Can I Recover My Legal Fees?
By The Hartmann Law Firm LLC
908 769 6888
Legal disputes, litigation, trials, business fights, threats – these are the great risks of running a business today. There is no doubt that business owners and leaders will face disputes and that they can be gut wrenching. Indeed, contract disputes are the most commonly filed lawsuits nationwide.
Both sides often start with a head of steam, convinced they are absolutely right. This is particularly true of the plaintiff or the party that brings the action. It is often followed with similar ardor by the defendant or the party being sued, who will and should find a way not only to defend the case, but to sue back through counterclaims. Thus, the parties quickly devolve into a sumo wrestler lock that is hard to unwind.
Two questions commonly arise once litigation is contemplated or begins:
- Can I recover my attorney fees?
- How long is this going to take?
Part I of this newsletter will deal with attorney fees. Part II will discuss the litigation process, how long this can take, and alternative dispute resolution avenues that can alter the timeline.
Recovering Attorney Fees. In the U.S. and in New Jersey, absent a statute, court rule or contract provision, each party usually bears its own legal fees. Parties cannot control the statutory or court rule basis for granting legal fees, but they can control their contracts.
Prevailing Party Clauses. Some contracts include a prevailing party provision, which says that the party who “prevails” can recover the legal fees it incurred. While this sounds simple, it is often muddied by claims that a prevailing party only prevailed partially and should, therefore, not recover fees – or that both parties should recover fees, if both prevailed in some way.
Prevailing party provisions can be risky in the course of contract negotiation. On the one hand, if you prevail all the way through the litigation, you may achieve a great success. On the other hand, without knowing anything about future litigation, you are agreeing that if you do not prevail, you will pay not only the actual amount of the judgment, but the legal fees of your adversary, which are uncontrollable and usually unexpectedly high. On top of this, you must pay your own legal costs.
In this scenario, my view is that it is usually better to say at the outset that each side bears its own legal costs. Because you cannot know in advance what litigation can develop or how costly it can be, the more conservative and reasonable approach is to limit legal fee exposure by avoiding the possibility that you must pay the adversary's fees and your own. Another possible solution may be what is known as contract litigation insurance that is designed to cover liability not for the underlying lawsuit, but for legal fee exposure. This is a new type of insurance that has limited availability.
Cost of Collection Clauses. On the other hand, if you are the party to the contract that is providing a good or service in advance of payment, it would be useful to consider a contract which says that if you must incur legal or other fees to recover the payments justly due to you, the party who failed to pay in the first place must pay the costs of collection, including legal fees, filing fees, deposition fees and so on. This is good for landlords, condominium associations, lawyers, doctors, and other entities that provide service on the promise of future or continuing payment.