Sixth Circuit Holds Attorneys’ Fee Award Does Not Constitute Damages Under Professional Liability Policy

Kent Crocker | PropertyCasualtyFocus

The Sixth Circuit Court of Appeals affirmed an order granting summary judgment in favor of the insurer in Wesco Insurance Co. v. Roderick Linton Belfance LLP, holding that the award of attorneys’ fees was a “sanction” and thus was not covered damages under the Wesco professional liability policy.

This matter concerned an award of attorneys’ fees stemming from claims that were brought against schools under the Individuals with Disabilities Education Act (IDEA). The IDEA provides federal funds to states to ensure that students with disabilities receive an appropriate education tailored to their needs. When parents believe that a school has failed to live up to the IDEA’s expectations, they can raise their concerns via an administrative process. If that process fails, the IDEA provides parents a cause of action against schools to obtain judicial relief. However, if the suit against the school is frivolous or was filed for improper purposes, the IDEA has a fee-shifting provision that permits the school to recover its attorneys’ fees from the filing attorney.

Here, three attorneys jointly pursued four IDEA claims against four school districts in Ohio, alleging a failure to provide their student clients with an appropriate education. After significant administrative litigation, a hearing officer found for the school district in each proceeding. Two of the three attorneys then pursued one of the claims in court against the Akron School District. The trial court ruled in favor of the Akron School District, and the Sixth Circuit affirmed. The school districts then sued the firm that employed the attorneys, alleging that the claims were frivolous, and sought an award of attorneys’ fees pursuant to the IDEA’s fee-shifting provisions.

Wesco issued a professional liability policy to the law firm that employed the attorneys that was in effect during the IDEA proceedings. Wesco refused to defend and indemnify the attorneys and then sought a declaratory judgment that the policy did not apply. Wesco contended that the policy defined “damages” to exclude an award of “sanctions” under “federal” law. The district court granted summary judgment for Wesco, agreeing that the attorneys’ fee award for the school districts under the IDEA was a “sanction” and thus was not “damages” under the policy. Two of the three attorneys then appealed.

The Sixth Circuit reviewed the policy’s definition of “damages,” which stated that “damages” did not include, among other things, “civil or criminal fines, sanctions, penalties or forfeitures, whether pursuant to federal, state or local law, statute, regulation or court rule and injuries that are a consequence of any of the foregoing.” Ultimately, the Sixth Circuit held that because the school districts had shown the attorneys violated their duties not to file complaints that were “frivolous” or for an “improper purpose,” it was clear that the awarded attorneys’ fees constituted a “sanction” under the ordinary meaning of the term. Accordingly, the Sixth Circuit affirmed the district court’s ruling that an award of attorneys’ fees under the IDEA constituted a sanction that was not covered under the Wesco professional liability policy.


When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Quick Note: Attorney’s Fees on Attorney’s Fees

David Adelstein | Florida Construction Legal Updates

In a recent case, the appellate court held that the attorney’s fees provision in the contract was NOT broad enough to entitle the prevailing party to recover attorney’s fees for litigating the amount of attorney’s fees.  This is known as “fees on fees” which is when you can recover your prevailing party attorney’s fees when you are fighting over the quantum that should be awarded to you as the prevailing party.

The attorney’s fees provision at-issue stated:

“In any lawsuit to enforce the Lease or under applicable law, the party in whose favor a judgment or decree has been rendered may recover its reasonable court costs including attorney’s fees from the non-prevailing party.”

Language similar to this language can be found in many contracts as a prevailing party attorney’s fees provision.

However, this provision was NOT broad enough to recover “fees on fees.”   As explained in this article, if this is a consideration, you can negotiate or include this provision into your construction contract by expanding the scope of the prevailing party attorney’s fees provision to clarify that it entitles the prevailing party to recover attorney’s fees in litigating the amount of attorney’s fees.

