Although the person losing a lawsuit doesn't automatically pay the winning side's attorney's fees, it happens more often than you might expect, and the bill can exceed tens of thousands of dollars, or even higher if the losing side must pay other legal costs like expert fees. Keep reading to learn when you might be responsible for paying your opponent's legal fees and other expenses.
If you suspect you might have to pay the other side's attorney fees, your instincts are correct. The "American Rule," the law governing attorneys' fees, requires each side to pay their attorneys' fees unless a contract or statute allows an award of attorney fees.
Learn about preparing a defense in Disputing a Small Claims Court Case: Fight Back.
Understanding your liabilities under the second part of the rule is essential. After a lawsuit, a judge can award attorneys' fees and other allowed costs when a contract or statute authorizes it.
Contracts often have clauses allowing for the recovery of attorneys' fees, and many statutes allow awards, too. It's best to assume every case has the potential for an attorneys' fee award until you know otherwise.
Knowing the full scope of liability is essential when deciding whether to file or settle a lawsuit, and you won't know your potential risk without research. Your lawyer should tell you whether you could be liable for attorney fees and other expenses early in the litigation. However, because so many cases settle before trial, not all lawyers think about the attorneys' fees and costs issue until it's too late, so be sure to ask.
Example. You meet with a lawyer about suing your homeowner's association (HOA) after they denied your request to build an addition. After you learn how much the suit will cost, you decide to move forward and sign a retainer. However, the next day, your new lawyer calls and explains that the association's governing documents include an attorneys' fee provision. You also learn attorneys' fees in HOA litigation can run over $100,000. After assessing the potential risk, you decide to forgo litigation and be content with your home's size.
The harsh reality is that many people face bankruptcy after losing a lawsuit. Sometimes, it happens when one party passes on a reasonable settlement opportunity without considering potential attorney fee awards and finds themselves owing much more than anticipated. You'll find a lengthier discussion below in the "Filing for Bankruptcy When You Can't Afford Attorneys' Fees" section.
Learn why you should consider filing for bankruptcy shortly after being sued.
The winning side can ask the court to reimburse the winner's fees and costs at the end of a lawsuit. The award isn't automatic. The winning side must prove the claimed legal services were incurred with invoices and explain whether the requested fees are allowed per contract or by statutory law. If the lawsuit winner's proof meets the judge's satisfaction, the judge will order the loser of the lawsuit to pay the winner's attorney fees and other allowed costs.
Below, you'll find more specifics about lawsuits and attorneys' fees along with helpful examples.
It's common for attorneys' fees to be awarded in breach of contract cases when the contract requires the losing side to pay the winning side's legal fees and costs. Most business contracts contain attorneys' fees provisions. You can also count on contracts involving real estate to include them, leasing agreements, and many others.
Courts must enforce the provisions unless a compelling reason exists not to. However, such cases are rare, and you'd likely want it evaluated by a lawyer. Learn about bringing a breach of contract case in small claims court.
Example. After trial, the prevailing party completed the form to request allowed expenses and costs and submitted it to the court. The other side filed an objection to the attorneys' fee portion. The prevailing party rebutted the objection by submitting a copy of the contract. The judge determined the clause was valid and included an attorney fee award in the judgment.
Many states have specific laws that require the losing side to pay the winning side's legal fees in certain situations. For instance, some states have laws requiring the losing side to pay attorneys' fees in lawsuits involving government entities or antidiscrimination laws. Other statutes allow attorneys' fees awards in the following cases:
Example. Before trial, the court ordered the litigants to mediation. At mediation, the defendant refused what the mediator considered a fair settlement offer in light of the defendant's somewhat weak case. The defendant wasn't motivated because the case value was less than $20,000. The tables turned when the plaintiff produced a statute that entitled the winning party to attorneys' fees, along with proof that the plaintiff's legal bill exceeded $30,000. The defendant was understandably upset with counsel having not been advised of the potential attorneys' fee award. However, the defendant was also sufficiently motivated to settle for the reasonable amount offered.
There aren't any shortcuts that will help you determine whether a particular statute exists. Consider searching for the case type, your state name or "federal" (depending on if it's a state or federal case), and "statutory attorneys' fees." If you don't have any luck, consult a lawyer.
Sometimes the worst happens. You get involved in a lawsuit, lose, and are responsible for the other side's attorney's fees. Considering that the attorneys' fees for a litigated case that has made its way through a trial can run $100,000 to $500,000, finding out you've lost and have to pay your opponent's costs can add more than a little insult to injury.
If you don't have the funds to pay, your attorney will likely recommend bankruptcy. Attorneys' fees are generally dischargeable, meaning you can wipe them out.
If your income is low, you will probably qualify for a quick Chapter 7 bankruptcy. Otherwise, you'll likely pay the fees off over five years in a Chapter 13 case. The amount you'll pay in Chapter 13 could be very little or the entire amount. It will all depend on your income, debt, and property value.
Find out how much you'll be responsible for paying in a Chapter 13 plan.
You can learn more about working with a lawyer, see The Lawsuit Survival Guide: A Client's Companion to Litigation, by Joseph Matthews. If you're a litigant in a small claims action, consider purchasing Everybody's Guide to Small Claims by attorney Cara O'Neill.