"Defendants in Georgia Lawsuits Can Now Seek to Recover Attorney’s Fees and Litigation Expenses as Part of Their Counterclaims."

This week the Georgia Supreme Court, in the case of SRM Group, Inc. v. Traveler’s Property Casualty Co. of American (April 6, 2020), brought good news to defendants in contract litigation:  They can now seek to recover attorney’s fees and expenses of litigation if they prevail on their counterclaims at trial.

One of the principal statutes in Georgia governing the recovery of attorney’s fees is O.C.G.A. § 13-6-11. It provides that, “[t]he expenses of litigation generally shall not be allowed as a part of the damages; but where the plaintiff has specially pleaded and has made prayer therefor and where the defendant has acted in bad faith, has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense, the jury may allow them. (Emphasis added).

Prior to 2009, there was a conflict in authority in Georgia’s Court of Appeals over whether a defendant in a breach of contract claim could recover attorney’s fees on a counterclaim against the plaintiff. Some opinions held that either litigant could seek attorney’s fees for the other’s bad faith, stubborn litigiousness, or infliction of unnecessary trouble and expense, but other opinions held that only the plaintiff could seek such fees. That rule changed in 2009 when the Georgia Supreme Court issued its opinion in Byers v. McGuire Properties, Inc., 285 Ga. 530 (2009).  In Byers, the Supreme Court held for the first time that a prevailing defendant could not recover attorney’s fees if its claim arose from the same facts or circumstances as the plaintiff’s claim (i.e., a compulsory counterclaim).  The Byer’s court did carve out a small exception, where a prevailing defendant could recover fees if its claim arose out of some other transaction (i.e., a permissive counterclaim).

The Byers’ Court’s ruling was based on an overly restrictive interpretation of the word, “plaintiff,” in the text of O.C.G.A. § 13-6-11 -- the Court interpreted “plaintiff” to mean only the party who instituted the lawsuit. The unfortunate and unanticipated result of Byers was that it disincentivized settlement negotiations and encouraged a “race to the courthouse” to gain the coveted title of “plaintiff” because only the plaintiff would have the right to seek attorney’s fees. The ruling led to perverse situations whereby, for example, a property owner, who was severely behind on his payments to his contractor but who was the first to file suit, could deprive the contractor of the right to seek the recovery of attorney’s fees by suing the contractor for “punch list” type items outstanding on the project. The Supreme Court in SRM Group, Inc. rectified that problem.  

In SRM Group, Inc., the Supreme Court overruled Byers and significantly expanded the rights of prevailing counterclaimants to recover attorney’s fees and expenses regardless of whether the counterclaim was permissive or compulsory. The Court rejected Byers’ restrictive interpretation of the word plaintiff in O.C.G.A. § 13-6-11 by holding that a “defendant who brings a counterclaim against a plaintiff becomes the plaintiff as to that counterclaim. Thus, a plaintiff-in-counterclaim asserting an independent claim may seek, along with that claim, attorney fees and litigation expenses under O.C.G.A. § 13-6-11.” In reaching this common sense conclusion, the Supreme Court noted that the counterproductive effects and “unsoundness” of the Byers opinion weighed in favor of overturning it. 

The SRM Group decision also casts a net beyond business and contractual disputes. While codified under the “Contracts” title of the Official Code of Georgia, § 13-6-11 is widely asserted in a wide variety of cases, including tort cases. Consequently, this decision will expand the rights of all counterclaiming defendants in Georgia to seek the recovery of fees and expenses on their affirmative claims. Thus, the decision brings fairness and common sense to all litigants in Georgia

SRM Group, Inc. v. Traveler’s Property Casualty Co. of America. 

Authored by William Buhay, Nick Panayotopoulos, and Anna Idelevich.

This alert provides a general overview of recent legal developments.  It is not intended and should not be relied upon as legal advice.