Recovery of Attorneys’ Fees in Litigation – Who Pays?
It is often the case that, when we discuss litigation with our clients, they assume that they are entitled to recover their attorneys’ fees from the other party if they win. To their great disappointment, there is generally no basis for such “fee-shifting.” Under what is known as the “American Rule,” each side in a civil litigation is generally responsible for its own lawyer’s fees. The “loser” to the litigation is not required to pay anything towards the “winner’s” attorneys’ fees.
However, as with many legal principals, there are exceptions. Certain state and federal statutes provide for the recovery of attorneys’ fees by a successful party if the statute is violated. Depending on the specific statutory language, an award of attorneys’ fees may be mandatory or discretionary to a successful plaintiff or a defendant could possibly recover the expenses incurred in successfully defending itself. Significantly, where provisions for the payment of attorneys’ fees are included in a statue, there is often an underlying public policy to be advanced. Labor and employment statutes, civil rights statutes, antitrust or consumer protection statutes and statutes concerning intellectual property often provide for an award of attorneys’ fees. The threat of having to pay the other side’s attorneys’ fees is an incentive for statutory compliance. Similarly, individuals, who may otherwise not be able to afford a lawyer, are empowered to have their day in court to enforce these statutes by providing a means for their attorneys to be paid.
A successful party may also recover attorneys’ fees if the lawsuit is based on an enforceable contract, such as in an action for breach of contract. Under contract law, parties may agree to the recovery of attorneys’ fees, and courts will generally enforce such contractual rights to attorneys’ fees if the contract is valid under applicable state law. Some contracts – especially if prepared by a party with a greater bargaining position or a hand in preparing the contract – may contain a one-sided fee shifting agreement. (This would permit only one side to the agreement to recover attorneys’ fees if they prevailed.) However, many states have reciprocity laws that allow either prevailing party to recover attorneys’ fees if there is a contractual agreement for fee shifting in favor of either party.
Once entitlement to the attorneys’ fees is established, the prevailing party must generally show the amount and reasonableness of the fees. When an award of attorneys’ fees is based on an enforceable contract, the actual amount of the award depends on the contractual language. For example, if a contract calls for “reimbursement” of attorneys’ fees, a prevailing party may only be allowed to recover the amount he actually paid his attorney. In contrast, where a fee-shifting clause neither calls for “reimbursement” of attorneys’ fees nor contains similar limiting language, a prevailing party may not necessarily be limited to the amount they actually paid. If based on a fee arrangement between the prevailing party and counsel, the court must determine whether the fee arrangement was reasonable, or whether it was disproportionate to the arrangement the parties would have been expected to make in the absence of a fee-shifting agreement.
It can be an important consideration for both plaintiffs and defendants if there is any statute or contract at issue in their litigation that provides for the possible recovery of attorneys’ fees. This threat can be a strategic consideration in settlement discussions and provide motivation to resolve a dispute.