABLENESS; INTEREST—Even though an agreement provides for attorneys’ fees to a prevailing party, the amount to be awarded must relate to the degree of success achieved and absent an express agreement for pre-judgment interest on such an award, no interest will be awarded.

This appeal involved a commercial lease that required the lessee to pay reasonable attorneys’ fees in the event the lessor had to procure legal services to enforce the lease agreement. The issue raised was whether a lessor who does not prevail on all of its claims is entitled to its entire attorneys’ fees, plus interest. The lessee rented ninety trailers pursuant to separate identical lease documents. Each lease contained both a provision for the payment of 1-1/2% interest on overdue invoice payments and one requiring the lessee to pay the lessor’s reasonable attorneys’ fees in the event the lessor retained the services of counsel to enforce the terms of the agreement. The lessee became delinquent in the lease payments. After it could not meet an installment plan for the delinquent amounts, the lessor demanded that the entire outstanding balance be paid. Notwithstanding its delinquent payments, the lessee filed suit based on alleged rental and repair overcharges by the lessor. The lessor filed an answer and counterclaim, seeking a judgment against the lessee for the lease delinquencies, interest at the contract rate, and all attorneys’ fees incurred. The lower court granted partial summary judgment in favor of the lessor. The remainder of the claims were disposed of through trial, with the lessor’s base claim being reduced below the amount originally sought. In addition, the lessor requested a substantial amount for pretrial attorneys’ fees and costs. Although the lower court ruled that the lessor had overcharged the lessee by a substantial amount, it still concluded that an award for the payment of pretrial fees was appropriate. To determine the exact amount of pretrial and trial attorneys’ fees, the lessors’ counsel submitted a certification. Based on that certification, the lower court awarded the lessor its entire attorneys’ fees and costs and added 18% interest on the attorneys’ fees. The Appellate Division affirmed the lessor’s entitlement to receive attorneys’ fees based on the express language of the lease, but it reversed the award of interest because the express language in the lease agreements referred only to interest related to rental payments. The New Jersey Supreme Court reversed, holding that it was improper to award 100% of the attorneys’ fees requested where the lessor obtained only limited relief for its claims. In addition, it ruled that in the absence of a specific contractual provision to the contrary, no prejudgment interest should be awarded on the reasonable attorneys’ fees. One of the preliminary issues was that of the choice of law. The leases provided that Illinois law should apply. The Court found that there was a substantial relationship to Illinois and honored that choice of law. On the other hand, the Court applied well-established principles of choice of law, namely that the procedural law in the forum state applies even when a different state’s substantive law must govern. Because the award of the attorneys’ fees and interest is a procedural rather than a substantive law issue, the Court applied New Jersey law to the question. New Jersey has a strong policy disfavoring shifting of attorneys’ fees. Even where attorney-fee shifting is controlled by a contractual provision, courts will strictly construe that provision in light of the general policy disfavoring the award of the attorneys’ fees. The Court recognized that the threshold issue in determining whether an attorneys’ fee award is reasonable is whether the party seeking the fee prevailed in the litigation. There is a two-pronged test to determine whether a party seeking fee shifting has been a prevailing party. The first part was satisfied, i.e., the lessor demonstrated that its lawsuit was causally related to securing the relief obtained. The second part of the test requires that parties seeking attorneys’ fees show that “the relief granted had some basis in law.” The lessor was found to have satisfied the second part of the test because the relief sought was based on the contract that required the lessee to pay the rental charges in a timely manner. Consequently, it was a prevailing party. Nonetheless, the lessee argued that because the lessor’s claims were reduced by at least 30%, the lessor should be denied any attorneys’ fees. In the alternative, it argued that the lessor should be limited to only a reasonable portion of its attorneys’ fees. In general, New Jersey courts have held that “if a successful [prevailing party] has achieved only limited relief in comparison to all the relief sought, the [trial] court must determine whether the expenditure of counsel’s time on the entire litigation was reasonable in relation to the actual relief obtained ... and, if not, reduce the award proportionately.” In this case, in the claims that had to be tried, the lower court rejected approximately fifty-eight percent, yet awarded 100% of the attorney’s fees sought. The lower court acknowledged that the pretrial legal fees were high in proportion to the amount recovered, but felt that the services were necessary in view of the dispute. However, the Supreme Court felt that despite the lower court’s statement that the fees were necessary in light of the services rendered, nothing in the record indicated that the lessee filed its complaint or litigated in bad faith. Moreover, the lessor prevailed on only fifty-one percent of its claims. While not establishing a per se requirement that there be a close relationship between recovery and fees awarded for services rendered, the Court believed that when a substantial portion of the claim sought is ultimately rejected, the circumstances should be considered to determine a reasonable award of attorneys’ fees. Consequently, the matter was remanded to the lower court to determine reasonable attorneys’ fees with instructions that the award be substantially reduced. The lessee also argued that although the leases called for an eighteen percent annual interest rate for late rental payments, it should not be required to pay such a high rate of prejudgment interest on the award during the thirteen months that the lower court reserved decision following completion of the trial. The lessor in turn contended it should not be deprived of that amount because it had no control over the lapse of time. The general rule in New Jersey is that the “equitable purpose of prejudgment interest is to compensate a party for lost earnings on a sum of money to which it was entitled, but which has been retained by another.” Nonetheless, prejudgment interest should not be a penalty. In this case, the Court believed that while courts have the ability to suspend the payment of usual prejudgment interest in “exceptional cases,” whether pursuant to a tort or to a contract action, that power should be used sparingly. Here, the usual rate would have been the eighteen percent annual interest rate fixed by contract. The exceptional circumstance of the thirteen-month judicial delay was not caused by the parties or their attorneys. Under those circumstances, the Court suspended the contractual rate of interest for the thirteen-month period and the lessor was found to be entitled only to interest in accordance with equitable principles. Lastly, the Court agreed with the Appellate Division that there was no contractual basis for prejudgment interest on the attorneys’ fees and added that “absent a controlling contractual provision, permitting prejudgment interest on attorneys’ fees would be contrary to our strong public policy disfavoring shifting of attorneys’ fees.”


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