Hollander, Lawrence I.

Kramer, Michael H.

English

University of Miami School of Law

University of Miami Law SchoolInstitutional RepositoryUniversity of Miami Law Review7-1-1954Attorney's Fees -- Should They Be Taxed As Costs?Lawrence I. HollanderMichael H. KramerFollow this and additional works at: http://repository.law.miami.edu/umlrThis Comment is brought to you for free and open access by Institutional Repository. It has been accepted for inclusion in University of Miami LawReview by an authorized administrator of Institutional Repository. For more information, please contact library@law.miami.edu.Recommended CitationLawrence I. Hollander and Michael H. Kramer, Attorney's Fees -- Should They Be Taxed As Costs?, 8 U. Miami L. Rev. 571 (1954)Available at: http://repository.law.miami.edu/umlr/vol8/iss4/5COMMENTSATTORNEY'S FEES-SHOULD THEY BE TAXEDAS COSTS?A recent Florida statute enables a petition for the dissolution of asolvent corporation where two equal opposing ownership interests aredead-locked.' The statute has not however, provided for the paymentof attorney's fees2 and the problem of whether or not the corporationassets should be charged with the successful petitioner's attorney's feesis bound to arise.Mindful of the dicta of the United States Supreme Court whenspeaking in regard to allowance by a court of equity of counsel feesnot included in the ordinary taxable costs recognized by statute, that* such allowances are appropriate only in exceptional cases andfor dominating reasons of justice ... ," we intend to clearly show thatthe situation necessary for the invocation of this statute presents justsuch an exceptional case; further, that it is closely analogous to severalclasses of cases wherein equity has invoked its inherent power to allowattorney's fees.ALLOWANCE OF ATIronNly's FEES IN GE.NERALThe present policy of our judicial system against awarding attorney'sfees to the successful litigant has been under heavy criticism by legalwriters for the past quarter-century. 4  There has, however, been verylittle in the way of legislative and judicial response to this criticism.1. FLA. STAT. § 608.28 (1953):When the number of directors of any corporation is even and theyare equally divided respecting the management of the corporation and thetotal stock voting power is equally divided into two independent ownershipsor interests with one part favoring the course advocated by one half ofthe directors and one part favoring the course of the other half, orthe holders of the two halves of stock voting power are unable to agreeon the election of a board of directors, consisting of an uneven number,the circuit court, sitting in chancery, may entertain a petition for involuntarydissolution of the corporation .. ..2. The only provision for the payment of fees and costs in FLA. STAT. § 608.28(1953) is "The fees and costs provided by § 608.27 shall be paid by the receiveror trustee from corporate funds." The provision in § 608.27 as to fees and costsprovides, "Upon the . . . payment by the corporation of the cost of publicationand the fee required by § 608.05(4) the corporation shall be dissolved. § 608.05(4)provides only for the payment of fees to the Secretary of State.3. Spraque v. Ticonic Nat. Bank, 307 U.S. 777, 780 (1939).4. See Coodhart, Costs, 38 YA.LE L. 1. 849 (1929); McCormick, CounselFees and Other Expenses of Litigation As An Element of Damages, 15 MNN. L. REv.619 (1931); Comment, 44 ILL. L. REV. 507 (1950).Costs. 44 ILL. L. REV. 507 (1950),MIAMI LAW QUARTERLYThe dicta of some of the cases in which this issue has arisen, andsome of the writers on this topic,0 appear to hold the view that ourjurisprudence has never countenanced the inclusion of attorney's feesin taxable costs. The history of the matter discloses quite a contrarynotion.It is quite true that during the earliest years of the growth of ourlegal system lawyers were held in great disrepute by courts and laymenalike.7 In some of the colonies, lawyers were even forbidden to receivefees from their own clients.8 It is highly improbable that in the existenceof such an atmosphere the issue of including attorney's fees in costs wouldeven arise.However, the earliest statutes concerning court procedure clearlyevince an intent to charge the unsuccessful litigant with the counsel feesnecessary for his successful adversary's prosecution (or defense) of thelitigation.9 In point of fact, the establishment and growth of thepresent policy against awarding attorney's fees appears to be quite accidentalin nature; perhaps, indeed, a mistake in its very inception.These statutes provided for an award to the successful litigantof certain specified amounts for the various procedural steps necessaryin the prosecution of the action. 