Minnesota’s Attorney Fee Conundrum

A primary difficulty construction companies (and others) have in litigation is justifying the expenses involved with asserting the right to payments or other remedies. This is particularly so when the amount in controversy is small, but the debtor either disputes the amount or asserts a claim that a portion of the work was not performed according to the contract or the relevant portion of the building code. This defense often leads to protracted and complex litigation. The result is high attorneys fees and other expenses.

A 2021 non-precedential case from the Minnesota Court of Appeals highlights this trouble. In Pro-Star Exteriors v. Walker, et al. the contractor sued for a $4,000 balance owed on a job that cost a total of about $12,000. The Defendant had made a down payment but after a dispute arose he made no further payments. As one would expect, the contractor initially attempted collection in conciliation court – Minnesota’s version of small claims court. However, because a mechanic’s lien was involved, and the contractor wanted to foreclose that lien, the matter was moved to district court. The contractor was awarded an additional $4,417 plus interest. Under Minnesota’s mechanic’s lien statute, the contractor is entitled to attorney’s fees. The question for this case is: what amount over the principal sought by the contractor will the court allow for attorneys’ fees? Put a different way, does the law allow a contractor to collect attorneys’ fees in an amount greater than the principal sought?

In Pro-Star, the contractor sought attorneys’ fees in the amount of $39,000 – nearly 10 times the amount of the principal.  The court awarded only $5,000 – surely an award that will discourage contractors from engaging in protracted litigation to collect the money they are owed.

The court examined nine factors to determine the amount to award a contractor for attorneys’ fees in a mechanic’s lien case. These factors include:

1. Time and effort;
2. Novelty or difficulty of issues,
3. Skill and standing of attorney;
4. Value of claims;
5. Results at trial;
6. Opportunity cost;
7. Ability to pay;
8. 8, Customary charges;
9. Certainty of payment.

Asp v. O’Brien, 277 N.W.s 2d 382, 385 (Minn. 1979).

Further, the attorney fee award must be reasonable in relation to the judgment secured. Id. This leaves clients who had been expecting an award of the amount owed them along with the costs of winning a judgment for those fees more than a little disappointed when they are presented with an invoice for their attorney’s fees and other costs of the litigation.

Ought contractors be concerned that they will have to pay more in attorneys’ fees than they recover, thereby being worse off than if they’d simply written off the amount due as bed debt? While that remains a possibility, the opinion provides clues on how to avoid such a result. These clues are crucial for any attorney to recognize, especially to a client who may think that it will recover those fees from the debtor.

In Prostar, the Court was not impressed on how that the attorneys’ fees became a central issue in the litigation – at an early stage. “The Court believes the attorneys’ fees acted as an impasse to settlement and as the fees increased as the case moved forward, this hindered any type of resolution.” Here, the contractor’s attorney continually refused to settle for any amount less that the full principal and attorneys’ fees. Doing so had the effect of continually increasing the attorneys’ fees, consequently making the case more difficult to resolve without trial. While an attorney may be correct that his or her client may be able to prove up all or most of the amount sought, it is far less likely that a court will find attorneys’ fees to be reasonable if they become the primary hindrance to removing the lawsuit from the court’s docket.

In addition, the Court was not terribly impressed by the amount of billing on the case by the contractor’s attorneys. “This case was overworked and over billed by six attorneys, three law clerks and three paralegals.” Especially in light of the amount in controversy and complexity of the issues.” The court noted prudent counsel, hoping to collect the past due amount as well as the attorneys’ fees required for doing so must take care not to overwork the file. It is a classic mistake to assume that the amount of the fees does not matter because “someone else is paying.” The best idea is to be thorough, but not present a bill to an adversary that the attorney would not send to a long-term client.

There is, however, a larger concern – one that the Court does not address, and the Supreme Court has blithely ignored for years – its insistence on “proportionality.” This means a court will look skeptically at fees that overwhelm the principal the contractor is trying to collect. While it makes a good deal of sense to require proportionality, this puts pressure on counsel and the contractor to take chances by limiting the work on a file. The trouble with this is there are many things that must be done on a case – even a routine matter. This makes collection of smaller amounts difficult – especially in the face of a claim that the contractor did not complete the work properly. Dissatisfied clients can make the proof of such a claim expensive – requiring written discovery,  depositions and often experts. Contractors face a risk that the pursuit of their legitimate claims will result in them spending $30,000 to collect $20,000. Although contractors may hope that either the Minnesota Supreme Court or the State Legislature will acknowledge this conundrum, hope, as they say, is not a plan.

