Like any other aspect of commerce, business lawsuits are bound by the adage “it takes money to make money.” Even though you’ve already lost money you’re owed, you still have to pay an attorney to recover what you were owed in the first place. Fortunately, North Carolina has two laws that allow you to recover at least a portion of what you pay your attorney. (Editor’s Note: There are other laws that allow you to recover attorney’s fees, but this article focuses on two key laws). One applies specifically to collecting indebtedness that is owed. The other applies to business contracts generally. Both require an experienced attorney to ensure that you recover your costs of bringing a lawsuit.
The first law allows for recovery of attorney’s fees in cases where you’re attempting to collect a debt, which is based on a note, conditional sales contract, or some other instrument of indebtedness, including a lease agreement. This law is not just limited to when a suit is filed – it permits you to recover attorney’s fees at any time after the debt has matured, so long as you use a lawyer to collect the amount owed.
There are a few limitations to the ability to recover attorney’s fees on debt owed. The first is a notice requirement. You must place the debtor on notice that he owes you, and that he will be subject to payment of attorney’s fees if he does not pay the outstanding balance within five days from the date of notice. Courts read this requirement very strictly and it is always best to reference the appropriate statute and contractual provision in the notice. The other limitations have to do with how much you are actually able to recover. This issue turns on the language of the contract. If the contract calls for recovery of attorney’s fees in a specific percentage of the outstanding debt, the courts will enforce that provision up to 15% of the outstanding balance. This 15% cap is absolute, regardless of what percentage the contract calls for or what the attorney’s fees actually end up being. If the contract calls for a range which may be recovered, “reasonable fees not less than 10%,” for example, the courts will not allow more than 15%, but may award less if they determine a lower amount is reasonable. If the contract is silent on the amount which may be recovered, the courts will typically award 15% of the outstanding balance as the default.
The second law allows recovery of attorney’s fees in enforcement of business contracts. This law became effective on October 1, 2011 and it only applies to contracts entered into on or after that date. Although the law’s definition of “business contract” is very broad, encompassing contracts entered into primarily for business or commercial purposes, the law does have a few key limiting factors.
The first is that the attorney fee recovery provision must be reciprocal; it must be equally applicable to all parties to the contract. The second limitation is that the law only applies to contracts signed by hand. The courts have not yet had a chance to determine exactly what that provision means, but it could prevent the law from applying to any electronically-signed contract. However, the legislative history behind the statute suggests that the “by hand” requirement is only meant to exempt “click-through” agreements on software and similar arrangements from the law. Only reasonable attorney’s fees can be recovered, and unlike the debt-collection law discussed above, there is no hard and fast rule for what is a reasonable fee. The statute allows the judge to examine all relevant facts and circumstances in deciding what a reasonable fee is. The statute does limit the reasonable fee to no more than the amount in controversy or the amount of monetary damages awarded. Finally, the statute applies only to contracts subject to North Carolina law, another important reason to include a choice of law clause in the contract.
Litigation is an expensive proposition, but by allowing for recovery of attorney’s fees in many cases, North Carolina is trying to make it more affordable and ensure that all business can afford to have their day in court. In order to allow you to obtain your attorney’s fee in a business dispute, it is critically important that your contract contains a carefully drafted, reciprocal attorney’s fees provision. Contact an experienced business lawyer at Miller & Monroe today to review your contracts and ensure you have valid and enforceable attorney’s fees provision.
Miller & Monroe is a civil litigation firm serving corporations, small businesses, and investors in the Raleigh, Durham, and Chapel Hill areas, and throughout the State of North Carolina. We offer big firm expertise with small firm rates and personal attention. We have extensive business experience having managed multimillion dollar budgets and dozens of employees. Whether it be resolving operational or financial challenges, navigating insurance issues, or managing growth, we know business. Using this experience, we will create a custom-tailored litigation plan to meet your unique business needs. When you hire Miller & Monroe, you get a business consultant and attorney for one reasonable price.