There is both a good and bad to this.  The good is that if you are the prevailing party, you have a contractual basis to recover your fees for litigating the amount of fees.  The bad is that if you are the other party to this equation, it becomes harder to resolve a prevailing party attorney’s fees issue when the other party is entitled to attorney’s fees to litigate the reasonableness of attorney’s fees.  Thus, you are in a position where you need to decide whether to pay the other party what they want to avoid continued fees or incurring more fees (both on your end and fees you will have to pay the other party) simply to argue over the amount of fees.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Death, Taxes and Attorneys’ Fees in Construction Disputes

Garret Murai | California Construction Law Blog

According to Benjamin Franklin there are two certainties in this world: Death and taxes. Let me humbly add a third if you’re ever involved in non-contingency civil litigation: Attorneys’ fees.

As such, when it comes to legal disputes, sophisticated parties know that it’s not just about winning but the cost of winning. While winning is never certain – remember Poor Richard’s proverb above –  what is certain is that it will most likely cost you to find out whether you’ve won or lost. That’s why the ability to recover (or at least threaten the recovery of attorneys’ fees – that’s a separate discussion altogether) in litigation and arbitration is so important.

A few facts:

  • According to the National Center for State Courts (NCSC) in their 2013 report, Measuring the Cost of Civil Litigation: Findings From a Survey of Trial Lawyers, the median cost of litigation (i.e., attorneys’ fees) for contract disputes, of which most construction disputes would fall under, was $90,575 from case initiation through post-trial disposition.
  • The NCSC survey was conducted in 2013. Adjusting for inflation, the median cost of litigation would be nearly $115,000 in 2022.
  • Further, attorneys responding to the NCSC survey were from across the U.S. According to Clio in its 2021 Legal Trends Report, California attorneys have the fourth highest average hourly rates in the nation behind Washington, D.C., Delaware, and New York. Adjusted by state, the median cost of litigating a construction dispute in California in 2022 is approximately $135,000.

In short, even if you win, and there’s no guarantee that you will win, the mere cost of litigation can comprise a large portion of or even exceed the amount in dispute. Thus, while most cases settle before trial – According to the California Judicial Council’s 2021 Court Statistics Report, 80% of unlimited civil cases (i.e., cases involving claims over $25,000) are resolved prior to trial – it is important to know from the outset whether you would be entitled to recover your attorneys’ fees if you do win.

So, are you entitled to recover your attorneys’ fees in a construction dispute? It depends. And here, it’s important to understand the difference between “the American Rule” and “the English Rule.”

The American Rule vs. The English Rule

Under the English Rule, the losing party in litigation is required to pay the winning party’s attorneys’ fees.

Under the American Rule, each party must pay its attorneys’ fees whether they win or lose, except if provided otherwise by statute or contract.

Among legal scholars there’s debate about how and why “the English Rule” and “the American Rule” were developed. However, we’ll leave that discussion to the academics on either side of the Atlantic. What’s more important for purposes of this discussion is when a party can recover their attorneys’ fees in a construction dispute.

And that’s where the exception noted above takes on vital importance. Under the American Rule each party must pay their own attorneys’ fees whether they win or lose, except if provided otherwise by statute or contract. So under what statutes and under what contracts can a winning party recover their attorneys’ fees in a construction dispute?

Statutes and Contracts in Which Attorneys’ Fees are Recoverable by the Winning Party

Attorneys’ Fees Recoverable Under Contracts

We’ll start with contracts. First, parties to a contract can, with certain exceptions, agree to anything they wish in a contract. This includes the recovery of attorneys’ fees in the event of a dispute. A typical provision in a design or construction contract providing for the recovery of attorneys’ fee might read as follows:

Should any dispute arise relating to the work under this Contract, the prevailing party shall be entitled to recover its attorneys’ fees.

This is a rather straightforward example and there can be numerous variations. Some variations will provide for the recovery of attorneys’ fees arising from disputes relating to the work to be performed under the contract or to disputes concerning the terms of the contract itself. Other variations will cap attorneys’ fees to a certain dollar amount, to a “reasonable” dollar amount to be determined by a judge, jury, or arbitrator, or include no limitation at all and allow a party to recover all attorneys’ fees “actually incurred.”