10  The amounts stipulated, were, atthe time of their enactment, very close in amount to the actual feeswhich attorneys were receiving.The contention that the early policy was directly opposed to thepresent one is further bulwarkcd by the fact that most of our earlyjurisprudence was imported, or cngrafted, from the English system.English law has from very early times awarded attorney's fees as coststaxable against the losing party."In any event, the inflexible method utilized by the statutes (a fixedsum per stipulated service), combined with the rapid early economicgrowth of our nation, quickly retcgatcd what were formerly awards ofreasonable fees to the role of mere formalities. It does not appear why therespective legislatures did not enact further statutes to perpetuate the system.The cases, however, clearly show that the judiciary has long considered thearea one proper only for legislative activity,12 and have held that in5. See Manko v. Buffalo, 65 N.Y.S.2d 128, 143 (1946).6. See Satterthwaite, Increasing Costs to be Paid by Losing Party, 46 N.J.L.J.133 (1923).7. WARReN, A HISTORY OF THE AMERICAN BAR 4 (1913).8. Ibid.9. N.Y. Rv. STAT. C. 10, § 4 (1829). VIRGINIA LAWS c. 6, § 14 (1745).10. Ibid.11. Sandback v. Thomas, I Stark. 306, 171 Eng. Rep. 481 (1816). See 2DANIELL, CHANCERY PLEADING AND PRACTICE, § 1376-1440 (6 Am. ed. 1894).12. Marks v. Leo Teist, Inc., 8 F.2d 460 (2d Cir. 1925); Ritter v. Ritter, 381111. 549, 46 N.E.2d 41 (1943); Patterson v. Northern Trust Co., 286 II. 564, 122N.E. 55 (1919).COMMENTScases at law, the taxable "costs" provided for by statute mark the limitsfor recovery of the expenses of litigation.'3Thus, today, except in various limited areas of exception, the rulethat attorney's fees are not recoverable is well established.Various reasons for and against the present policy have been espoused,'14but the basic problem resolves into the conflict of two diametricallyopposed philosophies of the nature of costs. There is, on the onehand, the view that costs are a penalty imposed upon the unsuccessful("unfortunate") litigant,15 and, on the other, that costs are an expenseincidental to the litigation presumably necessitated by the legal wrong ofthe failing litigant, and therefore rightly chargeable to him.'8Those who hold to the former view reason that the impositionof heavier costs by the inclusion of attorney's fees would deter theprosecution of meritorious claims due to the prospect of having to payan onerous amount if for some unforeseen reason the suit is unsuccessful.' 7Those who advocate a change in the present policy reason that theprospect of having to pay the "actual costs" of litigation will deter theinitiation of spurious actions and the interposition of non-meritoriousdefenses.'8At present, no trend is readily discernible concerning the future ofthe rule. Without delving too deeply into the controversy, it sufficesat this point to conclude that a strict adherence to the rule, indiscriminateof the equities of particular cases, or classes thereof, to which the argumentsand reasoning above are peculiarly inapplicable, works grave injustices.Evidencing an awareness of this, the various legislatures have builtup several areas of exception to the general rule. Under the police power,statutes in most states now provide for the allowance of attorney's feesto successful plaintiffs in proceedings against certain classes of defendantssuch as railroads and insurance companies.' 9 A much more importantarea of exception is found in legislation authorizing such allowances inactions which, by their nature, present situations where an applicationof the general policy against the award of attorney's fees would clearlywork inequities. Florida, for example, has by statute provided for theallowance of attorney's fees in actions to partition realty,20 partition13. Macri v. City of Bremerton, 111 P.2d 612 (Wash. 1941); Parker v.Mecklenburg Realty and Ins. Co., 195 N.C. 644, 143 S.E. 254 (1928); Patterson v.Northern Trust Co., 286 I1. 564, 122 N.E. 55 (1919).14. See Note, 15 U. oF CIN. L. REv. 313, 314, for a rather thorough discussionof the various arguments which have been expounded.15. See note 6 supra.16. See note 4 supra.17. See note 6 supra.18. See note 4 suprd.19. E.g., FLA. STAT. § 356.04 (1953) (railroads); FLA. STAT. § 625.08 (1953)(insurance companies). Generally, as to this type of legislation concerning insurancecompanies, see VANCE, INSURANCE 761 (1930).20. FLA. STAT. § 66.08 (1953),574 MIAMI LAW QUARTERLYpersonalty," enforce decrees of alimony22  and in garnishment pro-ceedings.23 Similar provisions can be found in most other states. 