It has long been understood in Tennessee that in order to recover attorney’s fees in an action for breach of contract that the contract to be enforced must specifically provide for the recovery of attorney’s fees in the event of an action to enforce the contract (absent some applicable statute providing for attorney’s fees in certain instances). However, in Nyrstar Tennessee Mines-Strawberry Plains, LLC v. Claiborne Hauling, LLC, No. E2017-00155-COA-R3-CV, 2017 Tenn. App. LEXIS 776 (Tenn. Ct. App. Nov. 29, 2017), the Tennessee Court of Appeals recently reinforced the requirement that such provisions must be specific in allowing for the recovery of “attorney fees” and not simply “costs,” “expenses” or even “legal expenses.” A copy of this decision can be found here.
In Nyrstar, the plaintiff prevailed at trial on its breach of contract action against the defendant. The trial court awarded the plaintiff $116,073.43 in damages. After winning the substantive issue, the plaintiff sought attorney’s fees of $106,779.50 and expenses of $2,982.12, pursuant to the contract. The specific language of the contract was as follows:
The Customer [defendant] must pay Nyrstar [plaintiff] all costs and expenses incurred by Nyrstar in connection with enforcing its rights against the Customer under an Agreement including legal expenses and other costs incurred in recovering monies owed by the Customer to Nyrstar.
The trial court awarded the plaintiff its expenses, but refused to award the plaintiff its attorney’s fees, despite the contract language providing for the recovery of “legal expenses.” The trial court stated:
[t]he plaintiff Nyrstar’s language does not use the term “fees.” It uses “expenses,” which has been found to be inadequate. Merely providing for the “recovery of ‘costs and expenses’” is insufficient to reach a contractual right to recover attorney’s fees.
The Tennessee Court of Appeals upheld this decision. The Court explained that Tennessee has “’long adhered to the American rule, concluding that an award of attorney’s fees as part of the prevailing party’s damages is contrary to public policy.’” In order to recover attorney’s fees, absent a statutory right or other special recognized exception, the contract must create a right to recover attorney’s fees. However, the Court explained that Tennessee courts have consistently required that such a provision specifically provided for the recovery of “fees,” and not merely “costs” or “expenses.” Even if a provision provides for the recovery of “legal expenses” or “costs and expenses of any suit or proceeding,” the right to recover attorney’s fees is not created because the provision does not specifically implicate “fees” as part of the recovery. The Court stated that, “[t]he phrases ‘reasonable attorney’s fees’ and ‘legal expenses’ are mutually exclusive.” The Court also discussed other examples where attorney’s fees were awarded based on provisions that contained the specific term “fees,” even if the provisions were drafted as contemplating “legal fees” or “fees incurred” during litigation, and not necessarily “attorney’s fees.”
So, clear holding of this decision is that in order for a contract to sufficiently create the right to recover attorney’s fees in the event of enforcement of the contract, the contract must specifically include the term “fees” in connection with the amounts to be recoverable in the event of litigation, and not simply “costs” or “expenses.”
This decision is a reminder to participants in the Tennessee construction industry that careful drafting of contracts is important. Paying attention to the details on the front end can mean the difference between a successful enforcement of the contract at a later date, despite how reasonable and/or obvious the provisions selected may seem.