Your company has been wronged. A vendor failed to deliver as promised causing lost sales. A customer has failed to pay for services rendered. A construction contractor's shoddy workmanship resulted in leaks and damage in your company warehouse. The defendant will not pay up voluntarily, so your business has decided to engage a law firm to file a lawsuit to recover the damages. Can your company recover its attorney's fees and other litigation costs?
Conversely, imagine your business is on the receiving end of a lawsuit that you feel certain your company should win. Can your company recover the legal fees it will take to defend the lawsuit?
The traditional rule - the so-called "American rule" - is that civil litigants cannot recover their legal fees. There are exceptions, though, that business litigants should be aware of. As the Massachusetts Supreme Judicial Court has stated "[o]ur 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 . . . ." See Preferred Mutual Insurance Company v. Gamache, 426 Mass. 93, 95 (1997)(emphasis supplied).
It is essential for businesses to understand whether a given dispute will fall within one of the exceptions to the American Rule so that they can make informed decisions about the likelihood that they can recoup their attorney's fees. Similarly, companies need to understand these exceptions in order to assess the risk that they will have to pay the other side's attorney's fees.
· The Contract Exception
Legal fees can be recovered if the parties contracted for that remedy. In a promissory note, for example, the borrower may agree that she will be liable for payment of the reasonable attorneys' fees required to collect the debt in the event of her default on the loan. Such provisions are typically enforceable. Similarly, many business agreements award attorney's fees to the "prevailing party" in any lawsuit brought to enforce the terms of the agreement. Courts typically honor such agreements.
· Statutory Exceptions
Chapter 93A is the Massachusetts statute most likely to provide an independent basis to recover attorney's fees in a business dispute. Section 11 of the statute permits businesses to recover attorneys' fees in connection with successful claims for unfair methods of competition, or "unfair or deceptive business practices" in trade or commerce. Attorneys experienced in litigating section 11 claims should be able to help assess the likelihood of an attorney's fee recovery (as well as the risk of being liable for the adversaries' attorneys' fees) during the early stages of the case.
· Attorney's Fees May Be Awarded For Frivolous Claims
Massachusetts has a statute that allows a party to recover its legal fees and costs if the judge determines "that all or substantially all of the claims, defenses, setoffs or counterclaims . . . were wholly insubstantial, frivolous and not advanced in good faith." M.G.L. c. 231, §6F. Thus, a business that is forced into costly litigation by an unscrupulous plaintiff who has no legitimate claim does have some recourse to recover its attorney's fees.