A recent decision of the Appellate Division, First Department, Krodel v. Amalgamated Dwellings, Inc., 166 A.D.3d 412, 88 N.Y.S.3d 31 (2018) inspires us to re-examine New York’s doctrine about recovering attorney fees in litigation. Krodel itself explores a corner of the “American Rule” that holds that one cannot recover attorney fees from an adversary in litigation absent an authorizing statute, rule, or contract, and finds that under certain circumstances, contract provisions authorizing the fees are unconscionable. With that boundary point established, older case law fills in when such contract clauses will receive enforcement.

American Rule

Under the American Rule, “attorneys’ fees and disbursements are incidents of litigation and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties or by statute or court rule.” Matter of A.G. Ship Maintenance Corp. v. Lezak, 69 N.Y.2d 1, 5, 503 N.E.2d 681, 511 N.Y.S.2d 216 (1986). In landlord tenant litigation, one of the richest sources of attorney fee law, some few statutes award attorney fees in particularized situations, such as RPL §227-d that awards such fees for housing discrimination against victims of domestic violence; RPL §237-a awarding the fees to victims of discrimination against children in housing; and RPL §226-b awarding the fees to a tenant when a landlord has unreasonably withheld consent to a residential subletting.

The general attorney fees provision in landlord tenant litigation is RPL §234 that reads into the lease a right to attorney fees when the residential lease grants landlord such a right in litigation with the tenant.

Central Relief

In Murphy v. Vivian Realty Co., 199 AD2d 192, 605 NYS2d 285 (AD1 1993) the First Department limited the award of attorneys for when the party seeking them has actually prevailed in the underlying litigation. In thus ruling, it cited to Sperling v. 145 East 15th Street Tenant’s Corp., 174 AD2d 498, for such a rule with respect to RPL §234. The idea of “prevailing,” however is complicated by the doctrine of the “central relief sought.” It is not enough that a litigant win the case. Under this doctrine, in order to be entitled to attorney fees, the litigant has to win at least most of that which was sought at the very beginning of the case, as the court perceives that goal to have been.

In Nestor v. McDowell, 81 N.Y.2d 410, 599 N.Y.S.2d 507 (1993), the court held that that which was sought was an eviction, even though the reason the eviction was denied the landlord was because during the case, the tenant ceased its wrongful conduct. Even though Nestor never explained how a court knows that the landlord really sought eviction rather than the cessation of the wrongful conduct, for failing to have obtained that “central relief,” the landlord was denied attorney fees.

What the “central relief” was often comes down to a question of how much of the relief it sought, a litigant obtained. In Excelsior 57th Corp. v. Winters, 227 A.D.2d 146, 146-47, 641 N.Y.S.2d 675 (1st Dept. 1996), the tenant who received an abatement claimed to be the prevailing party, but because the abatement was small, the court found the landlord to be the prevailing party. Accord, Peachy v. Rosenzweig, 215 A.D.2d 301, 302, 626 N.Y.S.2d 784 (1st Dept. 1995). This, in turn, gave rise to a kind of winner takes all attorneys’ fee award for the landlord, but perhaps the better rule would have been for an analogy to comparative negligence where there was a calculation of a percentage of the attorney fees equal to the percentage of relief gained.

A trial court of a mind to be certain to rule correctly on what the central relief sought is for each side could early in the case require a statement on the record by each party setting forth its actual goal.

While RPL §234 does allow for attorney fees for a tenant in defending judicial acts and proceedings, it does not give a right of an award to the tenant in administrative proceedings. Chessin v. New York City Conciliation and Appeals Bd., 100 A.D.2d 297, 306, 474 N.Y.S.2d 293 [1st Dept. 1984]; Blair v. New York State Div. of Housing and Community Renewal, 96 A.D.3d 687, 688, 946 N.Y.S.2d 865 [1st Dept. 2012]).

Often in litigation, the particular index number comes to an end for one reason or another, such as a successful challenge to personal jurisdiction, but the underlying dispute between the parties has still eluded resolution and there will certainly be another index number coming along. In such matters, attorney fees should not be awarded on the earlier index number, but should await the ultimate resolution of the controversy. Solow v. Wellner, 205 A.D.2d 339, 340, 613 N.Y.S.2d 163 (1st Dept. 1994).

Projecting Lease Clauses

A hidden feature of the American Rule is that it is not enough that there actually be a contract fixing a right to attorney fees. That contract must actually be before the court. In rent controlled tenancies, few are the leases that have been preserved that established the tenancies in the first place. While these leases likely did have clauses awarding the landlord attorney fees, the absence of the physical documents to put them into evidence means that neither their ability to give the landlord attorney fees nor the reciprocal right under RPL §234 comes into play.

Where, however, the lease can come into evidence, the fact that it is expired is irrelevant. Its attorneys’ fee clause continues to bind the parties. Duell v. Condon, 84 N.Y.2d 773, 622 N.Y.S.2d 891 (1995). Rent Stabilization, rather than a statutory tenancy, is a tenancy built on regulations requiring the tenant having a right to lease renewals whenever the lease expires. The terms of the renewal period, by action of RSC §2522.5(g), must be on “the same terms and conditions” as the expiring lease.

Rehearsing several themes we have discussed here, 1997 Marcy Avenue, Inc. v. Clinkscale, 6 Misc.3d 78, 842 N.Y.S.2d 147 (App.T. 2nd & 11th Jud. Dist. 2007) sustained an award of attorney fees on admission into evidence of a photocopy of the original lease, lacking the landlord’s signature on the lease. It held that the tenant was credible for establishing this document since it was the landlord’s obligation to furnish such a lease and the landlord proferred no alternative. Thus, we see, one can overcome the lack of an original lease. Further, this case establishes that under the “same terms and conditions” doctrine, the terms of this earlier lease project into the later terms of this rent stabilized tenancy.

