A Vice President at Microsoft has been credited with saying that “litigation is the basic legal right which guarantees every corporation its decade in court.” While the Microsoft executive was clearly speaking with tongue planted firmly in his cheek, years-long litigation is not only time-consuming, it is extraordinarily expensive. That is why the STSW Business Litigation Group subscribes to the guiding principle, borrowed from Sun Tzu’s The Art of War, that “the supreme art of war is to subdue the enemy without fighting.” When companies are named in frivolous lawsuits, they turn to STSW to aggressively turn the tables. A company that has been harassed with a frivolous lawsuit is not without options.
One option is to countersue to recover attorneys’ fees spent on the frivolous litigation. Maryland Rule 1-341 states that “[i]n any civil action, if the court finds that the conduct of any party in maintaining or defending any proceeding was in bad faith or without substantial justification” the court may order that the offending party pay the expenses and attorneys’ fees “incurred by the adverse party in opposing it.” For a target of such legal harassment who pays out of pocket, the Rule is clear enough. There are, however, nuances in its application when an insurance company pays to defend the target company from the baseless suit.
Last month, the state Court of Appeals addressed the question of whether an insurance policyholder has actually “incurred” expenses and fees, thus triggering application of the Rule, when the insurance company actually foots the bill. In Worsham v. Greenfield, No. 139, Sept. Term 2009, Maryland’s highest court answered this question in the affirmative, holding that for the purposes of Rule 1-341, reimbursement of attorneys’ fees is available regardless of whether a the party defending a lawsuit, or his or her insurance company, pays them.
The Worsham case arose when Michael Worsham became upset that his neighbors, Robert and Romulda Greenfield, participated in a criminal case against him. Worsham sued the Greenfields for defamation, false light/invasion of privacy, civil conspiracy, and aiding and abetting for their role in the prosecution, tacking on a malicious prosecution claim against Robert for good measure. After Worsham’s lawsuit was tossed out on summary judgment, the Greenfields filed a motion under Rule 1-341 for fees and expenses, asserting that their insurer, Erie Insurance, had spent more than $40,000 on their behalf in the case. The circuit court was persuaded that the 62 docket entries in the case represented “a form of ‘scorched-earth’ litigation primarily by Mr. Worsham” and ruled that the counts against Mrs. Greenfield had no substantial justification – and awarded the Greenfields costs related to her defense. Worsham appealed, arguing that, because Erie had paid the fees instead of the Greenfields, they couldn’t recover under the Rule.
In analyzing the issue, the Court cracked open its copies of Merriam-Webster’s and Black’s dictionaries, finding that use of the word “incur” would protect any party liable for or subject to fees and expenses. Given those definitions, the Court held that the Rule unambiguously made fees and expenses available to a party that “acts in response to a claim brought against him or her by marshaling financial and human resources” independent of the method the party chooses to pay the costs, through insurance or otherwise: “[T]he mere fact that an insurer covers all or part of the litigation expense does not, in and of itself, mean that the insured fails to incur litigation expenses.” To double-check this conclusion, the Court also dug into the history of the Rule, determining its purpose was “to serve as a deterrent to parties or counsel who may be disposed to bring frivolous suits.”
That deterrence wouldn’t be realized, the Court reasoned, if someone could sue any insured party to their heart’s content without any potential penalty. In sum, using the courts for unwarranted lawsuits or gratuitous legal maneuvering triggers Rule 1-341 and compensation for costs – what insurance the party under attack may or may not have just doesn’t enter into it. Please contact Bill Sinclair, head of STSW’s commercial litigation group, at 410-385-9116 or firstname.lastname@example.org to find out more about STSW’s litigation team.