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When served with a lawsuit that one thinks has no merit, or when forced to start one to protect one’s rights or recover property that is due them, one of the first questions that is asked is, “Am I entitled to recover my attorney’s fees if I win?”
After all, why should a party be forced to incur what could be significant legal fees if they are in the right?
The simple answer is that, in all but a few circumstances, a party will not be entitled to recover her legal fees, even if she prevails on all claims raised in the lawsuit. This is a different result than would occur under the law of some other countries. While many would deem this unfair, there are many examples one could give that would demonstrate the wisdom of this general principle.
For example, let’s assume that there is a dispute between a large company, with great resources, and an individual without significant resources. And, for the purposes of this example, let’s assume that the dispute is a legitimate one, which may involve close questions of law, as opposed to a frivolous claim asserted by one party against the other.
Having to pay her own legal fees would, in and of itself, present a real challenge to the individual without significant resources; the possibility that she would have to pay the large company’s legal fees, in addition to her own, if she loses, would very likely have a chilling effect on her desire or ability to prosecute or defend a legitimate claim. This would be unfortunate and, in many instances, result in injustice. On the other hand—as will be described in Part 2 of this article—a contractual provision awarding the prevailing party her attorney’s fees—what is known as a “fee shifting” clause—may help level the playing field between parties with different resources, especially if the one with lesser resources has a stronger case.
When would a prevailing party be entitled to recover its legal fees?
Generally speaking, a prevailing party in a lawsuit in this country can recover her reasonable legal fees in two circumstances: the first is where an agreement exists between the parties, such as a lease, loan agreement, an employment agreement, and many other commercial agreements, that provides for an award of attorney’s fees to the prevailing party; the second is where a statute, such as certain federal and state statutes, such as labor statutes, provide for an award of attorney’s fees to the prevailing party.
Why would a party want, or agree to, an award of attorney’s fees in an agreement?
In some instances, the party does not have a choice. Try entering into a lease or loan agreement (such as a mortgage) that does not contain a provision that would award the landlord or lender its legal fees in any action for nonpayment; simply stated, unless you agree to the provision that will likely be found in the form agreement that the landlord or lender present to you, you will not get the apartment or loan.
It is easy to see why, in circumstances such as a lease and a loan, the landlord or lender would insist on a fee shifting clause. As far as the tenant or borrower, her acceptance of a fee shifting clause reflects the disparity in bargaining positions between the parties—the tenant or borrower often has none. Also, in reality, in most instances concerning the types of agreements described above, there is often no defense to nonpayment. Indeed, most leases do not permit a tenant to withhold rent, even if there is a dispute with the landlord, and it is rare to encounter a legitimate defense to nonpayment of a loan.
In Part 2, I will discuss the inclusion of fee shifting provisions in other types of commercial agreements. Contact me with questions or comments.
