Reciprocal Attorneys’ Fees Provisions in Business Contracts

Reciprocal Attorneys’ Fees Provisions in Business Contracts

We have previously discussed the scenarios in which prevailing parties in litigation can – and cannot – recoup their attorneys’ fees.  Unfortunately, the law is not particularly generous in allowing parties to recover their fees and costs.  Because there is one aspect of the relevant law that continually generates client questions, the topic is worth revisiting.

Our clients have run into issues with attorneys’ fees provisions in business contracts.  Many clients think that simply including a statement that the prevailing party will recoup his attorneys’ fees is enough – but unfortunately, this is not the case.  There is a specific statute in North Carolina that governs the recovery of reasonable attorneys’ fees in disputes involving business contracts. The statute addresses what is known as the “reciprocal attorneys fees provision.”  The reciprocal part is critical, as it can mean the difference between recovering your fees or leaving the courthouse empty-handed.

What the Statute Requires

The statute gives a judge discretion to award a prevailing party his reasonable attorneys’ fees when the dispute involves a business contract, but only when the contract contains an attorneys’ fees provision that is reciprocal.  This means that the parties agree, in their contract, to pay or reimburse one another for attorneys’ fees or expenses incurred as a result of any lawsuit or proceeding involving that contract.

Although the premise of the law is basic, its application is more complicated. It is important to understand this so that you can set your expectations upon commencing litigation, particularly if the amount in controversy is small.

The award is discretionary.

As a litigant seeking to recover your reasonable attorneys’ fees, you must specifically request an attorneys’ fees award.  The judge can decide whether to grant or deny your request. Even if the judge grants your request, he or she can limit the amount of your award.

It only applies to disputes involving business contracts.

Contracts that are primarily for personal, family, or household purposes are not considered business contracts.  Also, contracts with governmental agencies are excluded from the statute’s scope, as are employment contracts.

The attorneys’ fees provision must be reciprocal.

This means that the contract must allow either party to recoup attorneys’ fees should it prevail in litigation.  Often, parties will draft contracts to allow only the drafting party to recover his or her attorneys’ fees.  This is insufficient, as the statute requires that the contract afford both parties that opportunity.

By way of example only, your business contract should include language similar to the following: “The parties agree that if any party is required to commence any suit, proceeding, action, or arbitration to enforce any provision of this Agreement, the prevailing party in said litigation shall be entitled to recover from the non-prevailing party its attorney’s fees, costs, and expenses incurred in connection with the enforcement of this Agreement.”  If you have questions about whether your contract complies with the statute’s requirements, please consult an experienced attorney.

Both parties must sign the business contract by hand.

Unlike many other agreements, for which an electronic signature suffices, business contracts containing reciprocal attorneys’ fees provisions must be signed by hand to be deemed enforceable.  The statute only applies to business contracts signed by hand on or after October 1, 2011, which is when the statute became effective.

The amount of recovery is limited.

The statute provides for the recovery of reasonable attorneys’ fees, not all attorneys’ fees.  The law points the judge to consider all the relevant facts and circumstances impacting the case, listing thirteen factors in particular. Some of these factors include the following:

• The amount in controversy,
• The novelty and difficulty of the question raised in the legal action,
• The skill required to perform the legal services in question, and
• The terms of the specific contract at issue.

No matter the circumstances, however, the amount of attorneys’ fees can never exceed the amount in controversy.

Experienced Business Litigation Attorneys

At Miller Monroe & Plyler, we discourage our clients from spending excessive amounts of time and money on litigation when the likelihood of recovery is low.  Whether you would like us to review your business contract to help you preserve your right to recover attorneys’ fees, or you are navigating a dispute involving your business contract and need aggressive, committed representation, our team of experienced litigators can help.  We leverage our years of experience litigating business disputes in North Carolina state and federal courts to help our clients achieve the best possible resolution for their cases. Contact us for a consultation, or learn more about our firm.