Attorneys' Fees as Special Damages - The Writ

When it comes to recovering attorneys’ fees, Nevada generally follows the “American Rule.” This means that attorneys’ fees may only be awarded when authorized by statute, rule, or agreement. One exception to the American Rule recognized in Nevada is when attorneys’ fees are sought as special damages, as articulated by the Supreme Court in the flagship case of Sandy Valley Assocs. v. Sky Ranch Estates Owners Assoc., 117 Nev. 948, 960, 35 P.3d 964, 971 (2001). The Supreme Court recently clarified that attorneys’ fees incurred by a plaintiff in bringing a two-party breach-of-contract claim do not constitute special damages under the limited exceptions to the American Rule previously identified by the Court. See Pardee Homes of Nevada v. Wolfram, et al., 135 Nev. Adv. Op. 22 (2019).

 Sandy Valley and its Progeny

 Sandy Valley stands for the general proposition that attorneys’ fees as special damages, like any other element of damages, must be pleaded under NCRP 9(g) and then proven at trial by competent evidence. In that case, the Supreme Court reversed a fee award in an action over title to real property in which the plaintiff did not request attorneys’ fees as special damages until after trial. The decision, however, contained sweeping language seeming to endorse an award of attorneys’ fees as special damages when they constitute “foreseeable damages arising from tortious conduct or a breach of contract,” and are a “natural and proximate consequence of ... injurious conduct.” Based on this language, Sandy Valley set the stage for subsequent litigants to seek fees in wide variety of cases.

Since that time, the Supreme Court has retreated from the far-reaching language of Sandy Valley. In Horgan v. Felton, the Court held that attorneys’ fees incurred in an action for slander of title qualify as special damages but those incurred simply in an action to remove a cloud upon title do not. 123 Nev. 577, 585-86, 170 P.3d 982, 985-88 (2007). In reaching that conclusion, the Court rejected any broad language in Sandy Valley that might suggest otherwise.

 A few years later, the Court again addressed the topic, holding that a homeowner could recover as special damages attorneys’ fees sustained to defend against a subcontractor's suit that was prompted by the developer's breach of contract with the homeowner. Liu v. Christopher Homes, LLC, 130 Nev. 147, 321 P.3d 875 (2014). The Court better clarified the interplay between Sandy Valley and Horgan:

When revisiting and abrogating Sandy Valley, the Horgan court only overturned the analysis and conclusion in Sandy Valley that concerned the recovery of attorney fees that are accumulated in actions to clarify or remove a cloud on title to real property… The court did not retreat from Sandy Valley’s conclusion that a party to a contract may recover, as special damages, the attorney fees that arise from another party’s breach of the contract when the breach causes the former party to incur attorney fees in a legal dispute brought by a third party.

Liu, 130 Nev. at 155, 321 P.3d at 880 (citations omitted). The Court therefore maintained in Liu the part of Sandy Valley that survived Hogan.

Pardee Homes Further Clarifies What Remains of Sandy Valley

The Pardee Homes case involved a suit brought by two real estate brokers to obtain information about and recover any unpaid commissions alleged to be due them under a commission contract for sales of property. The complaint asserted three claims against the developer related to its obligations under the commission agreement: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) an accounting. The district court granted the brokers leave to amend the complaint to plead attorneys’ fees as special damages.

After a bench trial, the district court found in favor of the brokers on all claims and ordered an accounting. The district court also awarded the brokers attorneys’ fees on two grounds: (1) $135,500 as special damages, concluding that brokers were forced to file suit against the developer in order to get the information to which they were entitled pursuant to the commission agreement; and (2) $428,462.75 because the brokers were the prevailing parties under the commission agreement.

The Supreme Court reversed the award of attorneys’ fees as special damages, holding that Sandy Valley does not authorize such an award in a two-party breach of contract action. The Court noted that Sandy Valley discussed just three scenarios in which an award of fees as special damages would be appropriate: (1) “when a plaintiff becomes involved in a third-party legal dispute as a result of a breach of contract or tortious conduct by the defendant”; (2) when a plaintiff seeks to recover “real or personal property acquired through the wrongful conduct of the defendant or in clarifying or removing a cloud upon the title to property” (partially abrogated by Horgan); and (3) injunctive or declaratory relief actions compelled "by the opposing party's bad faith conduct.”

Therefore, the Court concluded in Pardee Homes, “to the extent Sandy Valley has been read to broadly allow attorney fees as special damages whenever the fees were a reasonably foreseeable consequence of injurious conduct, we disavow such a reading.” To hold otherwise, the Court reasoned, would allow a fee award in any breach-of-contract action because the aggrieved party’s retention of attorney to remedy the breach is foreseeable. This, the Court emphasized, would violate the American Rule.

Conclusion

With Pardee Homes, the Court has further distanced itself from the broad language of Sandy Valley, emphasizing that, absent a contract, rule or statute that provides for an award of fees, the circumstances under which fees can be recovered as special damages are narrow.