One variation that is generally not allowed however is recovery of attorneys’ fees by one party alone. For example, in a construction contract between a general contractor and subcontractor (and, obviously, one drafted by the general contractor or its attorney), the general contractor might include a provision providing that in the event of a dispute only the general contractor is entitled to recover its attorneys’ fees but not the subcontractor. Civil Code section 1717 makes such provisions “reciprocal,” meaning that if the subcontractor prevails, the subcontractor would be entitled to recover its attorneys’ fees against the general contractor as well.

Attorneys’ Fees Recoverable in Arbitration: A Potential Trap for the Unwary

It is not unusual for design and construction contracts to provide that disputes be resolved through arbitration. In California, parties will often specify the arbitration provider and the specific rules that will govern disputes to be resolved through arbitration. A typical provision might read as follows:

Should any dispute arise relating to the work under this Contract, the parties agree to resolve the dispute  through the American Arbitration Association (AAA) under the AAA’s Construction Industry Arbitration Rules and Mediation Procedures.

The two most common arbitration providers in California are the American Arbitration Association (AAA) and JAMS. In Southern California, parties also use the Arbitration Mediation Conciliation Center (AMCC) in addition to AAA and JAMS.

A trap for the unwary is AAA’s arbitration rules. Under AAA’s arbitration rules, including its Construction Industry Arbitration Rules and Mediation Procedures, an arbitrator may award attorneys’ fees if: (1) all parties have requested such an award; (2) if it is authorized by law; or (3) if it is provided for in the parties’ arbitration agreement.

Many parties, including their counsel, will reflexively request attorneys’ fees in arbitration and litigation without consideration of whether there is an attorneys’ fee provision in the parties’ contract. Under the AAA’s rules, because an arbitrator can award attorneys’ fees if “all parties have requested such an award,” a party may inadvertently trigger recovery of attorneys’ fees even though the parties’ contract does not include an attorneys’ fee provision.

Attorneys’ Fees Recoverable Under Statute

Attorneys’ fees are also recoverable if provided for under statute. There are three common statutes in which construction claims are brought in which the underlying statute provides for the recovery of attorneys’ fees. The first is stop payment notice claims. Civil Code section 8558 provides for the recovery of attorneys’ fees in a stop payment notice action on private works projects.

The second is payment bond claims. Civil Code section 9564 provides for the recovery attorneys’ fees in a payment bond action on public works projects. A party may also recover attorneys’ fees if provided for under the terms of a bond on a private works project.

Finally, attorneys’ fees are recoverable on certain prompt payment penalty claims. Civil Code sections 3320, 3321, 8800 and 8818, Business and Professions Code section 7108.5, and Public Contract Code section 10262.5 provide for the recovery of attorneys’ fees in prompt payment penalty claims on private works projects and certain public works projects.

Attorneys’ Fees Recoverable in Discovery: Another Potential Trap for the Unwary

Attorneys’ fees can also be recovered through discovery. Specifically, requests for admissions served while a case is in litigation or arbitration. A request for admission is a discovery tool in which a party requests that another party “admit” to the truth to certain facts or documents. An example might be:

Admit that you were paid in full by the Owner for Subcontractor’s Pay Application No. 1

If this was discovery served by a subcontractor to a general contractor and the general contractor denies that it was paid by the owner for the subcontractor’s pay application no. 1, and this turns out not to be true, the subcontractor or its counsel can request that the court award the subcontractor its attorneys’ fees in proving the truth of the matter asserted.

Specifically, Code of Civil Procedure section 2033.420 provides:

(a) If a party fails to admit the genuineness of any document or the truth of any matter when requested to do so under this chapter, and if the party requesting that admission thereafter proves the genuineness of that document or the truth of that matter, the party requesting the admission may move the court for an order requiring the party to whom the request was directed to pay the reasonable expenses incurred in making that proof, including reasonable attorney’s fees.

(b) The court shall make this order unless it finds any of the following:

(1) An objection to the request was sustained or a response to it was waived under Section 2033.290.

(2) The admission sought was of no substantial importance.

(3) The party failing to make the admission had reasonable ground to believe that that party would prevail on the matter.

