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Rich man, Poor man, Businessman, Grief; A Primer on the Costs of Litigation

The first rule of litigation is that when a rich man goes to court against a poor man, only one thing can happen. The rich man will lose. He might not lose the lawsuit, but generally he will pay his lawyer. He may get a judgment against the other guy, and the poor man may even be instructed to pay the rich man’s lawyer. But a man with no assets will pay no legal fees, and he can’t even be made to pay a judgment.

That parable, if that’s what it is, brings to mind the need for litigants to talk about legal fees and who pays them. I am asked by every client, “If we win this, can we get our legal fees paid?” The answer to that, by common and Florida law, is “no.”

Florida, and every state in this country, follows what is known as the “American Rule.” That rule is a common law axiom that says that every person in the courtroom should pay his own legal fee. Every person in business needs to know that rule, and that there are very broad exceptions.

The most common exception is that an agreement between parties can provide otherwise. That’s the reason if you sign a promissory note at the bank you will find an attorney fee provision in that note. It’s the reason when you sign a real estate contract there is a provision that says that one who breaches the contract must pay legal fees to the other. Most people in business understand the rationale. Every person who signs a contract, promissory note, or other agreement needs a motive to perform exactly as the agreement says. Paying the other guy’s legal fees is a sizable penalty for breaking a contract, even if there were no other damages.

The second large exception to the American Rule is that any statute that is remedial or regulatory in nature will normally carry with it a legal fee to a prevailing party. Remedial statutes include all civil rights matters, fair labor standards acts, unfair competition, construction lien claims, HOA and condominium disputes, and in a little different way, even divorce cases. Any lawsuit against an insurance company will pay legal fees to the winner, by statute.

But lawyers know this legal fee knife cuts on both sides. The law says that there is no unilateral duty to pay legal fees. All contracts and most statutes that require a loser to pay legal fees are reciprocal, by law. Therefore, a good lawyer knows to be careful with that term in a contract, because a requirement for a person with no money to pay legal fees, damages, or anything else, is not likely to be of any value if the person cannot be made to pay a judgment entered against him. For instance, if a tenant breaches a lease with a legal-fee clause, unless the tenant has means, the only thing that can happen to the landlord is bad. If a court should find the landlord in breach, he will pay his tenant’s judgment and legal fees. But if the tenant breaches the rental agreement he often can’t be made to pay even the damages.

As a result, a legal fee agreement against someone who cannot pay is worse than a waste of time. It’s also a risk, since the agreement is by law reciprocal, but the ability to pay the judgment is not. As an example, if I had a case against a person living in a dumpster, my legal fee agreement and my judgment are likely worthless. Separate and apart from the question of whether I will win the lawsuit, I will never recover damages or legal fees.

There are a couple of other minor exceptions to the American Rule, and creative lawyers will look for ways to help their clients recover fees the client must pay. Nonetheless, whether the American Rule applies, or one of the many exceptions to the Rule, the axiom with which we started this article will always be true. If a rich man goes to court with a poor man, only one outcome is possible for the person with assets. He will lose, and he will lose even more if he loses the lawsuit. That’s the reason experienced businesses pay lots of money to stay out of court.

The next article will address how an owner could pay twice for a home remodeling contract, and how a builder, if he doesn’t understand the construction lien law, might not get paid at all.