Attorneys' Fees in Business Contracts: New Statute Makes Attorneys' Fees Provisions in Business Contracts Enforceable
In North Carolina, the general rule is that a prevailing party cannot recover attorney's fees unless there is a statute that says otherwise. Many people do not realize that this has been the rule even for breach of contract claims in which the contract itself called for the award of attorney's fees. As the North Carolina Supreme Court held in a 1980 commercial equipment lease case,
[e]ven in the face of a carefully drafted contractual provision indemnifying a party for such attorneys' fees as may be necessitated by a successful action on the contract itself, our courts have consistently refused to sustain such an award absent statutory authority therefor.
New North Carolina Statute Allows Certain, Limited Attorneys' Fees in Business Contracts
On June 27, 2011, the North Carolina Governor signed into law N.C. Gen. Stat. §6-21.6, which makes valid and enforceable certain attorneys' fees provisions in business contracts entered into on or after October 1, 2011.
The new statute only makes attorneys' fees valid and enforceable if
- the contract is a business contract, as opposed to a consumer or employment contract or a contract with a government or governmental agency of the State;
- the attorneys' fees are reciprocal and applicable to all parties; and
- all parties sign the business contract by hand.
The statute permits the court or arbitrator to award reasonable attorneys' fees based on a non-exclusive list of relevant facts and circumstances. Included in that list is,
(7) Offers of judgment pursuant to Rule 68 of the North Carolina Rules of Civil Procedure and whether judgment finally obtained was more favorable than such offers.
But the statute also says (twice) that the attorneys' fee award “may not exceed the monetary damages awarded.” The statute has many other terms and two other exceptions. You can read the full statute here.
N.C. Gen. Stat. §6-21.6 only applies to Business Contracts
It is important to note that this new statute only applies to business contracts. The statute defines “business contract” as
[a] contract entered into primarily for business or commercial purposes. The term does not include a consumer contract, an employment contract, or a contract to which a government or a governmental agency of this State is a party.
N.C. Gen. Stat. §6-21.6 also states that it does not apply to contracts of insurance governed by Chapter 58 of the North Carolina General Statutes. So, for those contracts to which this new statute does not apply, North Carolina law still will not allow the recovery of attorneys' fees even if parties have entered into a contract that provides for them, unless there is some other statutory basis.
Other Statutory Authority Does Exist for Particular Claims
There are other, long-standing statutes that authorize the award of reasonable attorneys' fees under certain circumstances. For example, in breach of contract cases over “any note, conditional sale contract or other evidence of indebtedness”, N.C. Gen. Stat. §6-21.2 permits the Court to award attorney's fees pursuant to the specific requirements of the statute. Another example is the pair of North Carolina eminent domain statutes that permit reasonable attorneys fees in inverse condemnation cases. Finally, the North Carolina Supreme Court had previously carved out an exception to the general rule for actions brought to enforce a marital separation agreement that provides for attorneys' fees. The new statute governs business contracts and does not specifically address that judicially created exception.
You may have a dispute with another business entity, in which attorneys' fees are at issue. For potential clients with business disputes, we offer an initial consultation. To set up an appointment to discuss your business litigation matter, please click the Contact Us button and call or email us.