Last week, the Supreme Court of Virginia answered one of the great open questions in Virginia tort law when it clarified the availability of attorney’s fees under Prospect Development Co. v. Bershader, 258 Va. 75, 92 (1999).
A little background: Virginia follows the American Rule, which provides that without a statute or contract to the contrary, the prevailing party generally cannot recover attorney’s fees from the losing party. Historically, Virginia has recognized some exceptions, like false-imprisonment cases or situations “where a breach of contract has forced the plaintiff to maintain or defend a suit with a third person.” In 1999, the Supreme Court of Virginia added to this list with Bershader, holding that “in a fraud suit, a chancellor, in the exercise of his discretion, may award attorney’s fees to a defrauded party. When deciding whether to award attorney’s fees, the chancellor must consider the circumstances surrounding the fraudulent acts and the nature of the relief granted to the defrauded party.” Bershader‘s facts were pretty bad, as the chancellor found that the defendants had “engaged in callous, deliberate, deceitful acts that the chancellor described as a pattern of misconduct” that misled the plaintiffs and others. The chancellor felt that if he did not award attorney’s fees, the plaintiffs would have won a hollow victory.
That’s all fine as far as it goes, but it left open at least two questions: (1) Are attorney’s fees available only in equity, and (2) are they available only when the defendant has engaged in egregious misconduct?
In St. John v. Thompson, the Supreme Court answered both questions.
As to the first, the Court explains that fees are proper under Berhsader “if the trial court, exercising its discretion in a fraud case, awards equitable relief, and further determines that the circumstances surrounding the fraudulent acts and the nature of the relief granted compel an award of attorney’s fees.” It traces the authority to award attorney’s fees in such cases back to the chancellor’s authority to do equity in a given situation. The Court noted that this authority was traditionally reserved for exceptional cases.
That said, the Court expressly rejected the defendant’s argument that attorney’s fees are available under Bershader only when the fraud is egregious. St. John presented a fraud/unjust enrichment fact pattern that is fairly typical for fiduciary litigation. The Court held that the trial court had not abused its discretion in awarding fees under those circumstances.