The Prototypical Prevailing Party Fee and Cost Provision: Friend or Foe?
Under the “American rule,” a prevailing party may only recover attorneys’ fees from the losing party when so authorized by contract, statute, or court rule. The foregoing reality has caused many attorneys to include variations of the following language in contracts: “In the event of any dispute arising under this Agreement, the prevailing party shall be entitled to recover all reasonable attorneys’ fees and costs.” This article will discuss the latent deficiencies of the prototypical prevailing party fee and cost provision, the potential unintended consequence of including a well-drafted prevailing party provision that does not limit the recover to a certain amount, and finally, conclude by providing the reader with sound legal advice.
Prototypical prevailing party fee and cost provisions, like the one mentioned above, are likely deficient because they do not include specific language with regard to entitlement of fees on fees, in other words, entitlement to attorneys’ fees in litigating entitlement to attorneys’ fees, and they do not enumerate many of the common costs incurred during litigation that are likely not recoverable under the Statewide Uniform Guidelines for Taxation of Costs (“Uniform Guidelines”). Examples of some of those costs are: electronic research charges, travel expenses, and certain portions of consultant and expert witness fees. Under Florida law, contractual provisions for attorneys’ fees and costs are strictly construed, meaning that enforcement of the provision will be limited to its own terms. Bearing that in mind, prevailing party fee and cost provisions must include clear, unambiguous language as to exactly what the parties intended. The inclusion of express language regarding entitlement to fees on fees, as well as those costs not definitively addressed by the Uniform Guidelines, will provide clear guidance to the court, which will likely give deference to the parties intent, thereby resulting in both a comprehensive and enforceable contract provision.
Assume for a moment that your contract contains a robust provision, free of latent deficiencies, thereby entitling the prevailing party to all attorneys’ fees and costs incurred. After you enter into an enforceable contract a dispute arises, and the other party to the contract files a lawsuit against you or your company. The prevailing party to this legal action will likely be entitled to all reasonable attorneys’ fees and costs incurred. Is that something that you want? The practical answer is – it depends on whether you are the prevailing party or the losing party. For purposes of this hypothetical, the trier of fact awards damages to the plaintiff in the amount of $25,000, and each party incurred a total of $50,000 in attorneys’ fees and costs, with the losing party being responsible to pay the entire $125,000. If you are going to litigate, you must be prepared to lose, and while you may not be able to control an award of damages because that amount is determined by the trier of fact, the ability to control your potential liability with regard to the opposing party’s attorneys’ fees and costs is squarely in your hands when you are drafting a contract.
You have at least three options: allow the contract to remain silent with regard to prevailing party attorneys’ fees and costs, thereby invoking the “American rule”; include a prevailing party fee provision that includes express language with regard to entitlement to fees on fees, as well as enumerating all the costs that will be recoverable; or finally, employ a prevailing party fee provision that limits the amount of recoverable attorneys’ fees and costs to a maximum predetermined amount. An important feature of the latter option is predictability, in that you know exactly what the limit will be on the amount of fees and costs that you will be able to recover from the losing party, and conversely, what your maximum liability will be in the event that you lose. Brinkley Morgan has successfully utilized prevailing party fee provisions that limit recovery to a fixed amount, and we have found that such a strategy deters protracted litigation, thereby encouraging parties to resolve disputes through mediation. It also helps eliminate the incentive to litigate a meritorious claim with a relatively nominal amount of damages because it simply does not make economic sense for a party’s attorneys’ fees and costs to exceed the potential award of damages. It is important to note that the ability to limit your maximum liability is only applicable to contract provisions, and does not apply to entitlement to attorneys’ fees and costs pursuant to a state statute or court rule.
And now for that sound legal advice I promised you – seek the counsel of an attorney before you enter into a contract. Failure to do so could be costly.