In litigation, each party pays its own legal expenses unless there is a contract between the parties providing that the loser of any suit will pay the winner’s attorneys fees. As a result, even a party who is confident that it is correct often cannot afford the fight to obtain what it deserves.
Thus, a clause providing that the loser will pay the costs of litigation is often the only way to be sure that you will be made whole if there is a contractual dispute. Otherwise, there is always the fear that you will prevail on the merits, but that the lawyers will be the real winners.
Of course the other fear is that one will lose and have to pay the other side’s fees. The cure for this is to take reasonable positions and make realistic settlement proposals.
Here are five big points to remember when drafting and enforcing an agreement providing for attorneys fees and costs.
1. Draft an Attorneys’ Fees Provision with Broad Application. The agreement should make it clear that the fee shifting applies to all disputes between the contracting parties concerning the subject matter of the agreement, not only “enforcement” of the terms of the agreement. It should include all expenses from the beginning of the dispute through its resolution, including negotiations, mediation and the expenses of applying for and obtaining the fees themselves. If the clause only says that fees are to be awarded for enforcing the contract, you may not be awarded fees if you pursue tort causes of action like fraud or breach of fiduciary duty. (See Santisas v. Goodin (1998) 17 Cal.4th 599)
2. Include Expenses Other than Fees. If theprovision refers generically to “costs,” there is a danger that it may not be held to include only the narrow category of “costs” under 28 U.S.C. §1920 or, in California state courts, Code of Civil Procedure §1033.5. This would not include such expensive items as expert fees or hearing transcript costs. In a recent successful case, with the help of a broad definition of “expenses,” we recovered six figure expense for electronic data retrieval, organization and access.
3. In a Contract Case, a Clear Winner is the “Prevailing Party” Entitled to Fees. Under Civil Code section 1717, the court is charged to find the single prevailing party. A party that achieves the “greater part” of their litigation objectives and achieves “greater relief than the other in comparative terms” is the prevailing party. (De La Cuesta v. Benham (2011) 193 Cal.App.4th 1287.) Although, if the result is truly mixed, a court can find that no party prevailed, a court has no discretion to deny attorney fees by finding that there was no party prevailing on the contract when there is “a simple, unqualified win” for one party or the other. (Hsu v. Abbara (1995) 9 Cal.4th 863.) The judge cannot feel sorry for the loser and just decide that no one prevailed. You should be able to recover for all reasonably spent time on claims related to the ones on which you prevailed.
4. Provide Detailed Records of How the Money Was Spent. We often attach the actual time sheets to the application, after we review them for necessary redactions, but generally, there is not much that is a problem to disclose. If you have a reason to avoid this, draft detailed monthly summaries. If the losing party challenges the reasonableness of your hours, you generally can see their records, which often reveal that they spent more time than you did.
5. Ask for What Your Client Paid You. It is amazingly powerful to say that you are only seeking what your client willingly paid. Resist the temptation to ask for more. If you gave your client a break, you are stuck with it at this point.
That said, if there has been a discount, you may be able to convince the judge or arbitrator to award a higher “market rate.” It helps if the reason for the discount is sympathetic, but a recent Los Angeles case awarded market rates although the fees were actually paid at a considerably lower rate by an insurance company. Nemecek & Cole v. Horn (2012) __ Cal.App.4th __ (2012 WL 2990052).