Three Contract Provisions a Small Business Cannot Live Without – From a Litigator’s Perspective: Attorneys’ Fees Provisions
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Including an attorneys’ fees provision in a small business contract is vital when a small business wants to sue to enforce its contract. Without an attorneys’ fees provision, a lawsuit may become cost prohibitive for a small business.
Part 1 of this Blog provided an overview of the importance of including an attorneys’ fees provision in a small business contract. While an entire treatise could be (and has been) written about attorneys’ fees, this Blog seeks to give some practical tips for attorneys’ fees provisions in small business contracts.
Including an attorneys’ fees provision in a small business contract
Pursuant to Florida law, a party is only entitled to recover attorneys’ fees if a statute allows for the recovery of attorneys’ fees or if there is a contractual agreement providing for the recovery of attorneys’ fees. See, e.g., Anderson Columbia Co., Inc. v. State, Dept. of Trans., 744 So. 2d 1206, 1207 (Fla. 1st DCA 1999). Thus, if the small business contract does not provide for the recovery of attorneys’ fees, then unless there is a statutory basis for recovering attorneys’ fees, the small business will likely have to pay for its own attorneys’ fees. By including an attorneys’ fees provision in a small business contract, a small business can help alleviate its collection costs and its defense costs if a client sues the small business.
Prevailing party standard
Most attorneys’ fees provisions include language providing that the “prevailing party” in the lawsuit is entitled to recover its attorneys’ fees. While a trial court has authority to find that there is no prevailing party, the trial court will typically find that the party prevailing on the significant issues is the prevailing party. See Moritz v. Hoyt Enters., Inc., 604 So. 2d 807, 810 (Fla. 1992) (“We agree that the prevailing party on the significant issues in the litigation is the party that should be considered the prevailing party for attorney’s fees.”). This is referred to as the “significant issues test.” Id.
A prevailing party attorneys’ fees provision is a broad attorneys’ fees provision. By including a prevailing party attorneys’ fees provision, the small business could file any type of lawsuit that is related to the small business contract and if successful in the lawsuit, the small business would likely be entitled to recover its attorneys’ fees. However, this entitlement would be reciprocal to the other contracting party. This means that if the small business files a lawsuit and loses, the opposing party would likely be entitled to recover its attorneys’ fees. Similarly, if the other contracting party (e.g., a customer) files a lawsuit against the small business and prevails, the small business would likely be responsible for paying the other party’s attorneys’ fees.
Attorneys’ fees provisions as a double-edged sword
While including an attorneys’ fees provision in a small business contract is vital when the small business wants to enforce its contract, attorneys’ fees provisions can be a double-edged sword. Specifically, when a small business wants to sue a customer to enforce a contract, having an attorneys’ fees provision is important because suing to enforce the contract without an attorneys’ fees provision could become cost prohibitive especially if the dollar value at issue is rather small. On the other hand, if a customer sues the small business and the small business contract has a broad attorneys’ fees provision (such as a prevailing party attorneys’ fees provision, as discussed above), then the small business may potentially expose itself to paying its customer’s attorneys’ fees (presuming that the customer prevails in the lawsuit).
There are ways to draft an attorneys’ fees provision in order to try to limit risk for being responsible for the opposing party’s attorneys’ fees. However, in doing so, a small business will limit the situations in which it would be entitled to recover its own attorneys’ fees. In determining the appropriate attorneys’ fees provision to use, a small business has to evaluate how much risk it is willing to take.
Limiting attorneys’ fees provisions to collections actions
The type of attorneys’ fees provision that a small business chooses to use is a strategic decision. On the one hand, having a broad attorneys’ fees provision, such as a prevailing party fees provision, allows a small business to recover its attorneys’ fees in nearly any type of lawsuit in which it prevails. On the other hand, if the small business loses the lawsuit, it may be responsible for paying the opposing party’s attorneys’ fees. In order to limit this potential risk, some small businesses chose to include more narrow attorneys’ fees provisions that allow the small business to recover attorneys’ fees in certain situations (e.g., collections actions) but not in every situation. This allows the small business to better control its potential risk for recovering (or being responsible for paying) attorneys’ fees.
