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What must a plaintiff “beat” to recover attorney fees under the 2011 amendment to N.C. Gen. Stat. § 6-21.1?
Allen C. Smith, Hedrick Gardner Kincheloe & Garofalo, LLP

Introduction

Absent a statute allowing for the recovery of attorney fees and costs, litigants in North Carolina bear their own costs. Prevailing plaintiffs to recover attorney fees in actions for personal injury and property damage in which the plaintiff can show the following:

(i) that there was an unwarranted refusal by the defendant to negotiate or pay the claim which constitutes the basis of such suit, (ii) that the amount of damages recovered is twenty-five thousand dollars ($25,000) or less, and (iii) that the amount of damages recovered exceeded the highest offer made by the defendant no later than 90 days before the commencement of trial.

N.C. Gen. Stat. § 6-21.1 (2013) (emphasis added).

North Carolina amended N.C. Gen. Stat. § 6-21.1 in 2011 to include the “unwarranted refusal” language; increase from $10,000 to $20,000 the cap on amount of damages for which attorney fees may awarded; add the very important language about the “amount of damages recovered exceed[ing] the highest offer made by the defendant no later than 90 days before trial; and limiting the amount of fees that can be recovered to $10,000. The legislature amended the statute in 2013 again to increase the cap on the amount of damages eligible for an award of attorney fees from $20,000 to $25,000.

As of this date, there is no appellate law in North Carolina addressing “amount of damages recovered” from the 2011 version of N.C. Gen. Stat. § 6-21.1. The only appellate decision addressing the 2011 version of N.C. Gen. Stat. § 6-21.1 is an unpublished one (Morales v. Garcia, 761 S.E.2d 753 (N.C. App. 2014)) which focuses on the “unwarranted refusal” requirement.

What is meant by “amount of damages recovered?”

The threshold question is how to determine whether a jury (or bench) verdict qualifies for an award of fees under N.C. Gen. Stat. § 6-21.1. Does the court compare the jury verdict to $25,000 and the highest offer? Is something added to the jury verdict? If so, what is added? Most likely, the position of a plaintiff’s attorney will depend on whether he or she is trying to beat the offer or keep the “amount of damages recovered” at or under $25,000.

If the plaintiff’s attorney is in the position of trying to beat the offer, expect him to present the court with case law interpreting “judgment finally obtained” under Rule 68 , which addresses offers of judgment, in making his argument for attorney fees. The case of Stillwell v. Gust, 148 N.C. App. 128, 557 S.E.2d 627 (2001), review denied, 355 N.C. 500 (2002), interprets “judgment finally obtained” used in N.C. Gen. Stat. § 1A-1, Rule 68 (“Offer of judgment”). The Stillwell Court holds, “’Judgment finally obtained’ means the amount entered as final judgment modified by any adjustments.” 148 N.C. App. at 131, 557 S.E.2d at 629 (quoting Poole v. Miller, 342 N.C. 349, 353, 464 S.E.2d 409, 411 (1995), reh’gs denied, 342 N.C. 666, 467 S.E.2d 722 (1996)). The adjustments include interest, costs, and even attorney fees.

Prior to 2011, N.C. Gen. Stat. § 6-21.1 allowed an award of attorney fees “where the judgment for recovery of damages is ten thousand dollars ($10,000) or less . . .” N.C. Gen. Stat. § 6-21.1 (2010) (emphasis added). However, the new version of N.C. Gen. Stat. § 6-21.1 does not use the term “judgment” or “judgment finally obtained” – it replaced “judgment for recovery of damages” with “amount of damages recovered” and added the qualification of “the highest offer made by the defendant no later than 90 days before the commencement of trial.” These changes make the language in Stillwell inapplicable to the determination of whether fees may be awarded.

Instead of looking at case law that interprets “judgment finally obtained,” a trial court needs to look at case law interpreting “amount of damages recovered.” In short, the Court is to consider “damages” as opposed to “judgment.” The case of Brown v. Millsap provides the Court with the items or elements a trial court is to add together when considering a request for attorney fees. 358 N.C. 212, 594 S.E.2d 1 (2004) (per curiam decision adopting dissenting opinion of Judge Tyson of NC Court of Appeals in 161 N.C. App. 282, 588 S.E.2d 71 (2003)).

The Brown Court explained what items the trial court is to consider or add together when making a decision about whether a case even qualifies for an award of attorney fees under N.C. Gen. Stat. § 6-21.1. Those items are the jury award and prejudgment interest. 161 N.C. App. at 286, 588 S.E.2d at 73. Significantly, both the NC Court of Appeals (2002) and Supreme Court (2003) decided Brown after the Court of Appeals (2001) decided Stillwell.

In Brown v. Millsap, the jury returned a verdict of $9,500, and the trial court refused to award attorney fees after concluding that “the judgment obtained exceeded “$10,000.00.” 161 N.C. App. at 282, 588 S.E.2d at 71. The trial court included the award ($9,500), pre-judgment interest ($669.76), and costs ($435) when reaching the decision that “judgment for recovery of damages” exceeded $10,000 (which has now been replaced by $25,000). 161 N.C. App. at 283, 588 S.E.2d at 72.

The NC Court of Appeals reversed the trial court, recognizing that “damages and costs are legally separate items” and ruling that “damages” only apply to the jury verdict for purposes of determining whether the $10,000 figure is exceeded or not. Id. (citing Sowell v. Clark, 151 N.C. App. 723, 567 S.E.2d 200 (2002)).

In his dissent opinion that the Supreme Court adopted, Judge Tyson agreed that costs and damages are separate and opined that the jury award is to be combined with mandatory prejudgment interest, but not costs, in determining whether the “judgment for recovery of damages” exceeds $10,000. 161 N.C. App. at 287, 588 S.E.2d at 71.

In conclusion, Judge Tyson wrote:

The trial court erred by adding discretionary court costs of $435.00 to the jury's award of $9,500.00 with interest to determine whether plaintiff was entitled to be heard on its motion for attorney's fees under N.C. Gen. Stat. § 6-21.1. This error is harmless because the trial court was required to automatically add pre-judgment interest of $669.76 to the jury's verdict of $9,500.00.

Id. (emphasis added).

Interestingly, even the Stillwell Court acknowledged “damages” are the amount that the jury awards: “After a jury trial, the trial court entered judgment awarding Lisa E. Gaffney Stilwell (“plaintiff”) damages in the amount of $5,401.00 and attorneys’ fees and costs in the amount of $10,853.75 in her civil negligence action against Amanda Danley Gust (“defendant”).” 148 N.C. App. at 129, 557 S.E.2d 628 (emphasis added). The jury had returned a verdict of $5,401 for Plaintiff. Id.

Conclusion

Under North Carolina law, the trial court is to add the jury award and interest together to determine whether “the amount of damages recovered exceeded the highest offer made by the defendant no later than 90 days before the commencement of trial.” N.C. Gen. Stat. § 6-21.1 Costs incurred by Plaintiff are a legally separate issue and not part of any equation when determining whether attorney fees may be awarded under N.C. Gen. Stat. § 6-21.1. This is a fair interpretation which favors the plaintiff when trying to keep the award at or under $25,000 and the defendant when comparing the award to the highest offer.

Practice pointers

To keep a plaintiff’s attorney from being duplicitous, pin the attorney down before the trial – in writing! For example, at some point during the negotiations, ask the plaintiff’s attorney what the “amount of damages recovered” includes. Quite frankly, if the plaintiff’s attorney is concerned about staying under $25,000, you may get a different answer than if the attorney is concerned about beating the offer. At a minimum, make your position known, as most plaintiff attorneys are reluctant to take a position.

The language in N.C. Gen. Stat. § 6-21.1 (“Allowance of counsel fees” and N.C. Gen. Stat. 1A-1, Rule 68 (“Offer of judgment”) is different. In some cases, the plaintiff will beat an offer of judgment but not the “highest offer made by the defendant no later than 90 days before the commencement of trial.” In such a case, the plaintiff may recover costs (as defined by N.C. Gen. Stat. § 7A-305 – court reporting fees, expert witness fees, etc.) but not attorney fees.

Send the plaintiff’s attorney a letter containing the offer (e.g., we offer $10,000 in exchange for a voluntary dismissal with prejudice and release of all claims) to address the attorney fee issue and a separate offer of judgment to address the potential for costs. Keep in mind, that it will be easier for the plaintiff to recover costs. Make sure your client understands the different standards that determine whether attorney fees and costs may be awarded.

Use the prayer for relieve in the complaint to your advantage. In Superior Court, the plaintiff will demand of “an amount in excess of $10,000.00 (and now $25,000).” How does this amount compare to the jury verdict? If the amount sought in the complaint is well in excess of the jury verdict and the defendant made a reasonable offer, the defense attorney has reasonable argument that there was no “unwarranted refusal by the defendant to negotiate or pay . . .” N.C. Gen. Stat. § 6-21.1. See also, Harrison v. Herbin, 35 N.C. App. 259, 261, 241 S.E.2d 108, 109 (1978), cert. denied, 295 N.C. 90 (May 8, 1978( (addressing plaintiff’s reliance on Hicks v. Albertson and holding that “[w]hile the statute is aimed at encouraging injured parties to press their meritorious but pecuniarily small claims, we do not believe that it was intended to encourage parties to refuse reasonable settlement offers and give rise to needless litigation by guaranteeing that counsel will, in all cases, be compensated”).

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Footnotes:

1“If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer. The fact that an offer is made but not accepted does not preclude a subsequent offer.”  N.C. Gen. Stat. § 1A-1, Rule 68(a) (emphasis added).