Defendants facing small claims suits will no longer be able to recover their attorney’s fees in cases involving voluntary dismissal by the plaintiff. In AllianceOne Receivables Management, Inc. v. Lewis, the Washington Supreme Court resolved a long-standing split between the Divisions of the Court of Appeals, holding that a defendant does not qualify as a prevailing party for purposes of entitlement to attorney’s fees under RCW 4.84.250 absent a final judgment.
Background
AllianceOne Receivables brought this collections action, then later voluntarily dismissed the suit. The defendant sought an award of attorney’s fees under RCW 4.84.250, arguing that he was the prevailing party in the action. The District Court denied the defendant’s request for fees, and the Supreme Court subsequently accepted direct review due to a split of authority on this issue between Divisions One and Three of the Court of Appeals.
Analysis
RCW 4.84.250 allows for the prevailing party in an action for $10,000 or less to recover attorney’s fees. A defendant “shall be deemed the prevailing party within the meaning of RCW 4.84.250, if the plaintiff . . . recovers nothing, or if the recovery, exclusive of costs, is the same or less than the amount offered in settlement by the defendant . . . .” RCW 4.84.270.
A five-justice majority of the Supreme Court held that the statute’s definition of a “prevailing party” does not extend to circumstances where the plaintiff voluntarily dismisses the action. The majority examined the context of the statute, finding that the term “recover” typically refers to instances in which a final judgment is entered. The Court further found that the defendant’s interpretation was inconsistent with the underlying purposes of the statute, as penalizing plaintiffs who voluntarily dropped their cases would discourage resolution prior to trial and would discourage parties from pursuing legitimate small claims in the first place. The Court pointed out that CR 11 already provides a remedy for a defendant facing a frivolous lawsuit.
In so holding, the Court rejected the case of Allahyari v. Carter Subaru, decided by Division One of the Court of Appeals in 1995. According to the Court, Allahyari did not apply the contextual approach to examining the statute, and that case was abrogated by the Supreme Court’s later decision in Wachovia SBA Lending, Inc. v. Kraft, which held that a prevailing party under RCW 4.84.330 does not include a defendant under circumstances where the action is voluntarily dismissed.
Instead, the Court adopted the reasoning of Division Three’s 1989 decision in Cork Insulation Sales Co. v. Torgeson. Cork employed a three-factor test to determine whether a defendant is entitled to an award of attorney’s fees under RCW 4.84.250: (1) the damages sought were equal to or less than $10,000; (2) the defendant was deemed a prevailing party; and (3) there was an entry of judgment. Adopting the three-factor test, the Court held that the defendant in this case failed to meet the requirements to support an award of attorney’s fees under the statute.
This decision was by no means unanimous. Four justices joined in a lively dissent, adopting precisely the opposite position from the majority. The dissent articulated its belief that the phrase “recovers nothing” should mean exactly what it says: that the plaintiff recovers nothing, regardless of whether a final judgment has been entered. The dissent rejected Cork’s three-factor test, which it opined should apply only to circumstances (like Cork) where the defendant has tendered a settlement offer. It similarly distinguished Wachovia, noting that that case applied to RCW 4.84.330, which expressly provides that the “’prevailing party’ means the party in whose favor final judgment is rendered.” In contrast, RCW 4.84.250 and .270 contain no reference to final judgment. Finally, the dissent asserted that the majority’s approach is contrary to the purpose of RCW 4.84.250, in that it discourages settlement because a plaintiff may dismiss its claims on the eve of trial without consequence.