On March 14, 2012, the Minnesota Supreme Court held that the Minnesota Constitution provides a right to a jury trial on a claim for attorney fees under a contractual attorney fees clause. United Prairie Bank-Mountain Lake v. Haugen Nutrition & Equip., LLC. The Minnesota Supreme Court’s 5-2 decision means that attorney fees based on a contractual attorney fees clause may now be decided by juries, not judges. This decision makes Minnesota the only state to hold that a party has a constitutional right to a jury trial to determine a claim for attorney fees based on a contractual attorney fees clause.

The Minnesota Supreme Court’s Decision.

United Prairie Bank-Lake Mountain involved a dispute between a lender and borrowers. A husband and wife farmed and operated a feed mill business on their Cottonwood County land. The landowners asked United Prairie Bank-Mountain Lake (Bank) to refinance their debt after they experienced financial difficulties and had trouble making timely payments. The Bank agreed to refinance the debt. The refinanced loans were secured with a mortgage on the two parcels of land, commercial security agreements, and personal guarantees from the landowners. All of the loan documents contained attorney fees clauses giving the Bank the right to recover its attorney fees and collection costs incurred in seeking repayment under the agreements and protecting the Bank’s security interests.

After the landowners defaulted, the Bank brought two claims: one for breach of the loan documents and another for breach of personal guarantees. In addition to seeking an award of damages, the Bank demanded its costs of collection, including attorney fees. The landowners claimed that they were entitled to have a jury determine the reasonableness and amount of attorney fees the Bank was entitled to receive. The trial court denied the landowners’ request and awarded the Bank $403,821.82 in attorney fees. The landowners appealed the decision. The Minnesota Court of Appeals affirmed, finding that there was no right to a jury trial under the Minnesota Constitution on a claim for attorney fees based on a contractual attorney fees clause. The landowners appealed to the Minnesota Supreme Court.

The question before the Minnesota Supreme Court was “whether the Minnesota Constitution provides a right to a jury trial for a claim to recover attorney fees based on a contract.” The Minnesota Supreme Court had not decided this precise issue before; claims for attorney fees were, however, historically decided by judges, not juries. The Minnesota Supreme Court—after reviewing court decisions dating back to the time when the Minnesota Constitution was adopted in 1857—found that a claim seeking to recover money spent on attorney fees was one that entitled a party to a jury trial.

What the Decision Could Mean for Lenders and Creditors Seeking to Recover Attorney Fees.

The Supreme Court recognized the potential practical difficulties associated with implementing its ruling: (1) having lay juries, not judges with experience and expertise, deciding the question of the reasonableness and amount of attorney fees; and (2) delays and inefficiencies that may be caused by submitting the question to a jury. Despite these potential practical difficulties, the Minnesota Supreme Court explained that “[t]he availability of a constitutionally-guaranteed right to trial by jury does not and should not turn on the practical difficulties of its implementation.”

As the Minnesota Supreme Court predicted, this decision will have a significant impact on how suits for the recovery of attorney fees are litigated and ultimately tried. For example, borrowers and guarantors may seek to use their right to a jury trial to gain leverage in litigation involving claims for attorney fees by forcing lenders and creditors to establish their right to attorney fees (including the reasonableness of the amounts being sought and the amount of fees to be awarded) before a jury.

What Can Lenders and Creditors Do?

Because the Minnesota Supreme Court is the highest tribunal in the State of Minnesota, it serves as the final arbiter on all decisions relating to interpretation of the Minnesota Constitution. As a result, there is no legislative solution to lenders and creditors who may prefer to have experienced judges, as opposed to juries, deciding how much they are entitled to recover in collection costs.

Lenders and creditors should, therefore, review their loan documents to determine if existing jury trial waivers are sufficiently broad to include a waiver of the right to a jury trial on attorney fees claims. Because the right to a jury trial is not a requirement, courts have traditionally permitted waivers of the right to a jury trial in contractual documents. While the Minnesota Supreme Court has yet to weigh in on this issue, it can be argued that the same reasoning that permits waiver of a right to a jury trial on other claims should be applied in the context of a claim for attorney fees. Lenders and creditors who have agreements that include attorney fees clauses, however, would be well advised to carefully consider all of the implications of this decision on their existing business practices.

Takeaway:

Lenders and creditors should analyze their existing jury trial waiver clauses to determine if these clauses are broad enough to fend off arguments that the jury trial waivers in the existing agreements do not include a waiver of the right to a jury trial on attorney fees.