Business Law Insights

Litigants in civil lawsuits often ask if they will be able to recover their attorney’s fees from the opposing party if they ultimately win the case. Virginia follows the “American Rule” which provides that generally, opposing parties must pay their own attorney’s fees regardless of who wins the case. The rationale of the rule is that a plaintiff should not be deterred from bringing a case to court for fear of incurring substantial costs. However, this general rule may be altered by contractual agreement or legislation. Statutes allowing for the recovery of attorney’s fees by a successful plaintiff are intended to encourage meritorious claims.

Also, parties may include provisions in contracts that allocate responsibility for legal fees in the event of a dispute, so long as such provisions are not so unfair that they “shock the conscience” of the court. Such provisions are typically upheld if (1) only the prevailing party-and not the loser-will be entitled to reimbursement for legal fees, and (2) the amount of legal fees to be paid are reasonable. When drafting such provisions, parties should be careful to distinguish between legal “fees” and “costs”. Courts have interpreted legal costs to be limited to the costs of filing pleadings, motions, etc., and not the payment of attorney’s fees.

All businesses should use attorney’s fee provisions in their contracts or terms of conditions of a sale. Often, such provisions provide considerable leverage to help facilitate a settlement. Moreover, the provisions help make clients whole, or cover the expense of attorney’s fees. Stated differently, the client is put in the same position as if the defaulting party had honored the arrangement. PLDR Law regularly drafts agreements to include these provisions. Remember, an ounce of prevention is worth a pound of cure.

Luke Malloy square  PLDR Law Chad Mooney 1

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