As discussed above, one way for a party to recover attorneys’ fees is by including an attorneys’ fees provision in a contract. See, e.g., Anderson Columbia Co., Inc., 744 So. 2d at 1207. However, the right to recover attorneys’ fees under a contractual provision is limited by the terms of such provision. See Islander Beach Club Condo. v. Skylark Sports, LLC, 975 So. 2d 1208, 1211 (Fla. 5th DCA 2008). Attorneys’ fees are not necessarily recoverable as to any and all litigation relating to a contract with an attorneys’ fees provision. See Vill. 45 Partners, LLC v. Racetrac Petroleum Inc., 831 So. 2d 758, 760 (Fla. 4th DCA 2002).
When there is a contractual agreement allowing only one party to recover its attorneys’ fees, Section 57.105(7), Florida Statutes, will allow the other party to recover its attorneys’ fees if it prevails in the lawsuit. See §57.105(7), Fla. Stat. (2019). The purpose behind Section 57.105(7) is to provide mutuality of attorneys’ fees as a remedy in contract cases. See Florida Hurricane Protection and Awning, Inc. v. Pastina, 43 So. 3d 893, 895 (Fla. 4th DCA 2010).
While Section 57.105(7) is designed to even the playing field, it is not designed to be expanded beyond the terms of the written contract. Id. Under Section 57.105(7), a unilateral contractual clause is rendered bilateral for prevailing party attorneys’ fees. Id. In other words, if a contract only allows one party to recover its attorneys’ fees, then pursuant to 57.105(7), if the other party prevails in the lawsuit, the other party may be entitled to recover its attorneys’ fees. Id. However, Section 57.105 does not allow a court to rewrite the parties’ contract. Id.
For example, in Florida Hurricane Protection and Awning, Inc., a contractor and a homeowner entered into a written contract for the contractor to install shutters to the homeowner’s house. The contract between the homeowner and the contractor included the following attorneys’ fees provision: “Purchaser is responsible for all costs of collection including Attorney’s fees. And 1.5% of contract amount.” Florida Hurricane Protection and Awning, Inc., 43 So. 3d at 894. When the contractor failed to complete the installation of the shutters, the homeowner filed a lawsuit and sought damages including attorneys’ fees. Id. Relying on Section 57.105(7), the trial court granted the homeowner reciprocal attorneys’ fees. Id. However, the appellate court disagreed. Id. at 895-96. The appellate court held that the contract provided fees for the contractor in the event of a collection action. Id. at 895. While Section 57.105(7) requires reciprocity, reciprocity would have allowed the homeowner to recover attorneys’ fees only if the homeowner prevailed in a collection action brought by the contractor. Id. at 895-96. To allow the homeowner to recover attorneys’ fees in an action brought by the homeowner would be tantamount to re-writing the contract, which courts will not do. Id. at 896.
Other courts that have found that a party can limit the situations in which it (and opposing parties) are entitled to recover attorneys’ fees. See, e.g., Sacket v. Sacket, 115 So. 3d 1069, 1071-72 (Fla. 4th DCA 2013) (denying attorneys’ fees because the contract limited the recovery of attorneys’ fees to a default under the contract and the trial court did not find a default); Subway Restaurants, Inc. v. Thomas, 860 So. 2d 462, 463-64 (Fla. 4th DCA 2003) (denying attorneys’ fees because the contract included a provision limiting the recovery of attorneys’ fees for lawsuits to collect unpaid rents and the lawsuit did not seek to recover unpaid rents); Anderson Columbia Co., Inc. v. State, Department of Transp., 744 So. 2d 1206, 1207 (Fla. 1st DCA 1999) (denying attorneys’ fees because the contractual provision limited fees for bond actions and the lawsuit was not filed on the bond).
By drafting an attorneys’ fees provision in a way to limit entitlement to fees, a small business has the ability to limit its risk for being responsible for paying another party’s attorneys’ fees while allowing the small business to recover attorneys’ fees in certain situations. Thus, a small business may want to include a provision limiting its entitlement to attorneys’ fees to collection actions only, thereby limiting the small business’ potential exposure for paying the other party’s fees. However, in doing so, the small business will limit its ability to recover attorneys’ fees in other situations.
Conclusion
Including an attorneys’ fees provision in a small business contract is very important especially when the small business wants to enforce the contract. However, the small business should be aware of the pros and cons of including broad attorneys’ fees provisions and should perform a risk analysis to determine whether the small business wants to include a broad attorneys’ fees provision (such as a prevailing party fees provision) or a narrower attorneys’ fees provision (such as a provision limiting the recovery of attorneys’ fees to a collection action).
Part 4 of this Blog discusses the importance of contractual interest provisions in small business contracts.
Read other blogs from this series: