By Robert Nislick
Contracts. Everyone enters into them. Most people fulfill their contractual obligations. Some people do not. There may be a good explanation for why someone has not satisfied his or her contractual obligations. Most of the time, however, there is no good excuse to evade your duties under an agreement.
For the most part, the most prudent advice an attorney can give to a client is to live up to the agreements you have made. This may mean paying for services rendered, or frequently it may mean, doing something you agreed to do.
A large part of the attorney’s job is to bail people out of problems that arise, either when the other person breached a contract, or when the client has allegedly breached a contract and has been sued.
Another large part of the attorney’s job is to help prevent the client from getting into a bad deal to begin with. A client may tell her lawyer about a great business opportunity she is contemplating to undertake with someone else, only to have the lawyer throw a wet blanket over it.
The attorney should anticipate all of the worst-case scenarios that may arise and point them out to the client ahead of time. Maybe everything will work out great. However, business relationships fall off the rails all the time.
When I am drafting a contract for someone, I try to protect the client as best as possible, and I look for ways to get the client out as cleanly as possible if the business relationship goes sour. I have reviewed contracts drafted by other lawyers, including some which have placed one side at such a disadvantage that I cannot believe the lawyer would ever have let the client sign on the dotted line.
In thinking about what can happen when a business venture falls apart, the prospect of having to engage in long, uncertain, expensive, and torturous litigation should not come as a surprise.
Based on the language contained in some contracts, the prevailing party may be entitled to an award of his attorney’s fees. In other words, if there is an attorney’s fees provision in the contract, the loser in the case may have to pay the winner’s attorney’s fees.
Does it always work this way? No.
“The usual rule in Massachusetts is to prohibit successful litigants from recovering their attorney’s fees and expenses except in a very limited class of cases. This rule is known as the ‘American Rule.’ See Waldman v. American Honda Motor Co., 413 Mass. 320, 321-323 (1992). Our traditional approach has been to prohibit recovery of attorney’s fees and expenses in a civil case in the absence of either an agreement between the parties, or a statute or rule to the contrary, and this principle has been applied to deny recovery of attorney’s fees and expenses in declaratory judgment actions.” Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 95 (1997).
“As a general rule in Massachusetts, a litigant must bear his own expenses including attorney’s fees, except where a statute permits the award of costs, a valid contract of stipulation provides for costs, or rules concerning damages permits recovery.” Judge Rotenberg Educational Ctr., Inc. v. Commissioner of the Dept. of Mental Retardation, 424 Mass. 430, 468 (1997).
When drafting a contract, is it a good idea to include an attorney’s fees provision? It is hard to give a definitive answer because every situation is different. I have had clients benefit from contractual attorney’s fees provisions.
But I am not always a fan of attorney’s fees provisions in contracts. One reason is that the specter of having to pay the other side’s lawyer may deter a party from pressing what may actually be a meritorious claim. Another reason is that a party with greater resources may feel emboldened to litigate over a small dollar amount against a weaker opponent, when it might not otherwise be worthwhile to expend resources on such a claim.
Similarly, the expectation of winning an attorney’s fee award may deter the parties from negotiating in good faith to solve their problems. Such a situation may also occur where statutes, like the Consumer Protection Act, G. L. c. 93A, or the Condominium Act, G. L. c. 183A, or Massachusetts’s anti-discrimination law, G. L. c. 151B, may obligate one party to pay the other’s attorney’s fees. The issue of attorney’s fees may end up dominating the litigants’ decision making, and actually prevent the resolution of a dispute.
Assuming a party prevails in a case where an attorney’s fees provision is at play. How does the court determine what constitutes a reasonable award of attorney’s fees? “While the amount of a reasonable attorney’s fee is largely discretionary, the judge . . . should consider the nature of the case and the issues presented, the time and labor required, the amount of damages involved, the result obtained, the experience, reputation and ability of the attorney, the usual price charged for similar services by other attorneys in the same area, and the amount of awards in similar cases.” Linthicum v. Archambault, 379 Mass. 381, 388-389 (1979).
The prevailing party should not expect that the court will require the other side to compensate him every last cent in attorney’s fees that he expended. The court has a lot of discretion to make substantial cuts to the amount of attorney’s fees sought by a party, and often does.
About the author: Robert Nislick is a Massachusetts business and contracts attorney. He can be reached at (508) 405-1238, or by e-mail at email@example.com.