Attorney Fees Provisions
There is a saying that goes something like: “it’s not the size of the dog in the fight that counts, but the size of the fight in the dog.” Keeping this saying in mind, I would like to talk to you about what is commonly referred to as an Attorney Fees provision.
Many times over the years in my practice, I have met with clients who have come to see me because another party to a written contract that he or she entered into has breached that contract. They pull a copy of the written contract out of a folder and lay it before me. They tell me the story of what happened including that they are glad they took the time to prepare a written contract that would minimize any confusion over what they were agreeing to, which more or less sounds like this:
John agrees to sell Mary 500 red sweaters per month for a year. Mary agrees to pay John $10 per red sweater. After 6 months, Mary realizes she can only afford to pay John $10 per sweater if the sweaters are green, and can only afford to pay John $8 per sweater if the sweaters are red. John informs Mary that John only makes red sweaters and that Mary agreed to pay him $10 for each red sweater. Over the last 6 months of the contract therefore, John will lose approximately $6000 (6 months x 500 red sweaters per month x $2 per red sweater [$10 – $8 = $2]).
After hearing the above story, the first thing I go looking for in John and Mary’s contract is whether or not the contract contains an “Attorney Fees” clause. What is an “Attorney Fees” clause? Section 1717 of the California Civil Codes states, in any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce the contract, shall be awarded either to one of the parties or the prevailing party, then the party who is determined to be the party prevailing on the contract shall be entitled to reasonable attorney’s fees in addition to other costs. But that is often the problem. If the contract does NOT contain such an “Attorney Fees” provision, then no matter how strong your case, you will not be entitled to recover your attorney’s fees from the other party. Now let’s go back to John and Mary.
John shows me the contract. I look for but do not find an “Attorney Fees” provision in the contract. I give John the bad news. Mary has little incentive to cooperate or settle with John. Even if John hires a lawyer to sue Mary, John will have to pay for his own attorney fees, and Mary will have no obligation to pay for John’s attorney fees, even if he is clearly the “prevailing party.” At the end of the day, Mary will still only owe John the same $6000. Mary consults with a lawyer, who tells this to Mary, and Mary ends up playing hardball with John and John finally just agrees to accept $8 for each red sweater because it is better than nothing.
Now, let’s assume that the contract DOES contain an “Attorney Fees” provision. I give John the good news. Mary has a lot of incentive to cooperate or settle with John. If John hires a lawyer to sue Mary, Mary will be at risk to pay John for all of John’s attorney fees incurred to enforce the contract if John is the “prevailing party.” As Mary really has no defense to the contract, there is strong likelihood that John will be the prevailing party. The attorney fees themselves could easily exceed the $6000 that Mary will owe John. John’s attorney fees could easily be $10,000 to $15,000 or more. Mary consults with a lawyer who tells this to Mary, and Mary ends up settling up with John as fast as she can to make sure that John does not hire an attorney to start a costly litigation.
In this case, the $6000 that is at stake is the size of the dog in the fight for John. However, the “Attorney Fees” provision puts an awful lot of fight in the dog. I think I may have done injustice to the “dog in the fight” metaphor, but I think you get my meaning. Given the high cost of litigation, it is often the “Attorney Fees” provision that gives a contract its “teeth.” Where you feel that it is the other party that is likely to breach a contract, try to make sure your contract has “teeth” by including an “Attorney Fees” provision.