“'Successful Party' fee-shifting provision does not authorize recovery of fees in absence of a judgment"

In Indiana, in the absence of a statute or contractual provision authorizing an award of attorney's fees, the parties are expected to bear their own legal costs. As a result, many construction contracts include a fee-shifting provision which may provide, for example, that: "If either party sues the other to collect damages arising out of a breach of this agreement, the successful party shall be entitled to the recovery of its reasonable costs and attorney fees." Because so many cases are ultimately resolved through informal settlement negotiations or at mediation however, one issue that may arise as the parties discuss and finalize settlement is whether the party recovering compensation from the other is a "successful party", such that it would also be entitled to the recovery of its attorney's fees. The Indiana Court of Appeals recently resolved this issue in Delgado v. Broyles, where the purchasers of a parcel of property reached a settlement with the seller prior to trial and then sought an order from the court for the recovery of their attorney's fees on the basis that they were "successful." In such a case, the court determined that recovery of attorney's fees is improper.

The court found guidance in Indiana precedent defining the term "prevailing party" in a similar context. Specifically, the Indiana Supreme Court recently held in Reuille v. EE Brandenburger Const., 888 N.E.2d 770 (Ind. 2008) that in the absence of further definition, a party recovering damages at mediation was not a "prevailing party" entitled to the recovery of its attorney's fees; rather the recovery must be made in the form of a judgment. Although the decisions in Delgado and Reuille were both resolved with a determination of no entitlement to the recovery of fees, both cases left the door open for recovery if the contract includes a definition of what the parties mean by "successful party" or "prevailing party". The standard form contracts that include such fee-shifting clauses, and which are commonly used by owners and general contractors alike, frequently allow for the recovery of attorney's fees "as part of any judgment." Indeed, this was the case in both Delgado and Reuille. Because there had been no "judgment" in favor of the party seeking fees, there was no right to fees. However, creative contract drafting to include an explicit definition of "successful" or "prevailing" as contemplating recovery if compensation is received from the other party by any means (i.e., settlement, mediation, judgment, etc.) would leave open the possibility for the recovery of fees. Of course the contractor seeking to incorporate such language must be wary that this right would also exist for the other contracting party if they recover via settlement.

Posted by: Brian M. Falcon

Categories: Claims / Dispute Resolution, Construction Contracts, Current Developments / Legislation, Federal and State Procurement / Bid Disputes