Providing for the Recovery of Legal “Fees on Fees”
The ability of a party to recover the legal fees and expenses that they incur in connection with a lawsuit can often dramatically change settlement negotiations, the legal strategies a party takes prosecuting a lawsuit, the amount of resources that a party is willing to invest in a lawsuit, and – ultimately – the outcome of a case.
While it is customary for many parties and practitioners to include legal fee provisions in their contracts, many of these contracts fail to include provisions for the recovery of what is known as “fees on fees,” or the legal fees incurred recovering a party’s legal fees.
Legal fees are only recoverable in a lawsuit where they are based on a statute or a contractual provision.
However, in New York, contractual legal fee provisions are strictly construed. Parties to a contract are often surprised that their legal fee provisions cannot make them whole; and that they will have to forego recovering thousands of dollars (or considerably more) proving their entitlement to legal fees as well as the reasonable amount of such fees.
In some contexts, a breach may be cured or rendered moot only after a party incurs legal expenses commencing a lawsuit, leaving only the issue of legal fees to be litigated. In such instances, a party must still prove their entire case in order to recover legal fees, the cost of which will be deemed “fees on fees” – and will not be recoverable unless the party’s contract (or by-laws) contains a “fees on fees” provision.
Recently, more courts are awarding “fees on fees” in connection with legal fee awards that are based on statutory law, such as New York State law providing for sanctions in the form of legal fees based on frivolous conduct. These decisions are reminders that “fees on fees” can and will be awarded, but only in very limited contexts.
Make sure there is clear and unmistakable language in your legal fee provisions.
Since legal fee provisions are strictly construed, contractual legal fee provisions will not be sufficient to support an award of “fees on fees” unless:
- The contract expressly provides for fees on fees; and
- Such language is “unmistakably clear.”
While there is no requirement that legal fee provisions use the term “fees on fees,” there must be explicit language providing for the recovery of legal fees and expenses, as well as the legal fees and expenses incurred recovering such fees and expenses.
To avoid surprises when invoking a legal fee provision during a lawsuit, parties should not assume they will be able to recover all of the legal fees incurred enforcing their contracts (as well as by-laws) without ensuring, among other things, that there is clear and unmistakable language in their legal fee provisions providing for the recovery of “fees on fees.”