Attorney Fee Shifting Provisions in Contracts – Not Always The Right Call

JSR Blog Almost every contract we sign, in business or for our personal lives, has a clause that awards attorneys’ fees to the prevailing party in any lawsuit or arbitration.  This means that if you end up in a dispute – with your cell phone provider, for example – if you win, they pay your attorneys’ fees, but if they win, you pay theirs.  

These contractual provisions are intended to deter people from filing a lawsuit unless they’re absolutely certain that they’ll win.  The idea is that, if you have a chance of paying the other side’s attorneys’ fees, you’ll give serious pause before filing a lawsuit.  

The unintended consequence of these contractual provisions is that most people involved in a dispute think they’re going to win.  Mentally, people are committed not just to the idea of winning the lawsuit, but to having the other side pay their attorneys’ fees as well.  People become intrenched in this idea, and they are willing to spend small fortunes in attorneys’ fees thinking they will be reimbursed later on in the case.  

Reality says otherwise.  Well over 95% of cases filed in the civil justice system settle without a trial and verdict.  In almost all of these negotiations, the party that’s about to write the check will be adamant that “attorneys’ fees will not be included as part of this negotiation.”  They’ll demand that they don’t even consider attorneys’ fees when evaluating cases and that any out-of-court settlement will not include any reimbursement for attorneys’ fees.  

Even if a party takes the case all the way to a verdict, Courts only award attorneys’ fees deemed reasonable by the judge.  Rare is the case where a judge awards all attorneys’ fees incurred to the prevailing party.  More often than not, the attorneys’ fees are reduced substantially; it’s not uncommon to see parties awarded just a third of their claimed attorneys’ fees.  Other times attorneys’ fees are not awarded at all, such as in cases where a party won on some, but not all, of its claims.  

In a lot of circumstances, attorney fee shifting provisions in contracts are more trouble than they’re worth.  They embolden people to fight the fight.  

In a lot of circumstances, attorney fee shifting provisions backfire.  A better way to deter people from filing lawsuits might be to leave out the provision, forcing parties to confront the cost of their own attorneys’ fees at the start of the case in that first meeting with their lawyer.  

Before you have your attorney include an attorney fee shifting provision in a contract, consider who would be suing you and for what.  You might be better served to leave the provision out entirely.  If you’re in or about to be in a lawsuit, assume that, even if you win, you might get stuck with some or all of your attorneys’ fees no matter what the contract says.