The cost of litigating contract disputes or other claims against a business, whether in court or in arbitration, can quickly skyrocket. While some states (like Texas) have laws that shift the legal fees in a contract dispute to the losing party, Massachusetts requires that each party pay its own way, with few exceptions. That is the “American Rule” and often comes as a surprise to plaintiffs seeking sue a business. It certainly is a surprise to foreign companies or individuals seeking to sue an American company, as they may be used to “loser pays” rules in their home countries.
There are a few exceptions to the American rule. The parties’ contract might provide that the losing party must pay the winning party’s legal (and arbitration) fees. However, to get the benefit of that fee shifting provision, the case has to go to trial and judgment. By that time, each side will have racked up a sizable bill – one that might not be justified by the amounts at stake. Alternatively, a lawyer might assert a claim under the Massachusetts Consumer or Businessman’s Protection Statute, commonly known as “93A,” one of the few statutes in Massachusetts that permits a party to recover its legal fees in a business dispute. But to recover under that statute, there has to be more than a simple breach of contract – there has to be unfair or deceptive business practices that “attain a level of rascality that would raise an eyebrow of someone inured to the rough and tumble of the world of commerce.” And, once again, the case would have to proceed all the way to trial before a plaintiff might recover its fees.
Most business disputes, like 95 percent of all civil cases, settle before trial. Obviously, a fee shifting provision in a contract can provide leverage in settlement, as can a good claim for unfair or deceptive practices. But parties have to be realistic about the likelihood of ever collecting their fees.
As importantly, lawyers need to be up front with their clients about the cost of filing a lawsuit and going all the way to trial.
Successfully negotiating a settlement always requires some flexibility. Understanding the cost of “winning,” including legal fees that have to be paid along the way, will help achieve an appropriate resolution, hopefully at the outset of the dispute.