Court Announces Standard of Review for Denial of ALAA Claim

In Ex parte Loma Alta Property Owners Association, Inc., No. 1081170 (Ala, June 30, 2010), the Alabama Supreme Court announced that the standard of review for an order denying a request for attorney fees under the Alabama Litigation Accountability Act is the same as the standard of review for an order granting a request for fees.

At Ala. Code § 12-19-272 (a), the ALAA states that:

[I]n any civil action commenced or appealed in any court of record in this state, the court shall award, as part of its judgment and in addition to any other costs otherwise assessed, reasonable attorneys’ fees and costs against any attorney or party, or both, who has brought a civil action, or asserted a claim therein, or interposed a defense, that a court determines to be without substantial justification, either in whole or part ….

Section 12-19-271(1) adds that an action, claim, defense, or appeal is "without substantial justification " if it is "frivolous, groundless in fact or in law, or vexatious, or interposed for any improper purpose, including without limitation, to cause unnecessary delay or needless increase in the cost of litigation, as determined by the court."  When a court awards ALAA attorney fees, it must "specifically set forth the reasons for such award," § 12-19-273, but the court need not do so when it denies a claim for attorney fees.

The standard of review for an order granting fees varies with the ground on which the award is based:

"if a trial court determines that a party’s action, claim, or defense is ‘without substantial justification, ‘ based on the applicability of any one of these terms or phrases [‘frivolous, ‘ ‘groundless in fact, ‘ ‘vexatious, ‘ or ‘interposed for any improper purpose’], that determination will not be disturbed on appeal ‘unless it is clearly erroneous, without supporting evidence, manifestly unjust, or against the great weight of the evidence.’ Cove Creek Development Corp. v. APAC-Alabama, Inc., 588 So.2d 458, 461 (Ala. 1991).

"However, we conclude that the phrase ‘groundless in law’ clearly calls for a legal determination. Therefore, if the trial court determines that a party’s action, claim, or defense is ‘without substantial justification’ because it is ‘groundless in law, ‘ that determination will not be entitled to a presumption of correctness. Rather, the appellate courts of this State will test the validity of the trial court’s legal conclusion."

Pacific Enters. Oil Co. (USA) v. Howell Petroleum Corp., 614 So.2d 409, 418 (Ala. 1993).  This standard now applies to an order denying fees.