Under the so-called “American Rule“, parties to litigation in the United States pay by their own attorney’s fees and costs without regard to who wins the litigation.
Absent statutory authority or a common law exception to the American Rule, parties drafting a contract often include provisions stating that if litigation arises from the enforcement of their rights and remedies the winning party will be entitled to reasonable attorney’s fees and costs.
In an even handed agreement, the attorney fee provision is mutual and typically provides for an award of reasonable attorney’s fees to the prevailing party. Whether someone is a “prevailing” party and the reasonableness of fees will be discussed in a future blog.
Parties in superior bargaining positions sometimes include unilateral attorney’s fees provisions that entitle only them – and not the counter-party – to attorney’s fees and costs arising from the enforcement of their rights and remedies under the contract.
Here is a sample unilateral attorney’s fee clause form a mortgage:
“In the event that Lender is required to take any legal action to enforce the terms of this Agreement, including but not limited to foreclosure or other collection efforts, Borrower agrees to pay Lender’s reasonable attorney’s fees and costs, including court costs and disbursements, and other expenses incurred in connection with such legal action.”
To avoid the inequity of one-sided attorney’s provisions several states have statutes that automatically render unilateral attorney fee provisions in contracts reciprocal, meaning either party can recover fees if they prevail.
These states include:
California (Cal. Civ. Code § 1717)
Florida (Fla. Stat. Ann. § 57.105(7))
Hawaii (Haw. Rev. Stat. Ann. § 607-14)
Montana (Mont. Code Ann. § 28-3-704)
Oregon (Or. Rev. Stat. § 20.096(1) )
Utah (Utah Code Ann. § 78B-5-826)
Washington (Wash. Rev. Code Ann. S
4.84.330)
For example, Fla.. Stat. Ann. § 57.105(7) states:
If a contract contains a provision allowing attorney’s fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract. This subsection applies to any contract entered into on or after October 1, 1988.
These laws apply broadly to most contract types and ensure that if a contract allows one party to recover attorney fees, the same right is extended to the other party.