In addition, even without rent regulation, even in the commercial context, the terms and conditions of an expired lease continue to project into the period during which the tenant is holding over after the lease’s expiration. McClenan v Brancato Iron & Fence Works, 282 A.D.2d 722, 724 N.Y.S.2d 438 (2nd Dept. 2001). Thus, both in rent stabilization and in commercial leases, if a party to the lease had a right to attorney fees under the expired lease, that party continues to have that right after the lease expires or is otherwise terminated. 640 Broadway Renaissance Co. v. Rossiter, 256 A.D.2d 568, 568, 648, 684 N.Y.S.2d 248 (2d Dept. 1998)

Thus, in litigation prior to the expiration of either the initial term or of any renewal term, the attorney fees clause of the initial lease shall govern and, under RPL §234, accord to a residential tenant a reciprocal right to such fees in the context of judicial litigation.

Fees for Defense

Tenants whom the courts have found to be in the wrong, but who, for technical reasons nonetheless defeated the eviction proceedings against them do not get their legal fees awarded to them. Ram I, LLC v. Stuart, 248 AD2d 255, 668 NYS2d 888 (1st Dept. 1998). Where the tenant’s victory is based on a change in law during the course of the proceedings that took away the landlord’s right of recovery which actually did exist when the case started, the tenant is not entitled to recover attorney fees. Blair v. New York State Div. of Housing and Community Renewal, 96 A.D.3d 687, 688, 946 N.Y.S.2d 865 [1st Dept. 2012]).

The clause in question in Krodel, supra, is specifically with respect to the cooperative corporation defending a suit brought by a shareholder. This, the court found to be an unconscionable penalty. Even if “if the corporation prevails” had been incorporated in such a clause, the legal effect of the clause would only have given the cooperative a right to recover of the cooperator without an automatic reciprocal right for the tenant to recover from the landlord. This is because RPL §234 implies in favor of the tenant a right to recover attorney fees for either a successful prosecution of the tenant’s rights or a successful defense of a suit the landlord brings from a lease clause granting a landlord a right of attorney fees for prosecuting the landlord’s rights.

Krodel was about Landlord’s Fees For Defense (LFFD). “The overriding purpose of (RPL §234) is to provide a level playing field between landlords and tenants, by creating a mutual obligation that is an incentive to resolve disputes quickly and without undue expense.” Graham Ct. Owner’s Corp. v. Taylor, 115 A.D.3d 50, 978 N.Y.S.2d 213 (1st Dept. 2014).   However, it often falls short of this goal and the statute on its face provides no implied right for the tenant in response to a lease clause obliging the tenant to compensate the landlord for LFFD.

Voluntary Discontinuance

In DKR Mtge. Asset Trust 1 v. Rivera, 130 A.D.3d 774, 14 N.Y.S.3d 414 (2015), the Second Department grappled with whether a party under a statute like RPL §234, namely, RPL §282, could recover attorney fees when the plaintiff voluntarily discontinued. Since the discontinuance was without prejudice, the court held, there was no right of the defendant to collect attorney fees. However, had the discontinuance been with prejudice, this certainly would have been deemed a ruling on the merits and the court no doubt would have sustained attorney fees for the defendant.

Settlements

For purposes of determining who was the “prevailing party,” it is not necessary that the party claiming prevalence won by judicial or administrative determination. A win that happens by way of a settlement can be sufficient to sustain an award of attorney fees without necessity that those as well be part of the settlement. In Sykes v. RFD Third Ave. I, 39 A.D.3d 279, 279, 833 N.Y.S.2d 76 (1st Dept. 2007), where the right to attorney fees to the prevailing party was purely contractual, the Appellate Division noted, “Although they received the funds they sought through stipulation rather than through a judicial determination, they sufficiently prevailed on their claim.

Accordingly, plaintiffs are entitled to recoup their attorney fees, pursuant to the provision of the escrow agreement allowing for fees to the ‘prevailing party.’” Sykes was a case about the purchase of an apartment, but its principle is not limited to purchases or even to real estate. Contractually based attorney fees can rely on a victory achieved purely by stipulation.

In Kirock 80 Co., LLC v. Mootoo, 53 Misc.3d 144(A), *1, 46 N.Y.S.3d 475 (AppT. 1st Dept. 2016) a stipulation of settlement dismissed the case with prejudice and preserved the tenant’s right to seek attorney fees. Since a stipulated dismissal of a case with prejudice is the judicial equivalent of a finding on the merits, the court held the tenant to have prevailed sufficiently to receive attorney fees.

In Mootoo, the court recognized that the amount of time spent on the litigation leading up to the stipulation of settlement might have been unreasonable, but that would speak to the size of the attorney fees award and not as a bar to the entitlement for the same.

Conclusion

Through well-established doctrine, the rule has emerged that to be entitled to one’s attorney fees, it must be based on statute, court rule, or contract. The mere presence of any one of these three is not, however, sufficient. To be entitled to reimbursement of the fees, one must prevail, either by an adjudicator’s award or by means of stipulated settlement. These were all established as sufficient conditions for the award. Krodel teaches that they are not merely sufficient, but necessary as well.

Dov Treiman is a partner in Desiderio, Kaufman & Metz.