The Right to Recover Attorney's Fees
If you talk to anyone who has been a party to a lawsuit, they are almost certainly going to comment as to how expensive it was. Unless an attorney is hired on a “contingency fee” basis – which is seldom an option in business-related cases, the client must pay his or her attorney based to prosecute or defend their case, based upon the time that is spent by their attorney. And although in recent years the Courts have established rules to attempt to streamline litigation, the reality remains that it takes a lot of time, and thus a lot of money, to take a case from its inception all the way through trial. Because of this, anybody contemplating filing a lawsuit, or for that matter, anybody trying to decide whether to defend, as opposed to quickly settling, a lawsuit brought against them, should factor into their decision whether or not there is the possibility of obtaining a judgment ordering that the other side reimburse them for the attorney’s fees which they incurred in litigating the case.
The so-called “American Rule,” which applies to non-contract cases in Arizona, is that each litigant is responsible for the payment of their own attorney’s fees, no matter how the case turns out. In Arizona, A.R.S. § 12.341.01 provides that the prevailing party in a lawsuit may recover its attorney’s fees in any action arising out of a contract. The first question that needs to be asked is who the “prevailing party” is. While this may like an easy question to answer, it really isn’t, as the “prevailing party” is not necessarily the “winner” of the case. If, for example, if Plaintiff sues Defendant for $1,000,000, and at some point before trial Defendant offers $100,000 to Plaintiff to settle, which offer is rejected by Plaintiff, and then Plaintiff only “wins” a judgment for $10,000, it will be Defendant, not Plaintiff, who is deemed to be the “prevailing party.” The next question is whether the case is one “arising out of a contract.” While a lawsuit for a breach of contract clearly satisfies this requirement, other cases, such a one for a tort that relates to the contract, may or may not fall within the statute. And finally, the statute gives discretion to the judge as to how much, if any, attorney’s fees to award.
A separate basis upon which party’s may recover attorney’s fees in a contract dispute is if the contract at issue contains a provision setting forth that under whatever circumstances are specified in the contract, one of the parties is entitled to an award of attorney’s fees. The advantage to a party seeking to recover attorney’s fees based upon a contractual provision, as opposed to relying upon the statute, is that the parties, in their contract, can define in any manner that they choose who is the “prevailing party” entitled to such recovery and whether the right to recover reimbursement for attorney’s fees incurred is absolute, as opposed to being within the discretion of the judge. Before forging ahead with litigation involving a contract claim, a potential litigant should carefully review the “attorney’s fees provision” in their contract, to fully understand what their rights are to potentially recover their attorney’s fees, in addition to those rights afforded to them by statute.
This article originally appeared on https://www.asreb.com/
About the Author: David Allen, a partner in the Phoenix law firm of Jaburg Wilk, has been representing clients in both transactional and litigation real estate and business related matters for over thirty years. He is licensed as an attorney in both Arizona and California, and is also a licensed Arizona real estate broker.