Introduction
When entering into a contract, it's essential to understand the various clauses that may be included. One such clause is the prevailing party clause, which can have significant implications in the event of a legal dispute. In this blog post, we'll explore the concept of the prevailing party clause, its location in contracts, its meaning, and what you need to be aware of when encountering this clause.
What is a Prevailing Party Clause?
A prevailing party clause is a provision in a contract that states that the losing party in a legal dispute arising from the contract will be responsible for paying the winning party's legal fees and costs. This clause is designed to discourage frivolous lawsuits and encourage parties to resolve disputes through alternative means, such as mediation or arbitration.
Where to Find a Prevailing Party Clause
Prevailing party clauses are typically found in the "Miscellaneous" or "General Provisions" section of a contract. This section often contains various clauses that address issues such as governing law, dispute resolution, and termination of the agreement. It's crucial to carefully review this section and understand the implications of each clause before signing the contract.
Defining the Term "Prevailing Party"
The term "prevailing party" is often defined within the contract itself. Generally, a party is considered to have prevailed if they obtain a favorable judgment or award from a court or arbitrator. However, the definition of "prevailing" can vary depending on the specific language used in the contract.
For example, some contracts may define the prevailing party as the one who obtains a judgment or award that is more favorable than any settlement offer made by the other party. Others may consider a party to have prevailed if they obtain any relief, even if it's not the full relief sought.
What Happens if a Lawsuit Settles? If a lawsuit settles before a judgment or award is issued, the question of who prevails can become more complicated. Some contracts may address this situation by stating that the party who receives a settlement payment is considered the prevailing party. Others may state that if a lawsuit settles, each party bears its own legal fees and costs.
Pros and Cons of Prevailing Party Clauses
Prevailing party clauses can be beneficial in some situations, as they may discourage frivolous lawsuits and encourage parties to resolve disputes through less costly means. However, these clauses can also have drawbacks. For example, they may discourage parties from bringing valid claims out of fear of having to pay the other party's legal fees if they lose.
Negotiating a Prevailing Party Clause
If you're presented with a contract that contains a prevailing party clause, it's essential to carefully consider whether the clause is appropriate for your situation. If you have concerns about the clause, you may want to negotiate with the other party to modify or remove it.
For example, you could propose that the clause be modified to state that the prevailing party is only entitled to recover reasonable legal fees and costs, rather than all fees and costs. Alternatively, you could propose that the clause be removed entirely and that each party bears its own legal fees and costs in the event of a dispute.
What if You Can't Negotiate the Clause? If the other party is unwilling to modify or remove the prevailing party clause, you'll need to weigh the risks and benefits of signing the contract as-is. If the potential benefits of the contract outweigh the risks associated with the prevailing party clause, it may be worth proceeding. However, if the risks are too high, it may be better to walk away from the deal.
SAMPLE PREVAILING PARTY CLAUSES
Sample 1
In the event of any dispute arising out of or relating to this agreement, including the breach, termination, enforcement, interpretation or validity thereof, the party that substantially prevails in such dispute shall be entitled to recover from the non-prevailing party all reasonable costs incurred, including staff time, court costs, attorneys' fees, and all other related expenses incurred in such dispute. The determination of who is the prevailing party and the amount that will be paid will be decided by the court or arbitrator that presides over the dispute. This clause is intended to be severable and shall survive the termination of this agreement.
Sample 2
In the event of any dispute arising out of or relating to this Agreement, including but not limited to its interpretation, performance, breach, or enforcement, the party that substantially prevails in such dispute, as determined by a court of competent jurisdiction or an agreed-upon arbitration panel, shall be entitled to recover from the non-prevailing party all reasonable costs, expenses, and attorney's fees incurred in connection with the dispute. For purposes of this clause, "substantially prevails" includes achieving any material aspect of the relief sought in any action, regardless of whether the relief involves a monetary award or an injunction for or against any action.
Conclusion
Prevailing party clauses can have significant implications in the event of a legal dispute arising from a contract. It's essential to understand what these clauses mean, where they're located in contracts, and what you need to be aware of when encountering them. By carefully considering the pros and cons of these clauses and negotiating their terms when appropriate, you can help protect your interests and minimize the risk of costly legal battles down the road.
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About Peter J. Lamont, Esq.
Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.
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As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals.
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