An attorney fees clause is used in contracts to designate that, in the event of a legal dispute between interested parties, the loser of a court battle will pay the attorney fees for the winner.

Attorney Fees Provisions in Contracts

In the event that a legal dispute breaks out between two or more parties and they decide to take things to court, the general rule of thumb is that every party involved is responsible for paying their own attorney fees. If two or more parties sign a contract, however, they may include a clause that requires that the losing party in these matters pay the attorney fees and court costs for the winner.

These provisions are outlined in what is known as an attorney fees clause. These are important for a number of reasons, including discouraging unnecessary lawsuits and promoting amicable dispute resolution.

It is important to note that it is common to mistakenly neglect including a definition of what it means to be the "prevailing party" in a legal dispute. Unless the term "prevailing party" is properly defined and explained, the clause is implying that the legal dispute at hand will have an easily distinguishable loser and winner. However, this is rarely the case.

For example, imagine a lawsuit that involves a subcontractor suing a general contractor for damages totaling $1,000,000. At the end of the court trial, a jury decides to award the contractor damages, but not for the original amount. Instead, the jury awards the contractor damages totaling $10,000. How do you determine who the "prevailing party" is in this case? Can you consider the subcontractor the winner even though he only received a small portion of the amount he was after?

Without a property definition, the court system will normally view the "prevailing party" as the one that is able to obtain a "net recovery" against the other party or parties involved in the dispute. There is no consideration for how much the "prevailing party" is awarded. This can sometimes lead to undesirable and unpredictable results that don't properly reward litigants who exaggerate their claims or held to somewhat unreasonable positions in terms of reaching a settlement.

What Costs Are Included?

In a legal dispute, costs can take many forms, such as:

  • Filing fees.
  • Summons serving fees.
  • Complaint serving fees.
  • Court reporter fees.
  • Deposition and in-court testimony transcription fees.
  • Juror stipends.
  • Photocopy fees.

Normally, these costs are paid by all involved parties in a legal dispute. However, if the parties in question are under a contract with one another that includes an attorney fees clause, the loser is expected to pay the court costs both for themselves and for the other party or parties involved.

A mutual provision states that the winning party in a lawsuit is to be awarded their attorney fees. This is only fair and is a great way to encourage quickly resolving a legal dispute. A one-way provision, however, states that only one party is entitled to receiving attorney fees. This is normally the party that has a stronger bargaining position. One-way provisions tend to create an unfair advantage for one party or another. In fact, states like California recognize the unfair nature of one-way provisions and will automatically convert them into a mutual provision to make things fair for all involved parties.

Judicial Enforcement of Attorney Fees Clauses

It's not a good idea to assume your attorney fees clause will be enforced just because you have one in your contract. The court system is empowered to judge the fairness of a contract and make changes to the contract terms if it is decided that a more fair solution can come about by doing so. In the event that a judge does decide that enforcing your attorney fees clause is unfair or discovers that one party was forced into signing a contract that includes an attorney fees clause, they may either change the amount to be paid or cancel the requirement to pay altogether.

If, however, the judge decides the clause is reasonably fair and that it was negotiated from relatively equal bargaining positions, they are likely to enforce it.

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