If you've ever been in litigation, you know that justice is not cheap. The most basic lawsuit can cost thousands of dollars to win, even a frivolous one. Many of our clients have asked us under what conditions they can get their attorneys' fees reimbursed. This special report summarizes the basics on recovering your attorneys' fees in litigation. With good planning, you may be able to recover most, if not all, of your attorneys' fees in various situations.
California follows the "American Rule" which provides that everyone has to pay their own attorneys' fees - even if you win at trial. Imagine getting sued for something frivolous, having to pay your attorneys thousands of dollars to defend yourself, winning the lawsuit and then hearing you can't recover your attorneys' fees. Also, consider the toll on a small company forced to pursue a case where only a few thousand dollars are at issue and then learning it cannot recover its attorneys' fees. Sometimes the fees can equal (or even surpass) the amount at stake. A larger company can often "out gun" the smaller company in litigation, driving fees so high the smaller corporation is forced to abandon a valid claim because it cannot afford to litigate.
Fortunately there is a way to "even the playing field" and put yourself in a position to recover your attorneys' fees.
The Contractual Exception
You can avoid the "American Rule" and get your attorneys' fees reimbursed if your contracts provide that the prevailing party in a lawsuit is entitled to fees. This provision is easy to include, and you should always insist on such a provision if you are concerned about recovering attorneys' fees.
Conversely, such provisions can cause parties to litigate to the death when the attorneys' fees become so high, they exceed the settlement value of the case. It is therefore important to be sure of your position before beginning a lawsuit. Some parties try to minimize the risk of losing attorneys' fees by inserting a provision into contracts that only the party drafting the contract wins attorneys' fees. However, these one-sided provisions do not work, since Civil Code Section 1717 makes such provisions reciprocal.
Attorneys' fees provisions can sometimes prevent litigation altogether and often help settle cases where liability is questionable because of the risk the provision places on litigants. Since parties run the risk of paying the attorneys' fees of both sides, they are more cautious before filing suit and are more prone to settle if they are concerned they will not win at trial.
Recovery of Fees in Settlement
If you have an attorneys' fees provision in your contract, sometimes you can even recover your fees if your adversary takes an unreasonably stubborn settlement position. Before trial, parties can offer to settle their cases pursuant to Code of Civil Procedure Section 998, which punishes a party who rejects a reasonable settlement offer. Sometimes, this even includes expert fees and attorneys' fees if the contract has an attorneys' fees provision.
If the settlement offer is silent as to attorneys' fees (even though there is a contractual attorneys' fees provision) and the offer is accepted, the offering party can then recover his attorneys' fees in addition to the amount agreed upon in the settlement offer.
Let's assume you get named in a lawsuit because of someone else's conduct. If you are forced to defend yourself in the case, and you prevail, you can collect your attorneys' fees from the party truly at fault. For instance, if you are a general contractor, and one of your subcontractors burns the project down, the owner will probably sue you for the damage. If you win the case the owner filed against you, you can then collect the attorneys' fees you spent from the responsible subcontractor.
You can also recover your attorneys' fees for pursuing a lawsuit you had to file because of someone else's mistake. Let's assume you live in a community with a homeowner's association which is required to maintain the common area. An adjacent landowner dumps toxic waste onto the association's property but the association does nothing to protect your interest. If you have to file an action against the adjacent landowner to protect your interest, and you win, you may be able to collect all your attorneys' fees from the association.
Insurer's Bad Faith
If your insurance company denies your claim in "bad faith," and you sue to force your insurance company to pay, you may be entitled to recover your attorneys' fees, even if your policy is silent on the issue.
Action Against Surety on Government Construction Bond
Government contractors whose contracts involve expenditures of more than $25,000 must file a payment bond. The prevailing party in any action against the surety on the bond must be awarded reasonable attorneys' fees. This means that if you are involved in construction in the public arena, there may be a place for you to recover your attorneys' fees if you are forced to sue for payment.
There are many exceptions to the "American Rule" prohibiting recovery of attorneys' fees.