(4) There was other good reason for the failure to admit.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Just Because You Allege There Was an Oral Contract Doesn’t Mean You’re Off the Hook for Attorneys’ Fees if you Lose

Garret Murai | Califorinia Construction Law Blog

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There’s certain things in life you shouldn’t mix. Like drinking and driving. Bleach and ammonia. Triple dog dares and frozen poles. And angry lawyers and litigation. 

In Spahn v. Richards, Case No. A159495 (November 30, 2021), angry lawyer Jeffrey Spahn sued general contractor Dan Richards claiming that Richards orally agreed to build Spahn’s million dollar plus house for $515,000. Not only did Spahn not recover anything from Richards, he ended up owing Richards $239,171 in attorney’s fees and costs, after he denied a request for admission asking that he admit that there was no oral contract.

The Spahn Case

 In 2017, Spahn filed suit against Richards for breach of oral contract, breach of implied covenant of good faith and fair dealing, and promissory estoppel. According to Spahn, he met Richards in June 2015 and the two reached an agreement whereby Richards agreed to demolish Spahn’s house for $12,500 and build a new one for $515,000. Further according to Spahn, Richards agreed to this “fixed price” “oral contract” in June 2015, and then, on July 1, 2015, Richards “confirmed and agreed that he would perform the construction project” for $515,000 and would complete construction by May 2016.

In the course of the case, Richards served a request for admissions to Spahn asking that he admit that the parties never entered into an alleged oral contract and that there was no meeting of the minds to form any alleged contract. Richard also asked Spahn to admit that the alleged oral contract was not binding or enforceable. Spahn denied the request for admissions.

At trial, the evidence shoed that Spahn purchased the property in 2014 and intended to demolish the existing house and build a new house to “showcase his art collection.” Note, that it is never good precursor in a case involving an attorney when an appellate court highlights an attorney’s “art collection.”

Spahn hired Ajay Manthripragada, a Princeton-U.C. Berkeley trained architect, whose focus is on the operativity of geometry, history and context in the construction of buildings. Yes, “operativity.” I had to look that up. From the adjective “operative,” meaning “being in effect; having force; operating,” as in “the operativity of my moody teenage daughter on our household, which merely lives in our house and has no art worth showcasing, is enough to make you want to live in a different house altogether.   

In May 2015, Spahn and Manthripragada interviewed Richards and discussed Spahn’s budget for demolition and construction. Following the meeting, Spahn gave Richards a set of preliminary drawings, all of which were marked “NOT FOR CONSTRUCTION” and had a blank schedule and no material specifications. Richards requested “contractor” plans but none was provided. Richard’s custom and practice was to submit a project estimate in writing to use a written construction contract, but without those plans, Richards could not prepare a bid for the construction project.

On June 30, 2015, Richards signed a written contract for the demolition work and completed the demolition that same day. That evening, Spahn emailed Manthripragada and Richards stating, “assuming we get [Richards] approved, and we select [him] to do the job, fingers crossed” “the bank will take 45 days to vest the loan and begin.” On July 4, 2015, Manthripragada reminded Richards that that he and Spahn were “waiting” for Richards bid. On that same day, Spahn told Manthripragada that he was “looking into other options to hire contractors we like . . . budget on this now should be well under $500k.”

During this time, Spahn solicited bids from other contractors and received bids ranging from $600,000 to $800,000. One contractor told Spahn the home could not be built for $300 per square foot and called Spahn’s estimated $500,000 budget “ridiculous.”

On July 21, 2015, after Richards had completed the necessary paperwork to obtain approval from Spahn’s lender, Spahn told Manthripragada: “I think we have a committed contractor we just need to tread lightly until we have a contract signed.” About a week later, Spahn and Manthripragada prepared, and later revised, a draft construction contract. The contract attached an “itemized budget” with a total cost of $515,000. Because Richards had not provided a bid or an itemized cost breakdown, Spahn and Manthripragada “made up” certain costs and used cost estimates from other contractors’ bids.

In early August 2015, Spahn asked Richards to come to his office. When Richards arrived, Spahn presented Richards with the written contract. It was signed by Spahn. According to Richards, he was “flabbergasted” over the fake budget and did not sign the contract. Several weeks later, Richards told Spahn that he was not going to pursue the construction project. Spahn later hired another contractor to build the house at a cost exceeding $1 million.

