[Update: I offer my analysis of this issue in this 2011 post.]
Chadwick Busk of The Fine Print blog told me about this item on Lexology (free registration required) by Patrick T. Sharkey of Jackson Walker LLP. I hope Patrick doesn’t mind if I quote extensively from it:
A recent Texas Supreme Court decision highlights the importance of thoughtful drafting. In Intercontinental Group Partnership v. KP Home Lonestar L.P., 295 SW3rd 650 (Tex. 2009), the Texas Supreme Court addressed the simple question: What does “prevailing party” mean?
In the Intercontinental case, the contract contained the following attorney’s fees provision: “If either party named herein brings an action to enforce the terms of this Contract or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney’s fees to be paid by losing party as fixed by the Court.”
The term “prevailing party” was not defined in the contract.
KB Home sued Intercontinental for breach of contract and lost profits. The jury found that Intercontinental breached the contract, but the jury awarded zero dollars in damages. However, the jury did award KB Home $66,000.00 in attorney’s fees. In view of this trial result, both parties claimed to be the “prevailing party.”
The singular issue addressed by the Texas Supreme Court was summarized succinctly by the Court as follows: “When a contract mandates attorney’s fees to a “prevailing party,” the term undefined in the contract, has a party “prevailed” if the jury finds the other side violated the contract but awards no monetary damages?”
After an illuminating discourse on litigants’ entitlement to attorney’s fees and the ordinary meaning of the term “prevailing party,” the Texas Supreme Court ruled that, absent a contractual definition of “prevailing party,” a party must receive affirmative judicial relief to be considered a prevailing party. Inasmuch as KB Home recovered no monetary damages, the Court concluded that KB Home did not qualify as a “prevailing party.” Consequently, the award of $66,000.00 attorney’s fees to KB Home was reversed, and the Court rendered a judgment that KB Home take nothing.
Patrick closed by recommending that “prevailing party” be defined whenever it’s used in a contract. But as Chadwick suggested to me, it must be rare for a party to have the benefit of a favorable verdict but not be awarded even nominal damages. Given that the odds of such an outcome would seem remote, I’m not sure that guarding against it is worth another defined term, or even being more specific as to meaning. Any thoughts?
Another thought—what if a court’s holding is a mixed one?