A recent Court of Appeals opinion, B. Investment LC v. Anderson, 2012 UT App 24, provides a good reminder that under Utah law, the way an attorneys fees provision is drafted matters. Specifically, there is a line of Utah case law which draws an important distinction between fee provisions which impose fees and costs against an “unsuccessful party” as opposed to a “defaulting party.” Continue reading the expanded entry for a brief explanation of the distinction. If you have thoughts favoring one approach over the other when drafting certain contracts please share.
In Anderson the plaintiffs were a group of condo owners who brought suit against a group of lot owners within the same development plat regarding the ownership of certain common area property within the plat. The result turned in large part on competing interpretations of the plat and related declaration. The plat’s declaration provided that a unit owner would be liable for attorney fees and costs arising from any failure to comply with the provisions of the declaration (i.e. “defaulting party”). Ultimately, the condo owners were unsuccessful and the defendant lot owners requested fees based on the declaration. The trial court and Court of Appeals both denied the fee request because the language of the fee provision only provided for an award of fees when there was a violation of the agreement and the lot owners did not demonstrate that the condo owners violated any provision of the declaration by bringing the suit or otherwise. In other words, regardless of who prevailed on the agreement, if under the final interpretation neither party was in default, there could be no award of attorney fees and costs. In that respect, the “defaulting party” attorney fee provision is narrower than an “unsuccessful party” provision.
However, while the “defaulting party” standard narrows a fee provision to violation of an agreement (as opposed to competing interpretations), the standard is much broader when it comes to damages. Under Utah case law, the ultimate amount of damages awarded in a suit relative to what was claimed may determine whether a party “prevailed,” but has nothing to do with whether or not the party defaulted. For example, in Foote v. Clark, 962 P.2d 52 (Utah 1998), the plaintiff was able to prove that the defendant breached a real estate purchase agreement by selling the property to someone else, but was not able to prove any damages. Nevertheless, the trial court and Court of Appeals both ruled the plaintiff was entitled to his reasonable attorney fees and costs based on the REPC’s attorney fee provision which obligated a “defaulting party” to pay those amounts. The court specifically noted that while nominal damages may not sustain a fee award against an unsuccessful party, it would sustain an award against a defaulting party. Thoughts?