Comments on: What Does “Prevailing Party” Mean?

By: Ken Adams

Ken Adams — Tue, 02 Feb 2010 22:46:49 +0000

Jeff: Thanks for that lead. I note that D.C. Toedt saw it too and posted this item about section 1717. Ken

By: jeff

jeff — Sat, 30 Jan 2010 05:23:36 +0000

In California, “prevailing party” has been defined in the Civil Code (1717) and the case law. I would not screw around with this one, at least for contracts governed by CA law.

http://law.onecle.com/california/civil/1717.html

By: Mike

Mike — Fri, 29 Jan 2010 17:16:37 +0000

I’ve thought about “loser pays” clauses in patent license agreements a lot. The scenarios in which there could be “two winners” abound. The simplest example is a licensee may breach a license by not paying a royalty, but “win” when the patent is held invalid or unenforceable. In that case, who pays what, when?

I also frequently see “loser pays” provisions coupled with arbitration or mediation. This seems particularly messy since ADR frequently results in split-the-baby decisions. Who would pay under the loser pays clause if the mediator/arbitrator gives each party a bit of something? Is that then also the subject of yet more ADR? One way to address this issue, of course, is to make the language permissive rather than mandatory, but that’s not nearly as comforting in a clear breach of contract, collection, or other enforcement type claim. It also leaves open the bias towards the current “each pays their own way” argument.

Defining prevailing party is a tough road to travel since the definition may need changing with each obligation/right added or amended. In those cases, each change creates another possibility for having “mixed” results. So you’d need to consider each change with respect to its impact on your definition of “prevailing party.”

In the end, I’ve really come down with Chris: more often than not, the “prevailing party” is apparent and getting attorneys’ fees is icing anyway. Delineating the possible “mixed” scenarios for most standard form agreements is a waste of energy. When the stakes are higher, it makes sense to at least recognize the time when the loser-pays clause may “fail,” and if the times that fail are significant, then those need to be addressed.

By: Chris Lemens

Chris Lemens — Thu, 28 Jan 2010 21:00:12 +0000

Ken:

This is actually something where I think the parties usually leave it vague on purpose, because figuring out all of the possible variations is too much work for a provision that will probably never be invoked. Now, if I was writing a merger agreement, I might take the time to at least run down the likely scenarios. But most disputes in commercial deals are simply about collection of a debt owing, which means prevailing party is usually pretty apparent. (Not, not always, but usually.) So I’m not going to add four lines (in half-page column) to thousands of agreements I sign every year to deal with a situation that is actually problematic for one deal every third year. I realize that page counts are not significant to the guys doing merger deals, but if my form service agreement goes to a sixth page, a significantly higher percent of our sales deals will go to the customer’s legal department.

Chris Lemens

By: Tony

Tony — Thu, 28 Jan 2010 20:25:02 +0000

If I’m not mistaken there is quite a bit of case law on the definition of a “prevailing party” in the intellectual property context. The copyright, trademark, and patent statutes all allow for the award of attorney fees in certain cases to the “prevailing party.”

If the term isn’t defined, I could see courts looking to this case law (and I’m sure other statutes have similar terminology). It’s also probably a good place to start in coming up with ideas for your definition.

By: Paul Comeaux

Paul Comeaux — Thu, 28 Jan 2010 19:20:38 +0000

I have this in an arbitration provision dealing with a cost audit. There may be better ways to address this issue, but at least this provision takes a stab (by calling the parties’ and auditor’s attention to the issue and letting the auditor decide):

The party that is not the prevailing party will pay all costs of the Qualified Auditor. “Prevailing party” means the party, if any, that the Qualified Auditor determines is “clearly the prevailing party.” If there is no prevailing party, each party will pay one-half of the cost of the Qualified Auditor.

By: Judith

Judith — Thu, 28 Jan 2010 19:09:22 +0000

I would submit that in a case like this, had the jury been aware of this definition of “prevailing party” they would have awarded $1 in damages, thereby triggering the definition of “prevailing party.” Sounds like that is something to make clear to the jury, rather than defining the term in even more detail.

By: Ken Adams

Ken Adams — Thu, 28 Jan 2010 15:59:30 +0000

D: Point taken, so I revised the post by adding “or even being more specific as to meaning” at the end of the penultimate sentence.

Referring to “breach” would be problematic, given that breach of an obligation is only one possible basis for a claim.

Ken

By: D Osborne

D Osborne — Thu, 28 Jan 2010 15:51:04 +0000

Not sure you need to make it another separate defined term, since it is probably used only in that one instance. Couldn’t one use something like: “…where the determinative issue in such action arises from a breach of certain terms of this agreement, the party judged to have breached such terms shall pay the reasonable attorney’s fees of the non-breaching party?” Probably needs work, but you get the idea.