With the cost of litigation today, the reality is that many claims, no matter how clear cut, may not be worth pursuing after comparing the cost of enforcing the claim to the potential recovery.

For example, say Company A desires to file a lawsuit against Company B for an undisputed $10,000 debt arising out of a business agreement. Depending upon how Company B decides to defend the action on the debt, Company A may be forced to spend nearly the full amount it is owed in order to enforce its claim - leaving a potential net recovery of $0. The fact that Company A will be forced to incur these non-recoverable costs in order to enforce its claim gives Company B considerable leverage in any settlement discussion (e.g. why shouldn't Company A take $5,000 from Company B when, even if successful, it may net $0).

However, there is a simple solution to Company A's problem - insert attorney's fee provisions in all of its contracts. A typical attorney's fee provision reads as follows: "In any action or proceeding arising out of or relating to this contract, the prevailing party shall be entitled to recover all costs, expenses and attorney fees incurred in connection with any such action or proceeding." If such a provision is included in a contract pursuant to which a claim arises, the opposing party will be obligated to reimburse all of the fees incurred by the prevailing party while enforcing its claim. To illustrate, in the above example, if Company A is forced to spend $6,000 to enforce its $10,000 claim, then it would be entitled to a total award of $16,000 against Company B. Further, the leverage is now with Company A with respect to settling the claim. Company B, knowing that it will be responsible for both the full amount of the debt and Company A's legal fees, will be forced to resolve the dispute quickly in order to avoid this result.

Often overlooked, attorney's fees provisions are a strong, and sometimes essential, tool used to enforce contractual rights. Contact the experienced attorneys at Navigato & Battin if you or your company has any questions regarding attorney's fees provisions or other aspects of contract law.