Sunday, December 6, 2015

Attorney’s Fees and Consumer Fraud

McKinstry v. Fecteau Residential Homes, Inc.2015 VT 125

By Thomas M. Kester

First, a lawyer joke:
A new client had just come in to see a famous lawyer. 
"Can you tell me how much you charge?” said the client. 
"Of course," the lawyer replied, "I charge $200 to answer three questions." 
"Well that's a bit steep, isn't it?" 
"Yes it is," said the lawyer, "And what's your third question?"
Lawyer's fees are always a fun conversation to have with potential clients. If a lawyer got a nickel every time someone balked at their hourly rate . . . let’s just say I will probably still die with law school debt in either case.

Lawyers and clients generally like it when a statute allows them to collect attorney's fees if they prevail, like the Consumer Protection Act (fun fact #1: under the “American rule,” traditionally, each side bears their own attorney’s fees unless otherwise stated). Let’s examine the case at hand.

The McKinstrys were looking to buy a demonstrator modular home and entered into a contract with Fecteau to buy one. McKinstrys gave Fecteau a $5,000.00 deposit toward the purchase price, sought out financing, and found a contractor who would put in a footer and foundation for the home. However, Fecteau later on is not able to sell the demonstrator modular home and offers a new, identical modular home at the same price. McKinstrys reject the offer and the deal ultimately falls through, with Fecteau returning the $5,000.00 deposit.  McKinstrys found themselves with a foundation but no house. So they found a different modular home that required modifications in the foundation for the home to fit properly.

The McKinstrys filed suit under the Consumer Protection Act, alleging: (1) misrepresentation on the part of Fecteau in regards to its intent to sell them the house they contracted for; (2) “detrimental reliance” (definition: “involves reliance by one party on the acts, representations, or promises of another that cause the first party to allow or to effect a change for the worse in their position”), and (3) that they incurred additional expenses when putting in the other home. They asked for damages, exemplary damages, and attorney’s fees. 

Fecteau moved for summary judgment on a bunch of grounds but the trial court wasn't having it. A two-day trial resulted in the McKinstrys being awarded damages of $1,000.00. Thereafter, McKinstry moved that Fecteau pay their attorney fees of $69,614.17 and costs of $1,732.40. The attorneys (there was a lead and associate attorney) supported this figure with a long, detailed affidavit (fun fact #2: under the Vermont Rules of Professional Conduct, attorneys can only charge “reasonable” fees that must be supported by certain factors). Among Fecteau’s arguments were that they wanted “to offset any attorney’s fee award by the $5000 deposit refunded to buyers in order to ‘preclude double recovery’ under the Act.”

The trial court began by scratching its head because who wouldn’t want a newer version of a home for the same price. They also found that the $1,000.00 award was a nominal amount, that “the action served no broader consumer-protection interest” (this will be important later on), and “found ‘no reason that this case required two attorneys,’” as the case wasn’t that complicated. As such, the trial awarded the McKinstrys $15,000.00 in attorney’s fees and $1,360.00 in costs. The trial court also offset that attorney fee amount by the $5,000.00 returned (due to the wording in the Consumer Protection Act), for a total award of $12,360.00 (= $10,000 + $1,000.00 + $1,360.00). Fecteau moved for judgment notwithstanding the verdict based on an election-of-remedies argument (i.e., they took the $5,000.00 and should be precluded from suing us) and McKinstry moved for reconsideration of the amounts awarded. The trial court denied both arguments and the appeal followed.

The SCOV begins, first, by looking at the Consumer Protection Act. Under the Act, “a plaintiff must show [1] that the defendant made a misrepresentation or omission likely to mislead consumers; [2] that the plaintiff’s interpretation of the misrepresentation or omission was reasonable; and [3] that the misrepresentation or omission was material in that it affected the plaintiff’s purchasing decision.” Cutting to the conclusion: the SCOV concludes that the judgment was supported by the record, stating that “a fact-finder here could reasonably infer that seller agreed to the sale while harboring an unstated intention not to consummate it, but rather to persuade buyers at a later date to take a different, newly manufactured model.”

As to the reasonableness of the attorney fees, the SCOV first agrees with the buyers that “attorney’s fees are mandatory when the Consumer Protection Act has been violated, regardless of whether the award is 'nominal'” but the trial court “may . . . properly consider ‘the results obtained in the litigation.’” Secondly, “attorney’s fees may be appropriate, even in the absence of a damage award, where the plaintiff has ‘accomplished some broader ‘public purpose.’” It's fair to say that bringing to light and deterring misconduct are public purposes. Nevertheless, the SCOV reads the trial court’s decision as “recognizing that the results obtained in the litigation—including any broader public interest—may be a proper consideration.” Finally (as to attorney fees), the SCOV concludes that the trial court’s finding that no real public benefit was derived from this case isn't clearly erroneous.

Third, and final issue, the SCOV looks at the offsetting of the $5,000.00. To the SCOV, there was not a real election-of-remedies issue as the Act “does not purport to preempt any contractual remedies otherwise available to contracting parties separate from the Act.” Even if the buyers had to make an election under the Act, they looked for exemplary and compensatory damages and there is no risk for double recovery. To sum up the SCOV here: “The return of the deposit had nothing to do with buyers’ claim that seller violated the Act.” The SCOV concludes that the $5,000.00 set-off should not have occurred and that results in a total judgment of $17,360.00.

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