One of the sad truths a business litigation lawyer must explain to their client is that sometimes the cost of going to court exceeds the amount of damages that can be recovered. This is true because in California, unless there is a special statute that allows the recovery of attorneys’ fees, those fees are not recoverable unless they are required by a written contract. This is one of the problems with an oral agreement; if a party breaches the agreement, the aggrieved party is not entitled to recover attorneys’ fees. Because of this rule, arguably the most important clause in a contract can be the attorney fee provision. This is the second installment of a multi-part blog that explains some of the more common provisions found in California agreements.
Unilateral Attorney Fee Clauses. In some states unilateral attorney fees provisions are permitted. An example of a unilateral attorney fee clause would be a clause that says if Company A has to sue Company B and prevails, Company B must pay Company A’s attorney fees. This leaves Company B with no attorney fees if it wins. In California unilateral attorney fee provisions are automatically construed to be reciprocal under Civil Code section 1717. Therefore, in the example above, Company A would still be allowed attorney fees even though the contract seemed to provide for attorneys’ fees only if company B won. Part 1 of this blog dealt with Choice of Law, Jurisdiction and Venue provisions. This is an excellent example of why choice of law provisions are critical. In California, unilateral attorney fee clauses are not allowed, in other states they are.