• A Trap for the Unwary: Recovery of Attorneys' Fees in a Transaction Gone Wrong
  • April 23, 2010
  • Law Firm: Waller Lansden Dortch & Davis, LLP - Nashville Office
  • Everyday, thousands of business entities, individuals and other parties enter into contracts, deeds of trust, or other legal documents. Unfortunately, a certain percentage of those contracts will be breached by one of the parties. When that happens, the non-breaching party has the option of filing a lawsuit against the party in breach for injunctive relief and monetary damages in order to put them back into the position that they would have been in but for the breach.

    The attorneys’ fees incurred in bringing the lawsuit against the breaching party are a separate issue, however. In some cases, attorneys’ fees are awarded to the prevailing party in a breach of contract lawsuit. But in other cases, they are not. As evidenced below, the choice of language in the contract is the key to this issue.

    For example, the following is a standard clause employed in many contracts created under Tennessee law. Pursuant to this clause, can a prevailing party in a breach of contract lawsuit recover attorneys’ fees?

    “In the event of any controversy, claim or action between the parties, arising from or related to this agreement, the prevailing party shall be entitled to receive from the other party all costs and expenses associated with the controversy, claim or action.”

    If you answered “no,” you were correct. According to the recent Tennessee Supreme Court decision of Cracker Barrel Old Country Store, et al. v. Epperson, et al., 284 S.W.3d 303 (Tenn. 2009), contractual provisions that provide for recovery of “all costs and expenses” do not create a right to recover attorneys’ fees unless such provisions “specifically and expressly articulate” that attorneys’ fees are recoverable. Thus, because the provision above doesn’t specifically recite that term “attorneys’ fees,” they are not covered within the clause of the contract.

    In Cracker Barrel, a real estate developer developed property in southern Nashville in 1980. The developer encumbered all of the parcels in the development with a series of covenants contained in a “Declaration.” The Declaration included covenants that both prevented adjoining property owners from negatively affecting the flow of traffic on each other’s property and allowed an adjoining property owner to seek injunctive or other equitable relief to prevent another property owner from violating covenants in the Declaration. The Declaration also provided that if one property owner in the development sued another for violating a provision of the Declaration, “[a]ll costs and expenses of [that] suit or proceeding shall be assessed against the defaulting party.”

    In 2005, family restaurant chain Cracker Barrel and Mr. Epperson owned adjoining properties in the development. These properties were encumbered by the covenants of the Declaration. Mr. Epperson submitted a proposal to the Nashville/Davidson County Metro Council to expand the building on his property, but Cracker Barrel objected, claiming that the proposed expansion violated certain provisions of the Declaration—in part because the proposed expansion adversely affected the flow of traffic through and out of Cracker Barrel’s parking lot. Cracker Barrel filed suit to prevent Mr. Epperson from expanding his building and, as part of that suit, sought its attorneys’ fees.

    The parties ultimately settled the underlying dispute but could not agree on whether Cracker Barrel was entitled to attorneys’ fees under the provision of the Declaration providing that “[a]ll costs and expenses of any suit or proceeding shall be assessed against the defaulting party.” Cracker Barrel filed a motion with the trial court to recover its attorneys’ fees pursuant to this provision, but the trial court denied the motion after finding that the provision did not provide for recovery of attorneys’ fees.

    A unanimous Tennessee Supreme Court upheld the decision. The Court found that the broad language “all costs and expenses,” without more, did not encompass attorneys’ fees. The Court held that, for a written agreement to allow for the recovery of attorneys’ fees, “the contractual language must specifically and expressly articulate” that it covers attorneys’ fees and “not merely provide for recovery of ‘costs and expenses.’” Because the Declaration only provided for the recovery of “costs and expenses” and did not use additional, explicit language, such as “including reasonable attorneys’ fees,” the Court determined that the provision did not encompass attorneys’ fees.

    There are some practical steps that all parties should consider taking in the wake of the Cracker Barrel decision. First, and most obvious, if contracting parties seek to have a provision allowing for the recovery of attorneys’ fees, the parties should use specific and express language that shows attorneys’ fees are covered. Make sure the words “attorneys’ fees” are in the provision.

    Second, it is important to periodically revisit form contracts. Remember, contracts are only enforceable to the extent a court enforces them. If the law changes over time or is “clarified,” you may need to change the language in form contracts to reflect the changes in the law. With form contracts, it is better to be proactive and periodically review them than to be reactive and later wish changes had been made. And third, a party may have contractual provisions providing for recovery of “costs and expenses” that will not cover attorneys’ fees in a lawsuit. If a contract with this broad, ineffective language is the subject of litigation, it is important to note this at the outset so that the party can appropriately value the risks of a case going forward.

    The Cracker Barrel decision may come as surprise to some, but with some proactive planning, parties can reduce or eliminate any negative impact from the decision.