{"id":903831,"date":"2025-01-16T15:50:26","date_gmt":"2025-01-16T22:50:26","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=903831"},"modified":"2025-01-16T15:50:28","modified_gmt":"2025-01-16T22:50:28","slug":"contractual-fee-shifting-in-litigation","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/contractual-fee-shifting-in-litigation\/","title":{"rendered":"Contractual Fee-Shifting in Litigation: Who Pays the Price?"},"content":{"rendered":"\n

Caitlin Kicklighter | ConsensusDocs<\/a><\/p>\n\n\n\n

When disputes on a construction project escalate to litigation, general contractors may find themselves entangled in a costly and time-consuming legal battle. One important concept to understand is contractual fee-shifting<\/a> under a \u201cprevailing party\u201d provision<\/a>, which can significantly impact damages recovered in litigation. The general rule, known as the \u201cAmerican Rule,\u201d requires each party to pay its own legal costs, including attorney\u2019s fees, expert witness expenses, and other court-related costs. This differs from other legal systems where the losing party typically pays the winning party\u2019s fees. One exception to the American Rule is contractual fee-shifting, specifically through \u201cprevailing party\u201d provisions, which allows for the award of attorney\u2019s fees and costs when explicitly provided for in a contract.<\/p>\n\n\n\n

This article explores this exception to the American Rule, delves into the challenges posed by prevailing party provisions, and shares tips to consider for drafting these clauses to improve clarity and minimize uncertainty in the face of litigation.<\/p>\n\n\n\n

The \u201cPrevailing Party\u201d Provision<\/strong><\/h4>\n\n\n\n

\u201cPrevailing party\u201d provisions are often included in construction contracts and typically require the losing party in a dispute to pay the fees and costs of the prevailing party. These provisions can either deter claims by introducing financial risks for parties considering litigation, or they can encourage contractors to pursue litigation when they might otherwise view it as financially unsustainable for smaller claims. However, while the idea of prevailing party provisions appears straightforward, their practical application can often be complex and difficult to predict.<\/p>\n\n\n\n

Challenges with the \u201cPrevailing Party\u201d Provision<\/strong><\/h4>\n\n\n\n

Construction contracts often include \u201cprevailing party\u201d provisions. Ambiguous provisions may lead to additional litigation over their interpretation\u2014specifically, whether one party has truly \u201cprevailed.\u201d ConsensusDocs 200 includes a \u201cprevailing party\u201d provision, which states:<\/p>\n\n\n\n

\u201cThe costs of any binding dispute resolution procedures and reasonable attorneys\u2019 fees shall be borne by the non-prevailing Party, as determined by the adjudicator of the dispute.\u201d<\/p>\n\n\n\n

This risk of additional litigation may be heightened in complex multi-party, multi-issue disputes, where determining \u201cprevailing party\u201d status can be difficult when parties win on some issues and lose on others.<\/p>\n\n\n\n

Moreover, regardless of a case\u2019s complexity, courts vary in how they determine the \u201cprevailing party\u201d across different jurisdictions. These different interpretations lead to a range of judicial outcomes and lack of uniformity in what constitutes a prevailing party. Consequently, there are various interpretations of what it means to be a prevailing party.<\/p>\n\n\n\n

Defining \u201cPrevailing Party\u201d<\/strong><\/h4>\n\n\n\n

According to Black\u2019s Law Dictionary (a non-binding source of guidance for lawyers), the prevailing party is \u201ca party in whose favor a judgment is rendered, regardless of the amount of damages awarded.\u201d[1]<\/a> In other words, even if the damages are minimal, the party who wins the judgment is still considered the prevailing party.<\/p>\n\n\n\n

The U.S. Supreme Court has also offered some guidance on the issue, particularly for plaintiffs, stating that \u201cplaintiffs may be considered \u2018prevailing parties\u2019 for attorney\u2019s fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.\u201d[2]<\/a>  But what constitutes a \u201csignificant issue\u201d can be hard to define and determine.<\/p>\n\n\n\n

While these definitions provide general principles to define prevailing party, interpretations can vary from state to state. Understanding how different jurisdictions define and apply the term \u201cprevailing party\u201d is essential, as these variations can affect the ability to recover attorney\u2019s fees. For instance:<\/p>\n\n\n\n