Attorneys’ Fees – Having Your Cake and Eating it Too

Gavel & Money.Clients frequently ask about getting attorneys’ fees from their adversaries in a construction dispute. I certainly understand the economics behind the question. Resolving construction disputes in any forum – mediation, arbitration, or court – can be an expensive proposition and require an investment in attorneys’ fees and costs. But, the right to recover fees and expenses is hardly automatic.

In Great Britain, the English Rule allows attorneys’ fees to the prevailing party in most civil disputes. The American Rule does not. It limits the right to recover fees in civil cases where parties have included the right in their contract or the right is granted by statute. There are unique situations where fees can be awarded even though no contract or statute provides the right. For instance, courts will award fees under the “collateral litigation exception” to the American Rule. That exception applies where the natural result of a wrong or breach of duty by one party results in an innocent party getting sued. In that case, the fees incurred in defense of the suit is a proper item of damage.

In Missouri and Kansas, prompt payment statutes provide the right to recover attorneys’ fees in certain instances but often give the trial court discretion whether to award fees. As a result, after a hard fought case, courts sometimes treat fees as a sacrificial lamb in order to help even the score or, as attorneys put it, to “split the baby.” An award of attorneys’ fees for the prevailing party is often left for cases in which the losing party’s behavior was especially bad, fraudulent, or unethical. Some prompt pay statutes require the court to find “bad faith” before awarding attorneys’ fees to the winner.

A recent case indicates that courts may be more willing to extend the right to recover attorneys’ fees even if the underlying contract does not expressly provide fees to the winner. The Court of Appeals for the Eastern District of Missouri recently decided a case which should cause parties regularly adopting contracts with AAA arbitration dispute provisions to take notice.

In City of Chesterfield v. Frederich Construction, Inc., https://www.courts.mo.gov/file.jsp?id=85643, the City contracted with Frederich Construction (“FCI”) on a construction project. The contract did not contain a provision allowing fees to the prevailing party. Normally, neither party would be entitled to attorneys’ fees in that case. However, the contract did contain a dispute resolution clause designating arbitration under the Construction Industry Arbitration Rules of the AAA (“Rules”). After a dispute arose between the City and FCI, an arbitration was held. The arbitrators ruled in favor of FCI and granted FCI attorneys’ fees in the amount of $279,000 in addition to the principal amount owed under the contract. The City argued in the state circuit court that the arbitrators had no power to award fees under the contract. The court disagreed and confirmed the award. On appeal, the Court of Appeals referenced the Rules and, specifically, Rule R-45 allowing an arbitrator to award attorneys’ fees “if all parties have requested such an award.” Both the City and FCI requested such an award in their pleadings. The Court of Appeals determined that the contract did, in fact, provide for attorneys’ fees because the contract adopted the Rules and the Rules allowed a fee award if both parties requested it.

Clients are right to ask about recovery of fees but shouldn’t have an expectation that fees will be awarded in every case, even if they win. It depends on a lot of factors over which the client and its lawyer often have no control. The one thing that is in the client’s control is to make sure the right to recover fees is contained in the contracts they sign.