Table of contents
Prevailing-party attorneys’ fees
Some people view a prevailing-party allocation (sometimes called the loser-pays rule, or the everywhere-but-America rule) as fundamentally fair: If you lost a case, presumably you were responsible for the case having to be litigated, so you should pay the attorneys’ fees and expenses that you made the winner spend.
Big companies, however, sometimes regard legal fees in litigation as a cost of doing business — and once in a while, they might consciously want to use their superior financial strength as a litigation advantage over adversaries with fewer resources.
Attorneys’ fees for motion practice, etc.
Motion practice and other preliminary proceedings account for much of the expense of litigation. A contract drafter might want to include a clause allowing the parties to agree to a prevailing-party allocation not just for the final outcome, but for preliminary proceedings as well, in the interest of promoting reasonableness by litigants and their counsel.
Of course, there’s a potential problem with such a clause: If bad blood exists between the parties (and/or between their lawyers), the winner of every little motion is likely to demand to recover its attorneys’ fees for the motion. That would be a waste of resources for all concerned.
To discourage this, a motion-practice attorneys’ fees clause can require a showing of good cause. It can also make an award subject to the tribunal’s discretion.
American-rule attorneys’ fees clause
In many U.S. jurisdictions, there’d be no need for a clause stating that each party must pay its own attorneys’ fees, because that would be the default rule in any case.
In Texas, however, a party that successfully enforces a claim on an oral or written contract (but not a party that successfully defends against an enforcement action) is entitled to recover attorneys’ fees. See Tex. Civ. Prac. & Rem. Code § 38.001.
Consequently, if a party thinks it is more likely to be the defendant in a contract case than the plaintiff, that party might want to affirmatively include an American-rule, pay-your-own clause in the contract, in the hope of cutting off the plaintiff’s statutory right of recovery in such a jurisdiction.