Every day, parties and businesses enter into contractual relationships with high hopes and expectations for the future. Even with the best of intentions, many business and personal relationships do not work out as planned, and when that happens, the parties involved often turn to litigation to settle disputes. Indeed, a significant number of breach of contract suits are filed each year. In recent years, approximately 15 million civil lawsuits have been filed in the United States per year, and approximately one-third of those cases (in state courts) have been breach of contract claims.
Because most agreements today contain an attorneys’ fees provision, many of these breach of contract lawsuits will involve fee-shifting considerations. If you represent one of these parties, you must examine and apply a pre-drafted provision as written. Unfortunately, that often means you are working with a boilerplate provision that is not clearly drafted, contains inherent ambiguities, and may not achieve the desired result.
Once you are at the litigation stage, you cannot rewrite the provision. However, for those attorneys who have the opportunity to draft a contract for the client, there are several key areas you must carefully consider and address in the attorneys’ fees provision.
• The definition of “prevailing party.” Does a party need to be successful on all claims, or just successful on one claim? A substantial portion of the claims? What if the parties settle? The parties should clearly state what it means to be a prevailing party.
• The contract language should be clear as to the types of actions covered by the fees provision. The parties may wish to provide for fees in any action related to the contract, or limit the fees provision to actions to enforce particular provisions of the contract. What about tort actions? You should contemplate the myriad types of claims that could arise between the parties, and craft the provision to address the parties’ wishes.
• Is the provision unilateral or reciprocal? Some states imply a reciprocal clause into unilateral fees provisions. Other states will only enforce reciprocal fees provisions.
• Does the agreement specify that attorneys’ fees, and not merely costs, are recoverable? If the parties want attorneys’ fees to be recoverable, the provision should specifically state that language. Do the parties want to define other types of fees and costs to be covered by the provision, such as electronic research charges, investigator fees, or mediator fees?
By carefully considering these issues at the drafting stage, you help place your client in the best possible position for the future in case its contractual relationship does not evolve as the parties had hoped.
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Further Reading and References:
http://www.bjs.gov/content/pub/ascii/cbjtsc05.txt (last visited December 30, 2015)
http://www.commongood.org/blog/entry/infographic-lawsuits-in-america (last visited December 30, 2015)
See, e.g., Florida Civil Code § 57.105(7) (2015); California Civil Code § 1717 (2015).
See N.C. Gen. Stat. Ann. § 6-21.6 (an attorneys’ fees provision in a contract is not valid and enforceable unless it is business contract, contains a reciprocal right to seek fees, and is signed by hand).