According to Spahn, he and Richards entered into an oral agreement in June 2015 when Richards agreed in a telephone call lasting a “couple of minutes” to build Spahn’s home for the fixed price of $515,000. Richards and Spahn did not discuss specific costs or a payment schedule during that call.

Following the close of evidence, the jury returned with a verdict in favor of Richards concluding that there was no contract and that Richards did not make a promise with clear and unambiguous terms. Richards later filed a motion for attorney’s fees and costs under Code of Civil Procedure section 2033.420 – which provides that if a party serving a request for admissions thereafter proves the genuineness of the truth sought to be admitted, the party serving the request may request an order from the court for the reasonable costs and attorneys’ fees incurred in making that proof –  which was granted by the court in the amount of $239,170.86.

Spahn appealed.

The Appeal

On appeal, the First District Court of Appeal explained that under Code of Civil Procedure section 2033.420, a party serving a request for admissions is entitled to recover its reasonable costs and attorney’s fees in proving the truth of a request for admission denied by another party, unless it finds one of the following:

  1. An objection to the request was sustained or a response to it was waived;
  2. the admission sought was of no substantial importance;
  3. There was reasonable ground to believe the party refusing to admit the matter would prevail on the matter; or
  4. there was other good reason for the failure to admit.

“In evaluating whether a ‘good reason’ exists for denying a request to admit,” explained the Court of Appeal, “a court may properly consider whether at the time the denial was made the party making the denial held a reasonably entertained good faith belief that the party would prevail on the issue at trial.” Further, explained the Court, “[a] party’s reasonable belief must be grounded in the evidence; it cannot be based merely on ‘hope or a roll of the dice.’ It is also not enough for a party making the denial to ‘hotly contest’ the issue; instead, ‘there cyst be some reasonable basis for contesting the issue in question before sanctions can be avoided.’”

The Court of Appeal, reviewing the trial court’s order awarding costs of proof under Code of Civil Procedure section 2033.420 for abuse of discretion, explained that it would not disturb the trial court’s order unless “it is shown that the trial court exceeded the bounds of reason” and that review based on abuse of discretion “is a deferential standard of review that requires us to uphold the trial court’s determination, even if we disagree with it, so long as it is reasonable.”

According to the Court of Appeal, while Spahn alleged that he and Richards had entered into an oral agreement in which Richards agreed to build the home for $515,000 in June 2015, the evidence introduced at trial “belied that contention,” since Spahn was aware that Richards had not submitted a written bid before or after formation of the alleged oral contract, nor could he, since he architectural renderings were incomplete and not suitable for construction. Further explained the Court, during the short telephone call between Spahn and Richards, there was no discussion of specific costs or a payment schedule, and Spahn knew that he and Manthripragada “made up” information about the construction costs in the written contract Spahn presented to Richards and which Richards refused to sign.

These facts, stated the Court of Appeal, were known to Spahn when he denied Richards’ request for admissions, and as such the trial court could “reasonably conclude the claimed oral contract lacked essential and sufficiently definite terms that would establish the existence of a meeting of the minds.” Further, explained the Court of Appeal:

Plaintiffs’ arguments to the contrary are unavailing. According to plaintiffs, the court failed to consider evidence supporting their “belief that an oral contract had been formed.” Not so. The court considered the evidence upon which plaintiffs relied, including testimony that Richards commenced the demolition before the parties signed the demolition contract, and evidence that Spahn e-mailed Richards in mid-July stating Richards’s “bid” was the equivalent of a “fixed price contract at 515K.” Also before the court was evidence that in July 2015—after the date of the alleged oral contract— plaintiffs had not yet selected Richards to perform the construction and were instead actively soliciting bids from other contractors, and evidence that Spahn acknowledged in late July that he was not certain whether Richards was a “committed contractor.” This conduct, coupled with Spahn’s effort to obtain Richards’s signature on the written contract, was inconsistent with plaintiffs’ contention that an oral contract already existed.

