On certification to the Superior Court, Appellate Division.
For affirmance -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, Garibaldi, O'Hern and Stein. For reversal -- None. The opinion of the Court was delivered by O'Hern, J.
This appeal concerns the proper procedure for resolution of claims by public interest law firms for statutory fees under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -48. We hold that in the circumstances of this case, the stipulation of settlement dismissing with prejudice a consumer fraud action precluded the subsequent assertion of the claims for attorney's fees. In future circumstances, settlement of the merits of such a consumer fraud claim shall precede settlement of fee claims. Any court-approved settlement, as in a class action, should take account of these requirements.
In New Jersey, we accept, as do most other courts, the premise of the American Rule that ordinarily society is best served when the parties to litigation each bear their own legal expenses. Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 257, 95 S. Ct. 1612, 1616-1617, 1621, 44 L. Ed. 2d 141, 147, 153 (1975); see Right to Choose v. Byrne, 91 N.J. 287, 316 (1982) ("'sound judicial administration will best be advanced' if litigants bear their own counsel fees * * *." (quoting Gerhardt v. Continental Ins. Cos., 48 N.J. 291, 301 (1966))). In selected circumstances when the American Rule has not served the interests of justice, we modified it. Thus in actions for indemnity under an insurance policy, we allowed the recovery of legal fees by the prevailing party in order to make the plaintiff whole and to secure compliance with the insurance contract. R. 4:42-9(a)(6).
State and national legislatures have further modified the American Rule in particular classes of cases. Most familiar is the allowance of counsel fees in actions to vindicate constitutional and civil rights. See Hensley v. Eckerhart, 461 U.S. 424, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983). Congress has used this same measure in a wide variety of contexts such as anti-trust violations of the Clayton Act, 15 U.S.C. § 15; violations of the Truth in Lending Act, 15 U.S.C. § 1640(a)(3); and violations of the Consumer Product Safety Act, 15 U.S.C. § 2072.
The sponsor of 42 U.S.C. § 1988, the Civil Rights Attorney's Fee Awards Act of 1976, which was enacted in response to Alyeska, supra, stated:
The problem of unequal access to the courts in order to vindicate congressional policies and enforce the law is not simply a problem for lawyers and courts. Encouraging adequate representation is essential if the laws of this Nation are to be enforced. Congress passes a great deal of lofty legislation promising equal rights to all.
Although some of these laws can be enforced by the Justice Department or other Federal agencies, most of the responsibility for enforcement has to rest upon private citizens, who must go to court to prove a violation of law. * * * But without the availability of counsel fees, these rights exist only on paper. Private citizens must be given not only the rights to go to court, but also the legal resources. If the citizen does not have the resources, his day in court is denied him; the congressional policy which he seeks to assert and vindicate goes unvindicated; and the entire Nation, not just the individual citizen, suffers. [122 Cong.Rec. 33,313 (1976) (Statement of Sen. Tunney).]
Such acts are designed as well to promote respect for the underlying law and to deter potential violators of such laws.
Our State policy is similar. As one judge stated, the purpose of such fee awards
is to ensure effective access to the judicial process for persons with civil rights grievances who have little or no money with which to hire a lawyer. Fee awards are also intended to provide an incentive to competent lawyers to undertake Civil Rights litigation. [ Carlstadt Educ. Ass'n v. Mayor & Council of the Borough of Carlstadt, 219 N.J. Super. 164, 166 (App.Div.1987) (quotation omitted).]
As the Supreme Court noted in Evans v. Jeff D., "it is undoubtedly true that Congress expected feeshifting to attract competent counsel to represent citizens deprived of their civil rights."
475 U.S. 717, 731, 106 S. Ct. 1531, 1539, 89 L. Ed. 2d 747, 760 (1986) (footnote omitted).
Although the federal fee-shifting provisions are not identical to the provisions of New Jersey's Consumer Fraud Act, they share the common purpose of ensuring that plaintiffs with bona fide claims are able to find lawyers to represent them. Both are designed to attract competent counsel in cases involving an infringement of statutory rights, to achieve uniformity in those statutes and to ensure justice for all citizens.
A very powerful legislative policy supports the New Jersey Consumer Fraud Act. Our present Governor, then Assemblyman, Thomas Kean, sponsored the Act. Governor Cahill issued a press release on its enactment, which stated that he had signed into law "a bill giving New Jersey one of the strongest consumer protection laws in the nation." See Skeer v. EMK Motors, Inc., 187 N.J. Super. 465, 471 (App.Div.1982). The Governor's message emphasized:
[T]he bill provides a private right of action for consumers against those who violate the Consumer Fraud Act. Under this provision the consumer will be entitled to triple damages, reasonable attorney's fee, and reasonable costs of suit.
The Governor stated that this provision, in his opinion, will provide easier access to the courts for the consumer, will increase the attractiveness of consumer actions to attorneys and will also help reduce the burdens on the Division of Consumer Affairs. [ Id. at 472.]
The Act contemplates a dual process of enforcement, one funded publicly and one privately. If a consumer is injured by an unconscionable commercial practice, the Attorney General may take up the case, through the Division of Consumer Affairs, and vindicate the consumer's interest. In addition, if the Attorney General fails to act, the consumer may proceed under N.J.S.A. 56:8-19. That provision affords consumers the right to bring a private action "in any court of competent jurisdiction" and states that a successful claimant "shall" recover
threefold damages plus fees and costs.*fn1 The Appellate Division has concluded that although the Attorney General himself could not invoke the fee provisions under the Act, "the Legislature wanted the defendant in a private action to suffer a greater financial penalty and to assure that the financial cost to the private plaintiff was minimized and ...