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BUSINESSES SHOULD CONSIDER ATTORNEY FEE PROVISION IN THEIR CONTRACT DOCUMENTS
Business owners in the initial stages of litigation often ask
whether they will be entitled to a reimbursement of their attorney fees
if they prevail. This question
is best asked at the time of contracting rather than left until disputes
arise.
The "American Rule," generally applied to litigation,
is that each party must bear its own attorney fees.
There are two exceptions to this rule:
(1) when an applicable statute or court rule provides for an
award of attorney fees, or (2) when there is an express agreement between
the parties to pay attorney fees.
Statutes that allow for the award of attorney fees are often
aimed at protecting individual rights.
These are often found in areas of the law where an attorney might
not otherwise be interested in handling the case.
For instance, statutes allowing a prevailing party to collect
attorney fees include certain discrimination claims, "lemon law"
claims, and consumer protection claims.
In Michigan, the consumer of a product may also collect attorney
fees if there has been a breach of an express or implied warranty.
Business owners are sometimes surprised to learn that while there
may be a statutory right of an individual plaintiff to recover attorney
fees, there is no similar right on the part of the commercial defendant.
Some statutes may allow for businesses to collect their attorneys’
fees, such as claims for business torts (e.g., conversion), product
disparagement claims, and defamation.
The rules of civil procedure may also allow for the award of
attorney fees in situations where an action is deemed frivolous, or
where mediation or an offer of judgment has been rejected by an unsuccessful
litigant.
Business owners can include an attorney fee provision in their
contract documents. Attorney fee provisions are routinely upheld by the courts.
There are only a few areas where such clauses are prohibited
or unenforceable, such as in residential leases.
Because over 90% of all lawsuits settle before trial, few attorney
fee provisions actually require enforcement.
The mere knowledge by an opposing party that it may be liable
for another party’s attorney fees often motivates settlement, and
can lead to a better settlement than if there were no such provision
included in the contract. Businesses should consider including a provision on attorney fees in their contracts. It is often best to have the provision broadly drafted to include any dispute between the parties, not just those concerning enforcement of the agreement. |
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