Legal Fees in U.S. Business Disputes: Does the Loser Pay?

American Rule

The general rule in the United States, known as the American Rule, is that each party pays its own legal fees and court costs unless an applicable statute (law) or contract provides otherwise.

Some states have enacted fee-shifting statutes awarding litigation costs to a prevailing party. With this said, the general rule is the American Rule which dates back to 1796.

European Rule

The foregoing is contrary to the legal principles in much of western Europe, the principal generally referred to as the English Rule or European Rule, which provides that losing parties shall pay prevailing parties litigation fees in disputes (particularly in breach of contract contexts).

The legal fees to be covered by a losing party are typically required to be “reasonable;” however, courts in different countries can interpret reasonableness differently.

Adding Contract Language

If a foreign company is contracting with a U.S. company and desires to have the losing party in a dispute cover the prevailing party’s legal fees—it is advisable to explicitly include such language in the contract. As a matter of fact, for many foreign companies—the decision of whether to bring a legal action against a U.S. counterparty may hinge on this very issue of having legal fees covered if winning.

The language that is often introduced into contracts to shift payment of legal fees to the losing party is something to the effect of:
“In the event that any suit or action is instituted in relation to this Agreement, the losing party shall pay the prevailing party’s reasonable attorneys’ fees, accounting fees, court, and appellate costs incurred in connection therewith.”

We hope this article has provided you with a better understanding of the commonly encountered issue of how litigation fees are handled in U.S. courts.  At Synch, our mission is to simplify our clients business / legal needs whether domestic or international.

Gary Guttenberg