Under OCGA § 13-1-11 in a suit to collect on an indebtedness, where there is a prevailing party fees provision that does not set forth how much of the percentage of the amount collected shall be paid in fees the collecting party is limited to recovering attorneys' fees equal to 15% of the first $500 collected and 10% of all money collected thereafter. This law was passed in the 1890s and for 80 years was held to apply only to notes for debt, and the legislative history and language of the statute clearly states the intent to make the law applicable to loans only. Despite this, in the 1970s the Georgia Court of Appeals erroneously held that OCGA § 13-1-11 applied to commercial leases because, in its reasoning, the financial obligations of the tenant constitute an indebtedness. In a series of cases over the next thirty years the Court of Appeals reaffirmed this mistake in a series of cases that dealt solely with the collection of rent from tenants. The Supreme Court of Georgia, however, had not faced the question until 2007.
Thus, in 2007, the applicability of OCGA § 13-1-11 to commercial leases was raised as an issue of first impression in the Supreme Court when the question was certified to it by the Eleventh Circuit. Also, the 2007 case before the Supreme Court did not focus on the collection of unpaid rent, it dealt with the enforcability of a restrictive covenant that the tenant contended the landlord had violated. In that case, the Supreme Court of Georgia, in an unfortunate 4-3 decision, decided that OCGA § 13-1-11 applies to commercial leases such that despite a lease containing a prevailing party attorneys' fees provision, a victorious landlord in a case regarding restrictive covenants was limited to only $17,000 out of $286,000 spent on fees, because the result of the win for the landlord included the collection of approximately $170,000 from the tenant. RadioShack Corp. v. Cascade Crossing II. LLC, 282 Ga. 841; 653 S.E.2d 680 (Ga. 2007). In that case RadioShack contended that the landlord had violated a restrictive covenant in its lease by leasing space to Bellsouth Mobility, a cell phone service provider. RadioShack withheld over $170,000 in rent based on its belief that the restrictive covenant could be enforced against the landlord. Ultimately it was decided that RadioShack was wrong, and as a result the $170,000 that RadioShack had illegally withheld was collected by the landlord. Based on the Supreme Court decision, RadioShack was rewarded for illegally refusing to pay rent, however, because that refusal led to a collection of money, which threw the case under OCGA § 13-1-11, ultimately saving RadioShack over $269,000 in attorneys' fees. In other words, if RadioShack had paid its rent during the dispute as it should have, the case would not have involved the "collection" of an indebtedness, and OCGA § 13-1-11 would not have applied. This is because the focus of the case was a declaratory action by the landlord that the restrictive covenant was unenforceable. Had the case only involved the declaratory judgment action and not a collection of illegally withheld rent, it would not have involved an indebtedness and the victorious landlord would have recovered all $286,000 of its fees. It follows therefore, that the RadioShack case provides an incentive for tenants involved in disputes over restrictive covenants or other lease provisions to withhold rent such that the landlord will not be able to recover all of its fees.
Even more mysterious in the Supreme Court's decision was the reasoning behind it. First, the Supreme Court ignored the fact that the focus of the underlying RadioShack case was distinguishable from the thirty years of bad Court of Appeals precedent due to the fact that the case was really a restrictive covenant case with an ancillary issue as to the collection of rent that was not paid during the lawsuit. Thus the Supreme Court could have distinguished all of the cases that came down frm the Court of Appeal over the preceding 30 years. Instead, it focused exclusively on what could have been an academic question, which was whether OCGA § 13-1-11 applies to commercial leases in all situations. The Supreme Court did not hold that the Court of Appeals was correct in extending the reach of OCGA § 13-1-11 beyond notes to leases, nor could it based on the clear language of the statute and the history. Entertaining the issue as one of first impression in its chambers, the Supreme Court should have corrected the errors of the Court of Appeals and held that OCGA § 13-1-11 does not apply to leases. Instead, the Supreme Court held that, because the mistaken Court of Appeals precedent had gone on for thirty years without the legislature correcting the problem or the issue coming before the Supreme Court, the bad precedent somehow became part of the legislation itself such that the Supreme Court was powerless to do anything about it. In other words, the Supreme Court abdicated its job and let erroneous precedent stand despite it being an issue of first impression before them. Presumably under this holding, there is some kind of statute of limitations on improper rulings from the Court of Appeals that, at some point at or before thirty years since the bad holding, the improper ruling becomes law if the legislature has not managed to overturn it. Remarkable. Justice Sears excoriated the majority in a blistering dissent, but that was little solace for the victorious landlord who lost $269,000 in reasonable attorneys' fees as a result of this decision.
Over the last few months the absurd results that follow from the Radioshack decision surfaced in two retail landlord-tenant cases reviewing the award of fees, one for the landlord and one for the tenant. The cases demonstrate that, for the most part, prevailing tenants may recover all of the attorneys fees in a case while the landlord can only recover a tiny fraction of its fees. Following the Radioshack case, the Georgia Court of Appeals overturned another award of attorneys fees for a landlord victorious in a case against a tenant. Level One Contact, Inc. v. BJL Enterprises, LLC, 2010 Ga. App. LEXIS 649, Case No. A10A1196, Decided July 8, 2010. In Level One the landlord sued for unpaid rent and won $103,954 at a jury trial, as well as an award of attorneys' fees of $67,734. The Court of Appeals held that OCGA § 13-1-11 limited the recovery of fees to $15,593.10. On the other hand, where a tenant prevailed in a suit brought by the landlord for dispossessory and nonpayment of rent, the court awarded the tenant all of its approximately $70,000 attorneys' fees based on the prevailing party provision of the lease. Sugarloaf Mills Limited Partnership of Georgia v. Record Town, Inc., 2010 Ga. App. LEXIS, Case No. A10A2194, Decided September 29, 2010.
Therefore, attorneys drafting lease provisions on the landlord side MUST be cognizant of this anomaly. In order to preserve the ability of the landlord to collect attorneys fees in full, the fees provision must contain an express waiver of the protections of OCGA § 13-1-11. It should state, "The prevailing party shall be entitled to recover all of its reasonable attorneys' fees in any dispute arising under this lease, without regard to the applicability of O.C.G.A. § 13-1-11 or any other fee-limiting statute."
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