Blown out of proportion

“Proportionality” is the principle that if attorneys’ fees are awarded to a party under a fee-shifting clause in a contract, then the fees should be proportional to the amount of the judgment. This principle is on full display in small claims courts around the state where successful plaintiffs are often limited in the amount of fees that they can recover because the amount of the judgment—less than $10,000.00 by rule—cannot justify an award of fees of more than $400.00.¹ Creditors’ rights attorneys have generally accepted this limitation and focus on increasing the volume of their work in order to accommodate the relatively low fee that they can recover. The question comes to mind, however, as to whether “proportionality” is the proper principle to consider.

Recently, the Appellate Court of Illinois for the Second District decided the case of Crystal Lake Limited Partnership v. Baird & Warner Residential Sales, Inc. While Crystal Lake primarily dealt the underlying breach of contract issue, the end of the opinion provides an interesting reminder regarding fee-shifting clauses and how courts should enforce them.

In Crystal Lake, the trial court focused on “proportionality.” In the appellate opinion, the trial court is quoted as stating that it was a “firm believer” that the amount of fees be proportionate to the amount recovered. That was the court’s justification for awarding only $70,000.00 in attorneys’ fees instead of the $500,000.00² that was requested on what was—prior to appeal—a judgment of approximately $150,000.00. In finding that the trial court abused its discretion in the award of fees, the appellate court vacated the award and remanded the case back to the trial court for a new hearing that was to include all of the factors that should have been considered.

Crystal Lake is instructive because it provides a primer of what courts should consider when they must rule regarding fee-shifting provisions in contracts. Citing Powers v. Rockford Stop-N-Go, Inc., 326 Ill. App. 3d 511, 515 (2nd Dist. 2001), Crystal Lake notes that in order to properly determine the amount of fees to award a prevailing party, trial courts must consider the following: 1) the skill and standing of the attorney employed, 2) the nature of the cause, 3) the novelty and difficulty of the issues, 4) the amount and importance of the subject matter of the suit, 5) the degree of responsibility of the management of the case, 6) the time and labor required, 7) the usual and customary charges for similar work in the community, and 8) the benefits resulting to the client. In addition to these eight factors, Crystal Lake indicated that a trial court can consider whether there is a reasonable connection between the fees and the amount involved in the litigation (i.e. proportionality).

Crystal Lake held that it was “… clear that the trial court did not consider the eight factors in making its fee award but used proportionality as its sole yardstick,” and vacated the award and remanded the case for a new hearing on fees, among other issues.

While the trial court in Crystal Lake was found to have abused its discretion in its fee award, what does this ruling mean for the creditors’ rights attorneys noted at the beginning of this article? If a court abused its discretion because it only considered proportionality in its award of fees, doesn’t that same analysis apply to small claims collections cases? Even though the amount at issue is, well, small, why is a court not considered to be abusing its discretion when it awards a flat $400.00 to plaintiff’s counsel without a hearing to consider the eight Powers factors? Make no mistake—just because these attorneys have their fees limited by trial courts, creditors’ rights counsel are also generally absolved from having to prove their fees in an evidentiary hearing where the court would consider the eight factors from Powers, so they get something out of this process as well. These attorneys have adapted their practices to allow them to endure quite well despite the low fee awards.

Regardless of whether there is an accepted system regarding fees in certain types of cases, the amount at stake should not be the “sole yardstick.” This is true regardless of the amount at issue, which means that is as applicable to a small claims case as it is to a multi-million dollar one.