Caitlin Kicklighter | ConsensusDocs
When disputes on a construction project escalate to litigation, general contractors may find themselves entangled in a costly and time-consuming legal battle. One important concept to understand is contractual fee-shifting under a “prevailing party” provision, which can significantly impact damages recovered in litigation. The general rule, known as the “American Rule,” requires each party to pay its own legal costs, including attorney’s fees, expert witness expenses, and other court-related costs. This differs from other legal systems where the losing party typically pays the winning party’s fees. One exception to the American Rule is contractual fee-shifting, specifically through “prevailing party” provisions, which allows for the award of attorney’s fees and costs when explicitly provided for in a contract.
This article explores this exception to the American Rule, delves into the challenges posed by prevailing party provisions, and shares tips to consider for drafting these clauses to improve clarity and minimize uncertainty in the face of litigation.
The “Prevailing Party” Provision
“Prevailing party” provisions are often included in construction contracts and typically require the losing party in a dispute to pay the fees and costs of the prevailing party. These provisions can either deter claims by introducing financial risks for parties considering litigation, or they can encourage contractors to pursue litigation when they might otherwise view it as financially unsustainable for smaller claims. However, while the idea of prevailing party provisions appears straightforward, their practical application can often be complex and difficult to predict.
Challenges with the “Prevailing Party” Provision
Construction contracts often include “prevailing party” provisions. Ambiguous provisions may lead to additional litigation over their interpretation—specifically, whether one party has truly “prevailed.” ConsensusDocs 200 includes a “prevailing party” provision, which states:
“The costs of any binding dispute resolution procedures and reasonable attorneys’ fees shall be borne by the non-prevailing Party, as determined by the adjudicator of the dispute.”
This risk of additional litigation may be heightened in complex multi-party, multi-issue disputes, where determining “prevailing party” status can be difficult when parties win on some issues and lose on others.
Moreover, regardless of a case’s complexity, courts vary in how they determine the “prevailing party” across different jurisdictions. These different interpretations lead to a range of judicial outcomes and lack of uniformity in what constitutes a prevailing party. Consequently, there are various interpretations of what it means to be a prevailing party.
Defining “Prevailing Party”
According to Black’s Law Dictionary (a non-binding source of guidance for lawyers), the prevailing party is “a party in whose favor a judgment is rendered, regardless of the amount of damages awarded.”[1] In other words, even if the damages are minimal, the party who wins the judgment is still considered the prevailing party.
The U.S. Supreme Court has also offered some guidance on the issue, particularly for plaintiffs, stating that “plaintiffs may be considered ‘prevailing parties’ for attorney’s fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.”[2] But what constitutes a “significant issue” can be hard to define and determine.
While these definitions provide general principles to define prevailing party, interpretations can vary from state to state. Understanding how different jurisdictions define and apply the term “prevailing party” is essential, as these variations can affect the ability to recover attorney’s fees. For instance:
- In New York, courts define the prevailing party as the one who prevails on the central claims presented and receives substantial relief as a result, considering the overall scope of the litigation and what was achieved.[3]
- In Georgia, a party prevails “when actual relief on the merits materially alters the legal relationship between the parties by modifying the [second party’s] behavior in any way that directly benefits the [first party].”[4]
- In Florida, the prevailing party “test” is “whether the party succeeded on any significant issue in litigation, which achieves some of the benefit the parties sought in bringing suit.”[5]
For general contractors, understanding how courts in your state define and determine prevailing party status is important, particularly in complex disputes where victories are not always clear cut.
Drafting Prevailing Party Provisions
Given potential uncertainty surrounding prevailing party provisions, how can contractors better protect themselves when entering into construction contracts? Here are some options to consider:
Clearly Define Prevailing Party
One option is to provide a detailed definition of “prevailing party.” For example, you could specify that the prevailing party is “one who recovers at least 50% of the claim advanced.” By clearly defining the criteria for being a prevailing party, you can increase the potential to provide more predictability for the recovery of fees.
Address “Split” Decisions
Construction disputes often involve multiple claims, making it possible for both parties to win some and lose some. As a result, another option is to outline what happens if both parties win on different issues. For instance, the contract could specify that if both parties recover a threshold percentage of their claims, neither party will be considered the prevailing party for fee-shifting purposes.
Place Limitations on Fee-Shifting
Set practical limits on the prevailing party provision. One option is to cap the amount of attorney’s fees that can be awarded or restrict fee-shifting to specific types of disputes, such as breach of contract claims. Another option is to condition the recovery of fees on whether the prevailing party recovers more than a written settlement offer made before trial.
Consider Jurisdictional Variations
Be aware that different courts may interpret these provisions differently, especially if they are ambiguous. Some states apply a more rigid definition of “prevailing party,” while others make take a more flexible approach. It is important to draft these provisions with these variations in mind, particularly if you work in multiple states.
Know Your State’s Law
Although it might go without saying, understanding applicable law is important. Specifically, and as outlined above, knowing how courts (or statutes) in your state define “prevailing party” is important and can influence the enforceability of fee shifting provisions.
Conclusion
When properly drafted, prevailing party provisions can be a powerful tool for general contractors to mitigate litigation costs (or incur them!). Clarity is important; poorly drafted clauses can lead to disputes and additional expenses, defeating their purpose. By understanding court interpretations and incorporating best practices, general contractors can better protect themselves in litigation. In construction disputes, victory is rarely straightforward, but a well-drafted prevailing party provision can help you avoid the costs of someone else’s legal battle.
References
[1] Prevailing Party, Black’s Law Dictionary (12th ed. 2024).
[2] Hensley v. Eckerhart, 461 U.S. 424, 433 (1983).
[3] Chainani v. Lucchino, 94 A.D.3d 1492 (4th Dep’t 2012).
[4] Magnetic Resonance Plus v. Imaging Systems Int’l., 273 Ga. 525, 528 (2001).
[5] Mauriello v. Prop. Owners Ass’n of Lake Parker Estates, Inc., 337 So. 3d 484, 487 (Fla. 2d DCA 2022).
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.