how to avoid paying attorneys’ fees

Part I: Exceptions to the american rule

By: Israel Klein

One of the most frequently asked questions I receive from my clients amidst active litigation is whether they will be able to recover their attorneys’ fees if they prevail in court. This is unsurprising as the cost to litigate a dispute can be substantial, often exceeding $100,000 if a case is prosecuted through trial and further increasing if appellate practice is required.

Unfortunately, the default rule in the United States is that attorneys’ fees are not recoverable unless otherwise expressly provided for by court rule or statue (such as under Section 198 of the New York Labor Law, which provides that employers who fail to properly compensate their employees are liable to pay their employees’ attorneys’ fees incurred in collecting their unpaid wages). However, with the proper planning, businesses can easily override this default rule.

In this multi-series article, we will discuss the different steps businesses should take to ensure that their attorneys’ fees are recoverable if they prevail in litigation.

The United States subscribes to the American Rule, which provides that “a prevailing party in litigation generally may not recover attorney’s fees from the losing party.” Sage Systems, Inc. v. Liss, 39 N.Y.3d 27, 29 (2022) (citation omitted). The purpose of this rule is to “increase free access to the courts for those who would otherwise be discouraged from seeking judicial redress of wrongs for fear of having to pay a defendant’s attorney’s fees.” Id. at 31 (quotation marks and citation omitted).

This is contrary to the English Rule employed in Europe, which “permits recovery [of attorneys’ fees] by the winning party.” Id. at n. 4. The purpose of the English Rule is to “prevent[] prevailing parties from carrying the financial burden of their legal fees and is intended to discourage wasteful litigation and induce more settlements.” Id. (quotation marks and citation omitted).

However, in addition to its statutory and regulatory exceptions, the American Rule can be overridden by expressly providing for the recovery of attorneys’ fees in a contract. Therefore, it is imperative that business owners review their standard form contracts to ensure that they include an attorneys’ fees provision.

The importance of an attorneys’ fees provision cannot be overstated. By eliminating significant litigation costs, attorneys’ fees provisions enable businesses to pursue both significant claims they would otherwise be unable or unwilling to fund, as well as minor claims that would otherwise be foreclosed by a negative return. No longer would a business need to abandon a $20,000 claim that may cost $30,000 to litigate. Attorneys’ fees provisions can also protect businesses by deterring others from filing claims. Individuals will think twice before initiating litigation if they will be required to pay the other party’s legal fees if their claim is denied.

A word of caution—not all attorneys’ fees provisions are created equally. In Part II of this multi-series article, we will discuss several considerations as to the particular language used when drafting an attorneys’ fees provision. The specific wording of an attorneys’ fees provision can have dramatic consequences as to its enforceability and the protections afforded. An experienced attorney must be consulted to avoid potential pitfalls and undesired consequences.

Israel Klein is an attorney with Pardalis & Nohavicka, LLP. Mr. Klein is an experienced commercial and class action litigator, representing domestic and international businesses and individuals in legal matters throughout the United States and abroad. Mr. Klein is regularly quoted by the media, including Fox News and the New York Post, and has lectured for the New York State Bar Association. Mr. Klein has been selected to the Super Lawyers Metro New York Rising Stars List in 2018-2025. Contact Mr. Klein today for a free consultation at 718-635-0957, [email protected], 950 Third Avenue, New York, NY 10022.