This is a very common question from my clients - if I'm in this lawsuit because somebody breached a contract, do I have to pay all of my attorney's fees or does the other side have to pay?
Depending upon the nature of your business, this can be a really important question for you to decide whether or not you even want to file that lawsuit. For example, if you're owed less than $25,000, this question is important because your legal fees can easily go well beyond what you're owed. If you have to go to a smaller court of jurisdiction, one with a limit of $25,000 or less, and you have to litigate your debt all the way through the end of the trial, your legal fees could be $40,000 on a debt that's maybe only $15,000. So before you go down that road of filing that lawsuit, you may want to consider alternative ways to settle the debt.
However, if you're going to do the lawsuit, or if you're already in the lawsuit, and you're wondering, are these attorneys fees going to be available to me? The first place to look, especially in a breach of contract case, is does the contract say that you get your attorney fees? You're only going to get them if the contract says so and you win the case. And of course, the court will also make a decision on whether the fees are reasonable. Going back to our example of let's say, a debt of $15,000. Even if your contract says you get attorneys fees, if the debt is $15,000, and your attorney's fees are $250,000. There's a good chance the court will find that's not a reasonable amount of counsel fees involved for this case, and they may reduce that award, in which case you're still paying for part of your attorney's fees.
Attorney's Fees Provisions
To solve this ahead of time, what you want to do is make sure your contracts have an attorney fee provision and you want to be sure that you know what it says and when it can be invoked. An attorney fees provision is something that says when one party doesn't perform under a contract, the other party can be responsible for their attorney fees. There are two ways we can look at these,
- One party gets all of the attorney's fees regardless of the outcome of any dispute, or
- The winning party in the lawsuit is entitled to their counsel fees and we submit them to the judge to find out how much those should be.
There are other provisions you can include as well, such as
- Settlement costs ~ if there are going to be costs with a settlement, would they be covered?
- Expert witnesses ~ if it's a complex contract, you may need an expert witness.
- Appeals ~ even though you win the first round at the lower court level, if you're now up on appeal, does the other party still have to pay for those legal fees?
- Collection costs ~ if you don't actually have to file a lawsuit, but maybe you just have to hire an attorney to help you collect that money, are those fees included as part of your attorney's fees provision?
- What does "win" mean ~ just saying that a prevailing party is going to be entitled to counsel fees doesn't always get you where you want to be. Let's say you have a breach of contract case and you had to sue somebody who owes you money. Before you get to trial, you settle the case, and maybe they owe you some money, but not all, is that considered a win? This is why it's important that the provision specifies what does a win really look like, because you may go into the breach of contract lawsuit, you have your attorney fees provision, you're ready to go and then you settle it, and you think you're getting your attorneys fees. But now you've got a whole second issue of the other side saying you didn't really when we settled this case are not going to pay your counsel fees.
Your Contract Doesn't Have an Attorney Fee Provision
The other situation you run into is if you have a breach of contract case, you have to sue somebody, but you don't have this provision in your contract, then what are you going to do? Well, if there's no provision in the contract, there's no presumption that you can even get your attorney's fees paid by the other party, but there are two ways you may still be able to receive them.
- The first way is if there's some kind of statute or law that relates to your cause of action that says that the prevailing party or a party who brings a cause of action under that statute, is entitled to the counsel fees.
- The second way is if there's really egregious conduct, the other side has done really bad things, so bad that the judge says this goes well beyond acceptable behavior under the contract. and the other party should be awarded counsel fees.
You want to look at those options, but really, the safest bet is to make sure that in your contracts, you have a provision that addresses whether or not attorney's fees are going to be available if there's a breach of the contract. That clause doesn't have to actually say that everybody gets their attorneys fees, or only one party gets, it can actually say nobody gets them, but we all need to understand that provision when entering into the contract.
Next Steps
So instead of trying to do this yourself, the smarter way is to work with professionals who do this for a living. We can craft a contract that works for you and your business. If you have questions on your contract, or if you're ready to get started, let's set up a Legal Strategy Session - we can have a 15 or 20-minute phone call and go through all of these options for you and make sure your contract has the right attorneys' fees provision, so that you can avoid having this uncertainty if you have to file a breach of contract lawsuit.
