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Commentary: Some Suggestions for New Attorney Fees Clauses

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Members of the construction industry who have been involved in litigation, either in court or arbitration, have learned the valuable lesson that attorney’s fees are a major component of their cases. Those fees must be carefully considered. That’s because unless there is an agreement or a statute that requires otherwise, the parties must pay their own attorney’s fees. They cannot be recovered from the losing parties. That is the “American Rule.”

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In Colorado there are very few statutes that allow the recovery of attorney’s fees.  In typical construction-related disputes, there are no Colorado statutes that allow the winning parties to recover their attorney’s fees. They either pay their own fees or they have provided otherwise in their contracts.

Contracts providing for recovery of attorney’s fees by successful parties frequently provide only that one or both parties may recover their attorney’s fees, whoever is successful in the litigation. Naturally, parties should avoid entering into contracts that provide that only one of the parties is entitled to recover those fees.

Also, in agreeing to contract provisions that allow the recovery of attorney’s fees, parties should also realize that entitling winning parties to recover their attorney’s fees without more may be grossly unfair.  For example, if a subcontractor asserts a claim against a contractor for $200,000 of delay damages but recovers only $30,000 in arbitration, has that subcontractor really “won,” and is he therefore entitled to recover more than $50,000 in attorney’s fees?

To be fair, attorney’s fee provisions, if desired by the parties, should define who would be the successful party in terms of not only winning but also achieving a real success in the litigation. With that in mind, I have drafted the following two prevailing-party attorney’s fee contract provisions. They can be used together or separately, but in either event, they are designed to accomplish two functions:  (1) allow recovery of attorney’s fees only by the party that is really successful in the case, and (2) avoid claims in excessive dollar amounts that would result in recoveries that would then allow the opposing party to recover its attorney’s fees.

My proposed provisions are:

• Prevailing Party Attorney Fees, Interest and Costs. “In the event that it becomes necessary for either party to enforce the provisions of this agreement or to obtain redress for the breach or violation of any of its provisions, whether by litigation, arbitration or other proceedings, the prevailing party shall be entitled to recover from the other party all costs and expenses associated with such proceedings, including reasonable attorney’s fees.

For these purposes, ‘prevailing party’ shall mean the party who is most successful in the proceedings as determined by the trial judge or arbitrator, as the case may be. To be the ‘most successful party’ would require that the party claiming money damages recovers a judgment or award of not less than 70% of the amount of its claim (not including interest, costs or attorney’s fees).  If that party does not recover at least that amount, the opposing party will be the ‘prevailing party’ and would therefore be entitled to recover its reasonable attorney’s fees and costs incurred in the proceedings.”

• Offer of Settlement (OOS).  “Additionally, a party shall not be entitled to recover attorney’s fees under this provision if the final judgment or arbitration award (not including interest, costs or attorney’s fees) is less favorable than the last written offer of settlement (OOS) made by the other party at least ten (10) days prior to the commencement of the arbitration hearings or trial.

The party to whom such OOS has been made shall have five (5) days after receipt of such offer to accept it in writing. If that last written OOS is not timely accepted and the final award or judgment (not including interest, costs or attorney’s fees) is less than or equal to the last OOS, the party (and its surety and guarantors) shall be liable for the other party’s reasonable attorney’s fees.

Claims pertaining to attorney’s fees shall be determined by either the court or arbitrator, as the case may be, after rendition of the final judgment or award and no evidence of attorney’s fees shall be offered at the trial or arbitration hearings.”

Albert B. Wolf is a principal in the Denver law firm of Wolf Slatkin & Madison PC. This column was written with the intent of providing general legal information intended to be reasonably accurate although not comprehensive.  Readers are therefore urged to consult legal counsel for any specific legal advice they may desire concerning the subject matter of this column.

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