We here at San Diego Corporate Law believe that, when possible, every San Diego business should use their business contracts to their advantage. That includes the use of attorneys’ fees clauses with teeth.

California Corporate Law: What is an Attorneys’ Fee Clause?

Many businesses know that litigation is expensive. Aside from attorneys’ billable hours, there are court and filing fees, costs of deposition transcripts, and often fees for various experts and consultants. A “simple” case can end up costing tens of thousands of dollars once all is said and done.

With regard to breach of contract cases, many businesses will try to ameliorate risks by including attorneys’ fees clauses in their contracts. A typical example reads like this:

Legal Fees. In the event that either Party commences mediation, arbitration, litigation, or any similar action to enforce or protect such Party’s rights under this Agreement, the prevailing Party in any such action shall be entitled to recover reasonable attorneys’ fees and litigation costs (including the costs of experts, evidence, and counsel) and other costs relating to such action, in addition to all other entitled relief, including damages and injunctive relief.”

It is a good attorneys’ fee clause, but it can be made better for your business. Note the words “prevailing party” and “reasonable.”

California Corporate Law: Giving Your Attorneys’ Fees Clause More Teeth

When an attorneys’ fee clause says “prevailing party,” that means that whoever wins the case will be able to ask the judge to order the losing party to pay all the litigation costs, including attorneys’ fees, for the winning party. The winning party files what is called a Petition for Attorneys’ Fees. Normally, parties to litigation pay their own litigation costs unless there is a statute or contractual provision that allows for one party to recover costs from the other.

There is no reason to take the risk that the other side will win and be able to recover their litigation costs. Your contracts should allow attorneys’ fees only if your San Diego business wins the lawsuit. Also, the word “reasonable” could be taken out. The language should be changed to this:

Legal Fees. In the event that either Party … if the COMPANY is the prevailing Party in any such action, then the COMPANY shall be entitled to recover attorneys’ fees and litigation costs …”

If the clause contains the word “reasonable” in front of “attorneys’ fees” then a court is entitled to make an evaluation of whether the fees are “reasonable.” That might lead to a court reducing the amount to be paid by the losing party in the litigation.

Contact San Diego Corporate Law Today

If you need help with any legal issues with respect to running your business, including issues related to business contracts and whether strong attorneys’ fee clauses are needed, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for businesses here in San Diego and surrounding communities including reviewing and drafting business contracts and all services related to business formations. Mr. Leonard can be reached at (858) 483-9200 or via email.

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