New York Court of Appeals Grapples with Attorneys’ Fees In Two Recent Cases

Given the steadily rising costs of attorneys’ fees, it is not surprising that the awarding of fees has recently been the focus of numerous judicial opinions.  In fact, earlier this year, the New York Court of Appeals handed down two decisions on the same day regarding prevailing parties and awards for attorneys’ fees: one which awarded attorneys’ fees, the other which denied them.

In Graham Court Owner’s Corp v. v. Taylor, 24 N.Y.3d 742, 5 N.Y.S.2d 348 (2015), the Court held that a tenant was entitled to recover attorneys’ fees after prevailing in his defense of the landlord’s holdover proceeding under Real Property Law Section 234.  Under this statute, where a residential lease allows a landlord to recover attorneys’ fees resulting from the tenant’s breach of the lease, the tenant is given a reciprocal right to seek fees incurred as a result of the landlord’s breach of the lease or the tenant’s successful defense of a proceeding commenced by the landlord.  Specifically, Section 234 provides, in pertinent part, as follows:

Whenever a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of the tenant to perform an covenant or agreement contained in such lease … there shall be implied in such lease a covenant by the landlord to pay to the tenant the reasonable attorneys’ fees and/or expenses incurred by the tenant as the result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease.

In rendering its decision, the Graham Court relied on an earlier decision, Matter of Duell v. Condon, 84 N.Y.2d 773, 622 N.Y.S.2d 891 (1995), in which the Court of Appeals explained that the “overriding purpose of Real Property Law § 234 was to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense… thus grant[ing] to the tenant the same benefit the lease imposes in favor of the landlord.” Duell, 84 N.Y.2d at 780.  The Duell Court further stated that the statute was also intended to discourage landlords “from engaging in frivolous litigation in an effort to harass tenants … into terminating legal occupancy.” Duell, 84 N.Y.2d at 780.

Guided by these principles, the Graham Court upheld the right of the tenant to collect attorneys’ fees from its landlord after defeating a holdover eviction proceeding, even though the lease did not specifically allow the landlord to collect attorneys’ fees directly from the defaulting tenant.  Rather, the lease allowed the landlord to cancel the lease, retake possession, and collect attorneys’ fees from rents received by reletting the premises to another tenant.  The Court reasoned that any attorneys’ fees recovered after retaking and reletting the premises would be incurred as a result of the tenant’s breach and, therefore, encompassed by Section 234 of the Real Property Law.  Critically, the Court stated that the issue was not whether fees were available in the underlying proceeding against the tenant for breach of the lease (insofar as there is no such limitation found in the text of the statute), but whether the lease provides that “in any action or summary proceeding” the landlord may recover fees incurred as a result of the tenant’s breach.

Conversely, in Solla v. Berlin, 24 N.Y.3d 1192, 3 N.Y.S.3d 748 (2015), the Court of Appeals addressed whether a party could recover prevailing party attorneys’ fees under the New York Equal Access to Justice Act based on the “catalyst” theory of recovery.

The petitioner in Solla brought suit to enforce an administrative decision previously entered by the New York State Office of Temporary and Disability Assistance (OTDA), which had ordered the New York City Human Resources Administration (HRA) to restore the petitioner’s shelter allowance.  Shortly after the action was commenced, the HRA complied with the OTDA’s decision and the OTDA sought dismissal of the proceeding.  The Petitioner then sought attorneys’ fees from the State under New York State’s Equal Access to Justice Act (EAJA) (CPLR art. 86), which authorizes the recovery of reasonable fees and expenses in certain actions against the State.  The Petitioner argued that she should be considered a “prevailing party” within the meaning of the EAJA and, therefore, entitled to attorneys’ fees because her commencement of the lawsuit was a catalyst for the relief she sought (that is, HRA’s compliance with the OTDA’s decision).

At the lower level, the Supreme Court had dismissed the Article 78 proceeding as moot and denied the petitioner’s application for attorneys’ fees on the ground that she had not obtained some relief by the court and that a claimant was only considered a “prevailing party” if he or she had obtained some relief by the court.  The Supreme Court cited the Matter of Auguste v. Hammons, 285 A.D.2d 417, 727 N.Y.S.2d 880 (1st Dept. 2001), in support of its decision, in which the Appellate Division had refused to recognize the claimant as a prevailing party under the catalyst theory.  On appeal, the Appellate Division reversed the Supreme Court’s order and awarded attorneys’ fees, effectively overruling its own decision in Auguste and recognizing the catalyst theory for the first time.

However, the Court of Appeals held that, even assuming (without deciding) that the catalyst theory applied to the definition of a “prevailing party” for the purpose of CPLR 8601 (i.e., EAJA), the petitioner could not recover attorneys’ fees.  A claimant can only recover fees if the lawsuit prompted a change in position by the party from which the claimant sought reimbursement.  In Solla, the petitioner sought attorneys’ fees from the State, but the State had at all times sided with the petitioner regarding the HRA’s reduction of her shelter allowance.  Thus, while the HRA (a city agency) had altered its position following the petitioner’s commencement of the proceeding, the State had not.  As a result, the petitioner could not recover attorneys’ fees, even if the catalyst theory applied under New York law.

Thus, the Court of Appeals was willing to look at the underlying purpose of the statute under review in Graham in upholding a claim for attorneys’ fees.  Without any such statutory authority, however, the Court of Appeals took a more circumspect approach in Solla in rejecting a claim for attorneys’ fees and putting off until another day the applicability of the catalyst theory in New York State.