24The general rule that attorney's fees will not be taxed as costs in theabsence of statute, contract, or agreement is subject, except in New Jersey,25to only one significant area of exception. This area consists of proceedingsin which a common fund has been increased or protected by the servicesof the attorney. The chancery courts have held that it is within theirinherent powers to make an award of attorney's fees out of the fundin such cases.26SPECIFIC PROBLEMThe probem of the power to dissolve a corporation in the eventof deadlock has been met by legislation in every state27 except iowa. 28In all except two of those states, 29 there apparently is no statutory provisionfor awarding attorney's fees to the successful petitioner.Very few cases have been presented for judicial review in which thisproblem has been scrutinized. The only litigation that appears to beon point has arisen in New York'0 and California.a'The leading New York case, In re Stoll-Meyer Wood Crafter's InC.,3 2in a proceeding brought under the prototype of the Florida statute,33held that the court bad no power to make allowance for attorney's fees.It reasoned that this type of application for dissolution was a "special21. FLA. STAT. § 66.09 (1953).22. FLA. STAT. § 65.16 (1953).23. FLA. STAT. § 77.28 (1953).24. E.g., NEW YORK CIV. PRAC. ACT § 1512 provides for additional allowancesto plaintiff in actions to foreclose a mortgage, partition real property, adjudicate a willor other instrument in writing, and writs of attachment.25. New Jersey has, by statute [N.J. STAT. ANN. Tit. 2, c. 29, § 131 (1941)]invested its courts of equity with discretionary power to award counsel fees as costsin all matters before them. See Comment, 44 ILL. L. Rpv. 507, 517 to the effectthat the New Jersey Chancery Courts have not applied this as a general rule.26. 105 U.S. 527 (1881); 132 Fla. 602, 182 So. 216 (1938) (suit for partnershipaccounting); 94 Fla. 817, 114 So. 548 (1927) (suit by a representative of thebeneficiaries for distribution of a trust); 113 Ala. 531, 21 So. 315 (1896) (stockholdersderivative action).27. lornstein, Voluntary Dissolution-A New Development in Intra CorporateAbuse, 51 YALE L.j. 64 (1941); e.g., FLA. STAT. § 608.28 (1953); N.Y. CEN.CORP. LAW §§ 101, 103 (1943); Wis. STAT. § 180.771 (1951).28. IOWA CoDE § 8402 (1939) authorizes the court to dissolve a corporation"on good cause shown." This may be construed to cover the situation underdiscussion here.29. New Jersey, under its general discretionary power; see note 25 supra.There is a possibility that the Louisiana Statutes may be so construed. See in thisconnection LA. REv. STAT. ANN. § 12:752.3, and 12:55.4 (1948).30. Wis. STAT. § 180.773 (3) (1951); Application of Cantelino, 278 App.Div. 800, 104 N.Y.S.2d 282 (1st Dep't. 1951); In re Stoll-Meyer Woodcrafters, Inc.,84 N.Y.S.2d 757 (1948); In re Newman (Nu Form Dress Corp.) (Oct. 23, 1945)(No opinion for publication); Matter of Tarrytown W.P.M. Ry., 133 App. Div. 297,117 N.Y. Supp. 695 (2d Dep't. 1909).31. In re St. Clair Estate, 66 Cal. App.2d 964, 153 P.2d 453 (1944).32. 84 N.Y.S.2d 757 (1948).33. N.Y. CEN. CORP. LAw §§ 101, 103.COMMENTSproceeding" within the contemplation of the Civil Practice Act and sincethere was no specific provision contained therein authorizing the allowance,the court was without power to do so.3 4 As authority for their holding,the court cited Alatter of Tarrytown,' 5 which case apparently stands forthe proposition that where an action is statutory, the court cannot utilizeits general equity powers to afford relief not authorized within the confinesof said statute. "6  The court in the aforementioned California case 7 didnot allow the taxing of attorney's fees but did say that such awards restwithin the sound discretion of the trial court.As mentioned previously courts of equity have recognized that whena party institutes litigation which creates, increases, or priotects a fundfor the benefit of a class of which lie is a member, the fund or propertyshould be charged with necessary expenses incurred in the litigation;which includes the reasonable compensation of the plaintiff's lawyer.38The successful litigant's counsel is thus not being paid by the unsuccessfulparty, but rather by the class of which the petitioner is a member.30This doctrine was first enunciated in creditors' suits. 40  It was felt thatif the one creditor had to pay he might suffer a pecuniary loss whileother creditors sat back and benefited. On the contrary he should bepermitted and invited to play the part of champion of those in commoninterest with him.4 1 This principle has been further expanded to applyto stockholders' actions; almost one half of the states have at least onereported case in a suit by a stockholder, and all uniformly hold counselfees should be allowed. 