When a legal dispute arises and people take their fight to court, the basic rule is that each party to a lawsuit must pay its own attorneys' fees. (For more information, see Nolo's article Attorney's Fees: Does the Losing Side Have to Pay?) However, when two people or companies sign a contract they can have the contract require that the losing side in a legal dispute has to pay the winning (or "prevailing") side's attorneys' fees and costs. Read on to learn more about including an attorneys' fees provision in your contract.
Here's an example of the wording in a typical attorneys' fees provision:
Attorneys' Fees. The prevailing party shall have the right to collect from the other party its reasonable costs and necessary disbursements and attorneys' fees incurred in enforcing this Agreement.
An attorneys' fees provision can be included in all kinds of contracts -- from lease agreements to consulting contracts.
"Costs" refer to filing fees, fees for serving the summons, complaint, and other court papers, fees to pay a court reporter to transcribe depositions (pretrial interviews of witnesses) and in-court testimony, and, if a jury is involved, to pay the daily stipend of jurors. Often costs to photocopy court papers and exhibits are also included. (Typically, court costs are paid by the parties to the dispute. But, with the inclusion of an attorney fees clause, the losing party is held responsible for both parties' court costs. To learn more about keeping legal costs down, check out Nolo's article Tips for Saving Money on Attorney Fees.)
Under a mutual provision, such as the example above, the party that wins the lawsuit is awarded attorneys' fees. This is fair and encourages the quick resolution of lawsuits. However, a "one-way provision" allows only one of the parties to receive attorneys' fees, usually the party with the better bargaining position. One-way provisions, no matter which side they favor, create an uneven playing field for resolving disputes. Some states, such as California, have recognized this unfairness and automatically convert a one-way attorneys' fees contract provision into a mutual provision.
Just because you include an attorneys' fees provision in your contract, you shouldn't assume that the clause will be enforced if a lawsuit arises and one side tries to get their legal costs reimbursed by the other. Courts are allowed to judge contracts for fairness and to change their terms if they decide that doing so is the more fair solution. If a judge decides that it would be unfair to enforce a requirement that one side pay the other's attorneys' fees or finds that one of the parties was forced into signing the agreement, the judge could cancel the requirement or change the amount of fees to be paid. But if a judge decides that an attorneys' fees provision is reasonable and that it was negotiated by two parties with equal bargaining power, then the judge will likely enforce it. (For basic information on attorney fees in a typical case, see Nolo's article Attorney Fees: Does the Losing Side Have to Pay?)