How Contractors Can Protect Against Footing the Entire Bill

Quality attorneys will always advise their clients and explain the vagaries of litigation. Contractors, however, must make sure that they hold their attorneys accountable for how the litigation proceeds and ensure that they can explain their position to the Judge who will determine whether they can collect any fees in addition to the judgment awarded. A contractor who is justifiably proud of his work may refuse to concede any substantial portion of the amount owed for reasons of principle. While that can be a noble and admirable position, when it precludes resolution of the claim, the contractor should also expect that there will be a limit to the amount of fees the contractor can expect.

Contractors should expect regular communication with their attorneys and should in fact insist upon it. They should speak with their attorneys so they understand any weaknesses in the claims and should be open to resolution, even if that can mean giving into a settlement of less than the full amount at issue. If not, the Contractor should fully understand that the more intractable the judge sees the Contractor’s behavior, the higher the likelihood that a judge will not award additional fees beyond the point at which the matter could otherwise have resolved.

The Attorney’s Role

Attorneys in the position of attempting collection of mechanic’s liens should start with a candid assessment of the case.  Just as importantly, the attorney must communicate that to the client. Attorneys need to make certain that the client be prepared to resolve the case early if the opportunity presents itself. Making an offer early in the case establishes a willingness to resolve the case before attorneys’ fees accumulate. Written warnings that attorneys’ fees will escalate without settlement. It can also be helpful to give an estimate and a clear warning that if the matter does not resolve, the attorneys’ fees will likely exceed the amount in controversy. Such warnings, coupled with a documented effort to resolve the case at an early stage, will go a long way toward convincing the court that the need for fees.

Contractors need to work with their attorneys to make sure the attorney will do what he can to avoid doing more than is necessary to work on the case. Early in the litigation, the attorney should have a clear idea of the issues in the case and understand any specific defenses the other party may assert. Written discovery should be narrowly tailored to those issues. Parts of discovery can certainly be forms for some of the typical questions – and those should not take a great deal of time to prepare. Interrogatories and Document requests will go a long way toward understanding the issues in a case.

Evaluation of the responses to that written discovery will provide opportunities to prepare Requests for Admission to further narrow the issues. They serve as valuable admissions from which the defendant will have difficulty retreating during trial. They also can serve as a further justification for a request for attorneys’ fees. By Rule, a party can be charged additional costs for amounts it takes to prove a Request that had been denied but was later proven. It will be more difficult for a judge to disallow fees when the attorney has taken steps to reduce the costs of litigation.

Further, invoices ought to contain sufficient information in the description so a judge reviewing the bill later can understand both what was done, and why it was done. Line after line of “Legal Research regarding Mechanic’s lien foreclosure,” especially if billed by a senior, higher billing attorney will be hard to justify. On the other hand, billing entries that describe specific tasks line by line will be easier to justify. In the event that the Judge believes that more work was done than necessary, it is easier to strike specific line items. If the invoice is presented to the judge as “block billing,” i.e. a single entry describing many specific tasks without an indication about how much time each task required, the judge will be less likely to strike large amounts of time indiscriminately. Finally, it is far easier to explain why specific tasks needed to be performed in the case.

 Conclusion

Some less scrupulous attorneys try to sign up clients by telling contractors that their litigation will be cost-free because the mechanics’ lien law and all well drafted contracts allow them to collect fee. However, there are few guarantees in the law, and the judge will always have a great deal of discretion to award fees. The judge will look at the fees in the context of the entire case and examine how the parties behaved during the course of litigation. If parties engage in unproductive disputes and bicker over minor issues, the judge will consider whether the party seeking the fees played a role in that bickering. If discovery was well beyond what was required, the judge will likely reduce the fees to reduce amounts charged for unnecessary discovery. Attorneys must make sure Contractors understand the trade off between pursuing their legitimate claims without any willingness to resolve it and the corresponding reduction in an award of their attorneys’ fees. This is not always something the Contractors want to hear, but they should.