Fee-shifting clauses, enabling the prevailing party in a contract dispute to push its legal bills onto the other party, are subject to wide-ranging interpretation by courts. This provision, though popular, deserves a second look before you sign a contract or enter into litigation over a contract that has one in it.
Landlords, tenants, and any party to a contract that provides for an award of attorneys’ fees, should be aware that courts have broad discretion in making these awards. Courts may interpret these clauses for contract claims, tort claims, or defenses thereto, wherever such claims or defenses are factually related to the contractual dispute. Moreover, courts have discretion over the amount of attorneys’ fees awarded, which may reach a significant percentage of the value of any judgment.
More specifically, a court may exercise this authority over claims the party never expected to arise initially. Thus, a plaintiff expecting to prevail on a breach of lease or contract, and shift its attorneys’ fees to the breaching defendant, may be surprised by counterclaims brought by the defendant, for which the court also has the authority to award attorneys’ fees – to the defendant.
For instance, in one landlord/tenant action, a landlord sued for failure to pay rent and the tenant counter-sued for constructive eviction, negligence, and nuisance for the landlord’s failure to address a rodent problem. The court entered judgment in favor of the tenant and awarded the tenant attorneys’ fees for all of its claims because they arose from the transaction involving the lease, which included a fee-shifting clause. In similar instances, courts have awarded attorneys’ fees where claims involve a common core of facts related to the contract with such a clause.
More recently, the Maryland Court of Special Appeals has clarified that, although a court may use the “common core of facts doctrine” to award attorneys’ fees pursuant to an attorneys’ fees clause, courts are not required to do so and instead may fashion a proportionate award. Thus, courts have the discretion to determine a “reasonable” amount of attorneys’ fees to a “prevailing party” based on facts including: (1) time and effort required in the representation, (2) the customary fee charged for similar services, (3) the amount in dispute and the results obtained, and (4) the ability shown by the attorney in handling the case. However, the Court of Special Appeals emphasized that a trial court may consider not only these factors, but any other factor reasonably related to a fair award of attorneys’ fees, which makes the award even more unpredictable.
In sum, because trial courts have great discretion over an award of attorneys’ fees based on fee-shifting clauses, parties’ entering litigation should carefully consider the impact of such clauses on their respective positions in the litigation. A litigant or potential litigant should thoroughly discuss the specific language of any fee-shifting clause and its potential impact as early as possible to plan the most effective course of action.
For more information please contact Vincent Guida at 410-583-2400 or firstname.lastname@example.org.