The Court of Appeal also found that an earlier filed motion for summary judgment by Richards that was denied by the trial court did not establish that Spahn had a good faith belief that would prevail at trial. A motion for summary judgment is only appropriate “‘where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law,’” explained the Court, and a “trial must liberally construe the evidence presented in opposition to the motion and resolve any doubts about the evidence in favor of the party opposing the motion.” “At trial, the trier of fact has no such obligation.”

Finally, the Court of Appeal found that the trial court’s denial of Richards’ motion for directed verdict at the conclusion of evidence did not establish that Spahn had presented “credible evidence that [he] entered into an enforceable contract with Richards.” 

Conclusion

So there you have it. Don’t let anger get to your head. And if you’re an attorney, while you may know the ins and outs of litigation, don’t let that get to your head either. And, finally, never, ever fall for the triple dog dare.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Winning Attorney Fees in Litigation as a California Construction Contractor or Subcontractor

William L. Porter | Porter Law Group

The General Rule in California: The Winner Does NOT Receive Attorney Fees and Costs:

There is a common misconception that court decisions require the loser in a lawsuit to reimburse the winner for the fees and costs incurred during the lawsuit. Reliance on this misconception in developing a legal strategy for dealing with disputes is a serious strategic error. Where the legal issue is, for example, “breach of contract,” the general rule in California is that there are only two methods by which the winning litigant will be awarded the attorney fees and costs incurred in bringing or defending the lawsuit. The first of these is if the contract in question contains an effective attorney fee clause specifically providing that the prevailing party will recover their attorney fees and costs. The second is if there is a statute on point which provides that the prevailing party will be awarded those fees and costs. The general rule in California is that each party pays their own attorney fees and costs, unless there is an independent legal basis that provides otherwise. This is known as the “American Rule,” used throughout most of the country.

The Issue is Important Because Spending More Money Than You Can Be Awarded is a Losing Strategy:

The importance of whether the prevailing party in a lawsuit will be awarded their fees and costs cannot be underestimated. The party contemplating whether to bring a lawsuit must seriously consider whether it is even worth the trouble. In many cases, unless the one bringing the lawsuit (the “plaintiff”) is entitled to be reimbursed for the considerable attorney fees and costs incurred in bringing the case, it is just not worth doing so. There is no point spending $50,000 on attorneys on a $40,000 claim unless the plaintiff can be awarded both the $40,000 and the $50,000 if the plaintiff wins. Unless fees and costs are awarded, the plaintiff will still be out $10,000 in the very best of cases. For a party sued (the “defendant”) a similar situation arises in that the defendant faces the reality that it may be less expensive to just pay on a frivolous or false claim than to fight it. Either scenario is unsatisfactory. On the whole, it is beneficial to have an attorney fee clause in a contract when either a plaintiff or a defendant must vindicate its rights.  Both deserve to be fully compensated to achieve justice. It is also beneficial to have an attorney fee clause in a contract to encourage the one who is at fault to resolve the case rather than risk paying the fees and costs of the other party who is likely to win the case. In either case, the presence of an attorney fee clause facilitates the party in the right and encourages resolution outside of litigation. These are admirable societal goals.

The Usual Situation Regarding Attorney Fees In California Construction:

In California construction, the American Rule is followed. If there is a statute providing that the prevailing party is awarded attorney fees and costs in a particular situation, then the prevailing party is protected. However, as to the prevalence of attorney fee clauses in contracts and subcontracts, the problem is that the one signing the contract or subcontract must generally sign the contract provided by another party. Generally speaking, a “direct contractor” signs the contract provided by the owner of the property where the work is performed.  The subcontractor signs the subcontract provided by the direct contractor. Whether there is an attorney fee clause in either case depends on whether the one providing the contract or subcontract has decided to include an attorney fee clause in the document. There is cause for suspicion when there is no attorney fee clause in the contract or subcontract.  In such a case, the party leaving out the clause may intend to leverage the absence of such a clause to their advantage when a later dispute arises. The signing party is often unable to alter the situation without additional effort and resistance. It is important that any effort to include an attorney fee clause in a contract or subcontract occur in the negotiation phase. Once the contract or subcontract is signed, the opportunity is lost.