42The words of Justice Terrell of the Florida Supreme Court can bestepitomize the position of the court in awarding counsel fees in a classaction: "To hold that those likewise affected . . . cannot be requiredto bear their portion of the burden is to admit that equity practice iseffete and has not kept pace with the factual situations that precipitatelitigation.' 43Of course, these decisions are predicated upon the fact that a benefithas accrued to the fund, and thus, indirectly, to those who should bearthe burden of the expense. This predicate of necessity exists in thetype of action under study here. For, although the careless language34. In re Stoll-Meyer Woodcrafters, Inc., at 758.35. In re Tarrytown W.P.M.Ry., 133 App. Div. 297, 117 N.Y.Supp. 695(2d Dep't 1909).36. Id. at 696, where the court says:The power which the court possesses in such proceedings is purely statutory,and does not depend upon its general equity powers.37. See note 31 supra.38. Hornstein, Counsel Fees in Stockholders Derivative Suits, 39 COL. L. REv. 784.39. Burroughs v. Toxaway Co., 185 Fed. 435, 441 (4th Cir. 1911); Lamar v.Hall & Wimberly, 129 Fed. 79, 82 (5th Cir. 1904).40. See note 38 supra.41. Trustees v. Greenough, 105 U.S. 527 (1881).42. See note 38 supra.43. Tenney v. Miami Beach, 11 So.2d 188, 190 (Fla. 1942).MIAMI LAW QUARTERLYof some of the statutes would seem to make a dissolution mandatoryin the event of deadlock, the courts have required evidence that thedissolution would redound to the benefit of the stockholders.44 Thus, adecree of dissolution is beneficial by virtue of its protection of the fund.The court may proceed on other theories to support an allowanceof counsel fees to successful petitioners under the dissolution statute.Application of the rule set forth in many Florida cases 45 which allowsattorney's fees when litigation involves a partnership accounting is adistinct possibility. This, however, would necessitate a piercing of thecorporate veil. A corporation consisting of two stockholders is susceptibleto this line of reasoning, especially if the dictum in a New York case 46were to be followed: "In point of fact that most close corporations arelittle more than . . . chartered partnerships and should be treated assuch." It is the authors' opinion, however, that the Florida court wouldnot subscribe to such reasoning.47A second theory submitted as a possible rationale is that of a partitionsuit. Inasmuch as the Florida statutes provide for an award of attorney'sfees in partition suits of real 48 and personal property,49 might not thecourt adopt this as a governing and applicable rule?50CONCLUSIONWe feel that the denial of attorney's fees to successful petitionersunder Florida Statutes Section 608.28 would definitely be inequitable. Itwould allow one of the two factions of a deadlocked corporation to benefitmaterially at the expense of the other. Further, that such an allowance doesnot require an unprecedented break in the current policy of the law regardingattorney fees, but is merely an extension of the use of the inherentpower of equity to allow such fees in situations the equities of whichnecessitate it.Of course, the most feasible way to handle this problem would befor the legislature to enact an amendment to the present statute correctingthis situation. LAWRENCE I. HOLLANDERand MICHAEL H. KRAmER44. E.g. Matter of Cantelmo, 275 App. Div. 231, 88 N.Y.S.2d 604 (1st Dep't(1949).45. E.g. Wade v. Clower, 94 Fla. 817, 114 So. 548 (1927).46. Ripen v. U.S. Woven Label Co., 205 N.Y. 442, 447, 98 N.E. 855, 856(1912).47. Freedman v. Fox, 67 So.2d 692 (Fla. 1953) (This was a suit for dissolutionprior to the enactment of FLA. STAT. § 608.28. The court would not dissolve thecorporation upon the submitted contention that it was in fact a partnership).48. FLA. STAT. § 66.08 (1953).49. FLA. STAT. § 66.09 (1953).50. The theory of allowing attorney's fees in partition suits is that all partiesreceive a common benefit from the labors of the attorneys effectuating the partition,and they should not be permitted to escape the common burden and throw on theplaintiff the whole of it. Arthaud v. McFerrin, 156 S.W.2d 641 (Mo. 1941); SeeBrickell v. Di Pietro, 152 Fla, 429, 12 So.2d 782 (1943).

Attorney\u27s Fees -- Should They Be Taxed As Costs?

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Attorney\u27s Fees -- Should They Be Taxed As Costs?

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