Virginia Contract Law – Attorney’s Fees and Prevailing Party Language

Virginia Courts typically follow what is known as the “American Rule” with respect to whether or not a party will be awarded its fees and costs, including reasonable attorney fees, upon a successful outcome in litigation.   The “American Rule” dictates that each party is responsible for their own fees and costs for the litigation, regardless of the litigation’s outcome. The exception to this rule is that a party may be awarded their fees and costs, including reasonable attorney fees,  if such relief is (i) provided for by statute, (ii) for malicious conduct or bad faith, or (iii) specifically agreed to by the parties in a contract; however, the determination and award of those fees and costs is often within the discretion of the Court.

Litigation costs and attorney fees provisions are common boilerplate provisions added to most commercial contracts, especially given that protecting and enforcing your contractual rights can be particularly expensive.   In some cases, attorneys’ fees awarded by a Court may be more than the relief provided in the underlying claim(s).  As a result, it is important to understand how these provisions can be shaped and interpreted in a contract under Virginia law.

Let’s look at the following language common in a fee section of a contract for hypothetical purposes:

in the event of a dispute between the parties arising from or to enforce the Agreement, the prevailing party shall be entitled to recover its reasonable attorney’s fees.”

On the surface this seems fairly straight-forward the winner of the lawsuit has the opportunity for the Court to award it their reasonable attorney fees.

But, what does it mean to prevail?  In Virginia, “prevailing” simply means that the Court awarded a judgment in your favor, and this can lead to some unusual outcomes.

For the purposes of a second hypothetical, let’s assume you are suing a customer in a breach of contract claim for $50,000, specifically for non-payment.  Let’s assume further that the case goes all the way to trial, and the jury returns a verdict awarding you only $500 out of the $50,000 sought. Although, this may not feel like a win; technically, you have prevailed and could be entitled to recoup your costs and fees, including reasonable attorney’s fees.   In an effort to avoid these types of outcomes, some attorneys add language to a fee provision in a contract that reads that a prevailing party is only to be awarded fees if they are “substantially prevailing.”

Another issue that routinely arises in fee provisions is when the provision is drafted to unilaterally award attorney fees for one party, but not the other.  For example, sample language may read, “Company A is entitled to its reasonable attorney fees in any action to which it prevails in enforcing the Agreement.”

What happens if Company B prevails?  Is Company B entitled to its attorney fees if it prevails?    This can be a difficult and unexpected problem for many clients who did not read the contract carefully or pay attention to this provision.  Under Virginia contract law, this provision could be enforceable and may not be interpreted by the Court as a prevailing party provision.  The Supreme Court has not specifically addressed this issue; however, it is better to not have to go to Court to find out.

We strongly encourage anyone drafting or reviewing a contract to speak with an experienced and knowledgeable contract law attorney.  Although many of these terms may appear “boilerplate,” a skilled contract attorney can make alterations to the language that could have significant implications to your legal rights.

This Contract has errors and mistakes in it, is it still enforceable?

Clients routinely ask our Virginia Contract Lawyers if a poorly crafted document is enforceable, whether because of mistakes, errors, typos, or language that just does not make any sense.  The easiest answer here is, “maybe.”  However, “maybe” is not much assistance to anyone in this type of situation.  Whether or not a contract is enforceable can have significant consequences on the parties and people involved.  A skilled contract attorney can assist clients in navigating these issues and seeing that your legal rights are protected and enforced.

It would take  a review of the contract itself and likely a consultation in order for a contract attorney to properly and effectively determine and advise you in a contract enforceability situation.  With that being said, there are some guiding principles and understandings that can assist you in determining the severity of the issues pertaining to the enforceability of the contract. Understanding some of these items will assist you in providing your contract attorney with helpful information that can allow them to more efficiently assess the situation. 

             If the fundamental issue that you are concerned with is enforceability, then you are likely concerned that the very purpose for which the contract was drafted, or at the very least a provision of the contract, is in jeopardy.  You are either very happy about this, meaning you do not want the contract or that provision to be enforceable, or very upset about it, meaning you want to be able to enforce the contract or that provision of the contract. 

 The nature and extent of the error(s), poor language, or mistake(s) can make a big difference with regards to enforceability.  There is not necessarily a definitive line that would make the contract unenforceable, as it depends on the specific facts of the case and the terms and language of the contract.  For example, lack of clarity on the date of delivery of goods or services could be a small issue in one case or could be the very essence of the contract in another.  If it goes to the heart and core of the agreement and understanding of the agreement between the parties, then the problem may have a greater likelihood of leading to unenforceability of the contract as a whole. 

               Another major issue in contract enforceability is to consider is what was agreed to in a prior letter of intent or memorandum of understanding, if one even exists, which led to the contract being drafted.  Although you may not be able to utilize these in many cases where one party is trying to enforce the contract against another, they can be indicative of what the parties were trying to accomplish. 

        In addition to pre contract drafting considerations, another critical issue is whether or not the parties have begun to perform under the contract.  Some key items to consider are:

  • How substantial was the performance?
  • Did the performance completed thus far comply with the other terms in the contract?
  • If performance departed from the terms of the contract, did the non-performance have a legal excuse?   

              The analysis here can begin to become more complex and this is why understanding the facts of your particular case are critical to understanding the legal rights of the parties.  When working with a Virginia Contract Lawyer it is helpful to provide them with any and all facts that are relevant to understanding what the parties have done under the contract.  If you have questions regarding the enforceability of a contract in Virginia, it is strongly advised that you do not wait to contact legal counsel.