Contractual Strategies to Include Attorney Fee Clauses:

There are several methods to be assured that you will have an attorney fee clause in your contract and ensure that you will be able to fully recover on your claim when you are in the right. Again, these are tasks to be accomplished before a party signs a contract to provide goods or services. Accomplishing these tasks before signing the contract will help establish the standards to be followed if a dispute arises during or after performance of the contractual obligations:

  1. Condition all bids and proposals on the inclusion of an Attorney Fee Clause which is clearly stated in the terms of the bid or proposal.  This way, if the bid is accepted, so is the attorney fee clause.
  2. Condition all bids and proposals on incorporating the bid or proposal into any subsequently executed contract or subcontract for the project.  This makes the clause a material term of the later integrated agreement.
  3. Require, within the bid or proposal, that the bid or proposal will “control and take precedence” over any other terms contained elsewhere in the subsequently executed contract or subcontract.  This will allow the term to control over conflicting terms in other contractual documents produced at a later time.
  4. Make it clear in the bid or proposal that the one accepting the bid or proposal must not accept it unless it agrees to do so without exception or reservation.  This puts the choice on the one who wants the service.  It is a practical step that tends to show clear intent.
  5. Make sure that any subsequently executed contract or subcontract clearly incorporates the bid or proposal into the contract or subcontract as an exhibit.  Make sure of this before signing the agreement.  This ensures that contractual technicalities are met.

There are many ways that the above tasks can be accomplished.  Please consult with an attorney experienced in construction law to assist you in including the proper language in your bids, proposals, and other contractual documents.

Helpful California Construction Statutes Providing for Attorney Fees:

As noted above, the second way in which attorney fees are awarded in a construction dispute in California is when there is a statute so providing. In California, there are a number of statues providing that the winner of a construction dispute will be awarded attorney fees and costs. For the direct contractor, the statutes usually provide that an owner must pay the direct contractor within a very short period of time unless there is some disputed issue which the owner is offsetting against the payment. The penalty for non-payment is generally up to an additional 2% interest per month, along with attorney fees and costs. For Subcontractors, there are similar statutes also providing for a penalty of up to 2% per month, along with attorney fees and costs when the contractor or a superior subcontractor is paid for the claimant subcontractor’s work and does not pass that same payment on to the claimant subcontractor. In either case, the successful unpaid claimant would be entitled to possibly up to 2% per month as well as attorney fees and costs. There are some statutes which may allow for interest exceeding 2% per month.

For direct contractors, the following statutes should be reviewed (live links as of writing provided):

Civil Code §§8800-8802 : https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CIV&division=4.&title=2.&part=6.&chapter=8.&article=1

Civil Code §§8810-8822: https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CIV&division=4.&title=2.&part=6.&chapter=8.&article=2

Public Contract Code §7107: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PCC&sectionNum=7107

Public Contract Code §10261.5: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PCC&sectionNum=10261.5

Public Contract Code §20104.50: https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=PCC&division=2.&title=&part=3.&chapter=1.&article=1.7

For subcontractors, the following statutes should be reviewed (live links as of writing provided):

Civil Code §§8810-8822: https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CIV&division=4.&title=2.&part=6.&chapter=8.&article=2.

Business and Professions Code §7108.5: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=7108.5.

Public Contract Code §7107: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PCC&sectionNum=7107

Conclusion:

When construction claimants are in the right, they should be entitled to attorney fees and costs to pursue and defend claims.  When owners, contractors and subcontractors fail to pay those making legitimate claims they should be forced to pay fees and costs due to their failure to do so and should not be able to leverage their subordinate professionals to compromise for lesser sums.  At the same time, contractors who must bring actions against irresponsible subcontractors who fail to perform their work or against owners who do not pay them should be able to recoup their fees and costs for having to bring an action against them.  In each case, the absence of a provision for attorney fees and costs allows a wrongful party to take advantage of the party who is without fault.  With a proper attorney fees and costs clause, this issue can be mitigated, and cases can be resolved before litigation becomes necessary.  Hopefully, the above information will allow responsible members of the construction industry to act to protect their interests when they are in the right and resolve their differences when they are at fault.