Justice Francis A. Kahn III, who presides over Part 32, the Mortgage Foreclosure and Mortgage Auction Part in Supreme Court, New York County, recently had occasion to remind litigants of the risk that awards of legal fees pose where the parties’ contracts so provide, an issue that should be top of mind for many CRE market participants.

In Columbia Condominium v. IR 96th ST Holding LLC, Index No. 154633/2021, 2023 WL 6392576 (Sup. Ct. N.Y. Cty., September 28, 2023), an action to foreclose a mortgage on commercial real property, the defendant vigorously opposed the foreclosure for over two years, “opposed every motion herein,” moved to reargue, and sought a stay and contested the Referee’s report. Plaintiff requested that the judgment of foreclosure include legal fees of $134,329, though the monetary recovery in the judgment was less than that - $96,753. Defendant opposed this award of fees as excessive. Justice Kahn noted that the fees sought were 139% of the monetary recovery, but stated:

“Many litigants fail to consider the principle of diminishing returns when, for a variety of reasons, they persist in years of litigation….  Often, this stems from an unwillingness to accept that attorney’s fees are a binding contractual obligation, even for futile portions of a litigation…. As a result, an originally modest amount of arrears blossoms into a much larger amount comprised mostly of attorney’s fees and interest.”

While Justice Kahn reduced the award of legal fees in the foreclosure judgment to $95,000, that was still approximately 100% of the plaintiff’s monetary recovery. While arising in the context of a condominium foreclosure, Justice Kahn’s reasoning suggests that, where the parties’ contract provides for an award of legal fees, parties who choose to “persist in years of litigation” may risk a larger award of legal fees than they expect.