Rush, C.J.
The guardrails of zealous advocacy must leave ample room for a party to make its case. But when a party veers off course by intentionally introducing groundless arguments, harassing other parties, or acting in bad faith, courts can punish the behavior.
Generally, the American Rule requires each party to pay its own attorney’s fees. While this rule has narrow exceptions that allow a court to order one party to pay another’s fees, it is a hefty burden to demonstrate that such an award is warranted.
Today we discuss three grounds that permit a court to shift attorney’s fees under Indiana law and find that, on this record, the parties seeking fees failed to show that any exception applied. We thus find that the trial court’s decision to award attorney’s fees was an abuse of discretion and reverse.
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First, the common-law “obdurate behavior” exception empowers a court to order a prevailing party, under certain circumstances, to pay the opposition’s attorney’s fees. See Kikkert v. Krumm, 474 N.E.2d 503, 505 (Ind. 1985). Second, the General Recovery Rule, Indiana Code section 34-52-1-1, similarly allows an award of attorney’s fees “to the prevailing party” based on another party’s actions during litigation. I.C. § 34-52-1-1(b). And finally, courts are inherently authorized to sanction parties by shifting fees, even if no other exception applies. See In re Estate of Kroslack, 570 N.E.2d 117, 121 (Ind. Ct. App. 1991).
Here, the trial court concluded that it could award attorney’s fees to the Defendants under all three grounds. We hold, however, that the trial court’s decision was an abuse of discretion. Neither the common-law obdurate behavior exception nor the General Recovery Rule—both of which require a “prevailing party”—allow an award of attorney’s fees when a party voluntarily dismisses its complaint, as RRDA did here. And the court’s inherent authority does not authorize the award because the record lacks evidence to show that RRDA litigated in bad faith and that its conduct was calculatedly oppressive, obdurate, or obstreperous. We thus reverse the trial court’s order.
I. The common-law obdurate behavior exception and the General Recovery Rule do not allow an award of attorney’s fees when a party voluntarily dismisses its complaint.
Both the common-law obdurate behavior exception and the statutory General Recovery Rule permit a court, in certain circumstances, to award attorney’s fees—but only to a “prevailing party.” We find that the Defendants are not prevailing parties and thus fail to meet this threshold requirement. And we further explain that the common-law obdurate behavior exception remains in force, despite incorporation into the General Recovery Rule.
A. The Defendants are not prevailing parties under either the common-law exception or the General Recovery Rule.
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B. Despite the broad nature of the statutory General Recovery Rule, the common-law obdurate behavior exception remains in force.
This litigation has spawned questions about the common-law obdurate behavior exception’s viability in light of the General Recovery Rule. RRDA contends that, because sanctions for obdurate behavior are now a “part of” the statute, the common-law exception no longer exists “distinct from the statutory framework.” The Defendants argue that, although the statute codified the common law, it did not abrogate the obdurate behavior exception. We agree with the Defendants.
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II. The trial court abused its discretion when it awarded attorney’s fees under its inherent authority.
Courts necessarily have inherent, implied power to manage their own affairs. This includes the authority to fashion an appropriate sanction, such as an award of attorney’s fees. Chambers v. NASCO, Inc., 501 U.S. 32, 35 (1991).
For reasons discussed below, we find that a court may invoke its inherent power to award attorney’s fees at any point in litigation. But, here, the trial court’s decision to award attorney’s fees was an abuse of its discretion—the record reveals the Defendants did not meet their burden to show that RRDA’s actions warranted attorney’s fees.
A. Courts have inherent authority to sanction a party by awarding attorney’s fees at any point during litigation.
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B. The trial court abused its discretion because the Defendants did not meet their burden to show that RRDA’s conduct warranted attorney’s fees.
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1. The record fails to show that RRDA knew its lawsuit lacked merit.
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2. The record fails to show that RRDA “changed its position” about the billboards.
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3. The record fails to show that RRDA lacked a basis for naming Watkins personally as a defendant or suggesting the Town’s attorney should recuse himself.
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4. The record fails to show that RRDA exploited this lawsuit in pursuit of a scenic-byway designation.
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5. The record fails to show that RRDA brought its “jurisdiction” argument in bad faith.
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Conclusion
The common-law obdurate behavior exception and the General Recovery Rule cannot authorize a trial court to award attorney’s fees when a party voluntarily dismisses its suit with prejudice. But a court can, at any point in litigation, exercise its inherent authority to sanction a party’s bad behavior by shifting fees.
Still, the guardrails of zealous advocacy are set wide, while exceptions to the American Rule are narrow. A party must clear a high hurdle to show that a court could exercise its inherent authority to award attorney’s fees. Here, the hurdle was not cleared because the record lacks evidence that RRDA acted outside the boundaries of acceptable advocacy. Therefore, the trial court’s findings in this regard were clearly erroneous and its conclusions unsupported. It thus abused its discretion when awarding attorney’s fees, and we reverse.
David, Massa, Slaughter, and Goff, JJ., concur.