The Cost of Default: Tips for Avoiding Buying the Other Lawyer a Mansion

Hi All... Happy Saturday.  I've been working on assisting a client in a lawsuit, who is currently facing a Fee Petition based upon a default in a mortgage.  Now, without getting into the particulars about the client, the case or the firms involved, let's just say that the petition alone is nearly 4 inches thick with listing and journal entries of legal fees and costs, that are being claimed by the other side.  My job in this matter, is to assist in getting as much time as possible as well as reducing my client's costs.  It's quite a task.  I'd like to share some News You Can Use, on avoiding paying legal fees, and in contracting so that in the event of a lawsuit, you can skip altogether, having to face a petition like this - as they can be daunting (not to mention, they can double the damages, easily).

First, in most states, the "general rule" is that each side pays their own costs for lawyers.  However there is a HUGE general exception to that rule, which is that where there is a contract provision that covers fees, or a statute/law in place that mentions fees, then one party can recover legal costs from the other.  That can translate into humongoid / ginormous fees, if such a petition is won.  As such, it's hugely important that in any industry, and when contracting over ANYTHING, that parties understand (and when I say "parties" what I mean is YOU!!) that every contract should mention fees, but it needs to shift them away from you in the event of a loss.  For example, if you are a landlord in a lease (it doesn't matter if it's commercial or residential), then the tenant should bear costs of enforcement or legal action.   That way, recovery does not depend on whether the eviction is successful, and "enforcement" and "legal action" can be broadly defined.  Likewise, if you have two construction companies, say, like one general contractor suing a subcontractor for work (or even the other way around), each company should be examining how, in the event of a legal issue like a disagreement about payment or performance under the contract(s), how can the wording be tweaked to shift the fees to the other side.  Usually the best way to do this is to have a "prevailing party" provision, so that each side bears the risk of losing the case, and the winner gets to recover his fees paid.  This provision could be limited further by using language such as "prevailing in establishing a contractual breach of this contract" or "prevailing in any cause of action except negligence" or "prevailing to be defined as a judicial determination that one party is more than 50% responsible...".

What I'm trying to say is... the parties to any kind of contract should really review the language and try to find not only common ground, but a mechanism to evaluate risk up front, and to deal with the heavy costs associated.  It does not have to be long, but the language should cover the risk and apportion it.

Next, when I talk about fees, another important thing to understand, is that large law firms, and indeed, even small firms, charge ALOT.  In my particular case, the lawyers at "Big Law" are charging $570 an hour in some cases, and they are charging $.18 for each piece of paper printed.  Their paralegals are being billed out at $285 an hour, and that has translated into a claim for fees of nearly $1M.  Those are big numbers.  While every state has its own method of dealing with claims like these, let me tell you that where the contract in court has a provision that allows fees, where the petition is done correctly, the judge awards them.  Thus, in big cases, or even small cases that take a really long time, the money is big.  We don't want lawyers to be getting mansions on your dime now do we?  (Well... mansions are nice, but I like mine earned fairly).  Here, what John Q. Public needs to understand is that you can't control the cost of the other side's lawyer in a dispute.  As such, if you as an individual or through your company hire counsel and try to be cost conscious, that's great, but it may not help you if you are sued or suing and the other side wins.  Then, you John Q. Individual or John Q. Company, Inc., may be paying up BIG-TIME if a judge rules against you.

That is exactly why in contracting, whether over hiring a carpet cleaning company, construction, leasing, and hiring/employment contexts, among others (and anything, really), the parties to contracts should carefully read the contract and be sure of what it says.  Hiring counsel to review is also a great idea, and it doesn't cost that much.  A good lawyer will charge for an hour or two of time just to read and comment.  It would be more to negotiate, but certainly counsel can be hired to peruse, comment and suggest - all things that help at the contracting stage.  It helps if you have a lawyer on hand, but relationships can be groomed at nearly any stage.

Your Tip:  Be Savvy and Proactive.  It helps.  It keeps costs down.  It reduces risk (or keeps you in the KNOW about your risk if it cannot be shifted).

All in all, read people.  READ!!  

Have a great weekend and look for more as usual.