Q. I have a strong legal claim against a business competitor, but I am concerned about the cost of litigation. Assuming I prevail, will I be able to recover my legal fees?
A. Although it depends on the particular factual circumstances, generally speaking, legal fees are not recoverable in the majority of litigation proceedings. The rule that the prevailing party does not recover its legal fees is often referred to as the “American Rule.” The rationale is that parties should not be discouraged from seeking judicial recourse because they fear having to pay the opposing party’s legal fees if they were to lose. It is true that the prevailing party normally is awarded its “costs” in litigation, but costs refer to such expenses as filing fees, stenographer expenses, and usually such costs are much less than attorney’s fees.
Like with most rules, however, the so-called American Rule has its exceptions. Various federal and state statutes expressly provide that the prevailing party shall or may recover its legal fees. For example, New Hampshire’s Consumer Protection Act provides that if a business is found liable for an unfair or deceptive practice, the plaintiff shall be awarded his or her reasonable attorney’s fees.
Likewise, in patent or copyright infringement litigation, parties found liable for willful infringement can be ordered to pay attorney’s fees to the patent or copyright owner. Most courts also have the discretion to order one party to pay the other side’s attorney’s fees for having to defend completely frivolous or meritless litigation, although courts typically are willing to do so only in the most egregious cases.
Furthermore, parties entering into a private contract can include language in the contract providing that the prevailing party in any litigation arising out of the contract is entitled to recover its attorney’s fees. Such a provision can serve as a meaningful deterrent to litigation, and parties negotiating contracts may consider these provisions to encourage negotiation and settlement rather than litigation.
In sum, attorney’s fees should always be a significant consideration when parties are contemplating bringing a lawsuit, and plaintiffs should weigh the likely recovery versus the anticipated attorney’s fees. Likewise, defendants to litigation should weigh the anticipated fees to defend the litigation as compared to a negotiated settlement amount.