New Changes to § 6-21.1 Attorneys Fees in the “Small Case”

As part of a broader package of tort reforms passed by the North Carolina General Assembly in 2011, the legislature has modified North Carolina Gen. Statute § 6-21.1. The statute grants authority to a trial judge to award attorney fees as part of costs to a prevailing plaintiff. These costs are taxed to the defendant.

Under § 6-21.1 as previously written, authority to award attorney fees was limited to actions where the judgment finally obtained was less than $10,000. The statute did not limit the amount of attorney fees (3 times) that could be awarded. Judges were however required to make findings of fact to justify entering such an award. In the case of Washington v. Horton,132 N.C. App. 347 (1999), the North Carolina Court of Appeals set out five factors the trial court was required to use in determining whether or not to make an award. Those factors were

1. Settlement offers made prior to the institution of the action;
2. Offers of judgment made and whether the judgment finally obtained was more favorable than such offers;
3. Whether defendant unjustly exercised superior bargaining power;
4. In the case of an unwarranted refusal by an insurance company, the context in which the dispute arose;
5. The timing of settlement offers; and
6. The amounts of the settlement offers as compared to the jury verdict. Awards of attorneys fees would only be reversed on a showing of abuse of discretion by the trial judge

The Rationale Behind § 6-21.1

Not all lawsuits tried before juries involve million-dollar claims. The vast majority of lawsuits filed across the state are filed in the District Court Divisions. These disputes involve sums less than $10,000. While the practice of law is a profession, it is also a business. Since most plaintiff’s claims are handled on a contingency fee basis, whereby an attorney charges a percentage of the amount recovered, it makes little sense from the plaintiff’s attorney’s perspective to invest a great deal of time and effort to pursue the small claims, no matter how valid and just the cause. In addition, if plaintiffs are required to pay their attorneys out of the monies recovered, their small recovery would be even smaller. Insurance companies who are often responsible for paying these judgments, would have little incentive to negotiate and pay these claims without forcing plaintiffs to file suit. Allowing attorney’s fees to be assessed as part of costs, provides an incentive for plaintiff’s attorneys to handle these small cases, insurance companies to negotiate in good faith and helps preserve client’s recoveries from being eaten by the cost of litigation.

“Be a Bear, Not a Pig”

So why did the legislature feel it necessary to change the statute? While some might argue it was simply a Republican versus Democrat fight that pits big insurance companies against trial lawyers, the answer can be found in looking at the debates on the floor of the General Assembly. Many examples were presented from across the state of cases where attorney fees of $10,000, $14,000 and even $18,000 were being awarded by judges when verdicts amounted to only a few hundred dollars. Examples were cited of judges awarding attorneys fees when a verdict was less than what had been offered by the defendant prior to trial. While this is was permissible under prevailing case law, it certainly gave opponents of the statute legislative fodder for change.

The new § 6-21.1

I have reprinted the text of the statute below. Here are the important changes:

The amount of attorney fees (3 times) cannot exceed $10,000.

There must be a showing of and “unwarranted refusal” by the defendant to negotiate or pay the claim.

Attorneys fees may be awarded in cases where damages recovered are $20,000 or less.

The amount of damages recovered must exceed the defendant’s highest offer to settle no later than 90 days before the beginning of trial.

This amendment was passed to add more predictability to attorney fees. While raising the claim size cutoff to $20,000, the statute expands the number of cases where attorney fees could be awarded. However, by limiting attorneys fees to $10,000 and requiring findings of unwarranted refusal by the defendant to negotiate or pay, it may result in an overall net reduction in the amount of attorney fees (3 times) awarded in these small cases.

§ 6-21.1. Allowance of counsel fees as part of costs in certain cases. (a) In any personal injury or property damage suit, or suit against an insurance company under a policy issued by the defendant insurance company in which the insured or beneficiary is the plaintiff, instituted in a court of record, upon findings by the court (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 thousand dollars ($20,000) 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, the presiding judge may, in the judge’s discretion, allow a reasonable attorneys’ fees to the duly licensed attorneys representing the litigant obtaining a judgment for damages in said suit, said attorneys’ fees to be taxed as a part of the court costs. The attorneys’ fees so awarded shall not exceed ten thousand dollars ($10,000). (b) When the presiding judge determines that an award of attorneys’ fees is to be made under this statute, the judge shall issue a written order including findings of fact detailing the factual basis for the finding of an unwarranted refusal to negotiate or pay the claim, and setting forth the amount of the highest offer made 90 days or more before the commencement of trial, and the amount of damages recovered, as well as the factual basis and amount of any such attorneys’ fees to be awarded. (1959, c. 688; 1963, c. 1193; 1967, c. 927; 1969, c. 786; 1979, c. 401; 1985 (Reg. Sess., 1986), c. 976; 2011-283, s. 3.1.)