Recovery of Attorneys’ Fees? Does Everyone Get a Trophy or Can There be Only One?

I recently revisited attorneys’ fees clauses, i.e., loser pays. The boilerplate in current circulation looks like this:

In the event of a dispute involving or arising out of this Agreement, the prevailing party is entitled to recover reasonable and necessary attorneys’ fees, costs and expenses.

If that works for you, read no further. If it makes you say, hmmm . . . . keep reading. I am among those who say hmmm (and for Monty Python fans, most recently said “Ni”).

When drafting an attorneys’ fees clause, ask your client, what is your objective? Also consider the likely litigation scenarios, e.g., is it more likely you will only sue for nonpayment and nothing else (conversely, what duty does the other side have that could be breached)? The answers should shape your attorneys’ fees clause.

Taking the above clause, it presumably creates a winner-take all scenario, i.e., plaintiff win = fees/ defense win = fees.

If, however, you want a scenario where both sides can recover fees at the same time (usable if unlikely that your client will be a plaintiff or will seek affirmative relief), consider the following:

“Prevailing party,” means that party who obtains a final, enforceable judgment (including a dismissal) in its favor on a pleaded claim or defense that is upheld by the trial court or, in the case of an appeal, by the final appellate body that considers the appeal.

I call this the “everyone gets a trophy” version.

If, however, you prefer a winner-take all scenario (there can be only one), then a simpler definition of prevailing party may suffice:

“Prevailing party” means that party who obtains substantially the relief sought in a final, enforceable judgment that is upheld by the trial court or, in the case of an appeal, by the final appellate body that considers the appeal.

Note that this version still has a gap – what is meant by “substantial? Also, if a pleaded defense is included in the definition of “relief,” then a defendant has the potential to recover fees.

Another approach:

“Prevailing party” means the net winner of a dispute, taking into account the claims pursued.

As you can see, there are potentially scores of ways to skin the attorneys’ fees cat . . . and we haven’t even addressed the effect of “involving or arising out of this agreement” language or pre-suit measures to control runaway attorneys’ fees (subject of another post).

I welcome comments from my readers and examples of what has worked for you. Have fun.