Attorney's fees: Try not to get caught in the trap
Here is an old post I dated for the Vail Daily. Let us begin with a hypothetical. You have a very successful gold-mining business with a partner, Terry Schmedlap, whom you have trusted for years. Then one day it becomes clear that the unscrupulous Mr. Schmedlap had been pocketing excess gold without reporting it to the company. In fact, your partner's alleged malfeasance over the years has enabled him to amount a mass fortune. In short, this guy needs to pay for what he has done, so you visit your local attorney to discuss possible causes of action. Despite the fact that you have an open and shut case, you suddenly learn that the cost of collecting will quickly eclipse any recovery you may have. Now, the honest partner is faced with that most particular problem of picking between pride and punishment. Put another way, what is the better business decision: Initiating a costly lawsuit to prove a point or let a known wrong go unpunished? To say the least, it is a tough decision. Many lawyers will candidly tell you that client pride paid their private school bills over the years.
You would not believe the number of potential clients who decide not to pursue a viable claim simply because the attorney's fees make being right too expensive. It often comes as a surprise to people when they learn that if they win a case in court, they cannot expect to recover their attorney fees. The rule in this country, it's called the "American rule," holds that a winner in a lawsuit (know as the "prevailing party") has to pay his or her own attorney fees. There are many reasonable explanations for the rule. Primarily, it discourages overzealous lawyers from running up fees when they are confident their client will win, and it encourages litigants to settle cases even when they are confident they will win. There are, however, many exceptions to the rule. First off, any well-written contract will provide that, in the event of litigation, the prevailing party will be entitled to recover attorney fees. This is a real "live and learn" lesson for most people, as an attorney's fees provision seems counter intuitive to most honest business owners who have never had the misfortune of being involved in protracted and painfully expensive litigation. Real estate contracts are a good example, as they generally provide for attorney's fees in the case of breach of contract.
Another time you can recover attorney's fees is if they are provided by statute. Currently, there are nearly 100 statutes in Colorado that provide that the prevailing party is entitled to recover attorney fees. Some notable examples are claims brought under the Colorado Consumer Protection Act, claims by owners against their homeowners association under the Colorado Common Interest Ownership Act (the acronym, CCIOA, is pronounced "Kiowa"), claims for back wages and claims brought under the Federal Fair Labor Standards. Under the wisdom of these laws, a claimant is encouraged to pursue a suit, as the attorney prosecuting the action will be incentivized to work as much as possibly needed.Turning back to our example of the devious Mr. Schmedlap, his gut-punched partner would have no problem collecting attorney's fees incurred in calling this wrongdoer to the mat. If one partner "steals" from another, then the plaintiff could have a cause for fraud and/or civil theft; both civil causes of action that carry attorney's fees upon an affirmative finding.
This gist of the story is do not let yourself get Schmendlapped! Relationships always change from inception to breakup. The same can be said for personal relationships, as well as business. For the same reason you would consider entering into a prenuptial agreement, you should never enter into a contract without being advised of what it will cost you to get out of it.