The “American Rule” on attorneys’ fees is that each party pays its own lawyers, even if you win. As with almost any rule, there are exceptions. Sometimes there is a statute that requires the losing party to pay the prevailing party’s fees. For example, many states have enacted Prompt Pay laws that include a fee-shifting provision which applies to construction contracts. Sometimes contracting parties agree to include such a provision in their contract. Those provisions generally say that if there is a dispute, the parties agree that the loser pays the winner’s fees.
Other times, there is no statute or contract provision on point, so clever lawyers may resort to more creative arguments to try and stick the other side with their client’s fees. Such was the case earlier this month in Menard v. DiPaolo Industrial Development, 2023 WL 2854291 (Ohio Ct. App., April 10, 2023). That case involved a dispute between two contracting parties: an owner and demolition contractor. The owner prevailed at trial and was awarded $274,000, including $180,000 for attorney fees. Although the contract between the parties did not have a fee-shifting provision, it did include an indemnity clause that was arguably broad enough to require the contractor to pay the owner’s fees. That clause required the contractor to indemnify the owner “from any and all liability, damages, expenses, claims, damages, actions or cause of action, including attorney fees, arising out of the performance of the Contract Documents, Agreements, and/or Work hereunder.” It also specified the owner’s rights if the contractor failed to step in and defend against an indemnified claim.
The trial court relied upon this clause in awarding attorney fees to the owner, who prevailed on the underlying claims. In reversing the trial court’s award of fees, the appellate court applied the normal rules of contract interpretation to conclude that, taken as a whole, the indemnity clause only applied to claims brought by third parties. The indemnity clause did not apply to or allow for fee-shifting in disputes between the contracting parties. This means the owner will recover less than $100,000 and is stuck paying its own attorney fees of $180,000. Application of the American Rule therefore means the owner in this particular case will have a negative net recovery despite being the prevailing party.