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June 16, 2023

BUSINESS LAW:  The Power of Prevailing Attorneys Fee Provisions in Business Contracts 

BUSINESS LAW:  The Power of Prevailing Attorneys Fee Provisions in Business Contracts

In the complex world of business minimizing risk is paramount. One highly effective tool in the pursuit of success is the inclusion of prevailing attorneys fees, clauses in contracts. These provisions can provide tremendous advantages to business owners, but they also come with potential pitfalls.

Here are some tips to navigate this legal terrain successfully:

Shifting the financial burden:

Including prevailing attorneys fees provisions in business contracts can be a game changer for business owners, as it provides a strategic advantage in the event of a dispute. Normally each party bears it's own attorneys, fees, and litigation costs. However, when the prevailing attorneys fees provision is present the prevailing party in the litigation can recover their attorneys fees, and expenses from the losing party, this empowers business owners, by shifting the financial burden onto the party responsible for breaching the contract. It also incentivizes compliance and discourages frivolous litigation.

Leveling the playing field:

In the nearest year business transactions imbalances in bargaining power are not uncommon. Small business owners, or startups, often find themselves at a disadvantage when dealing with larger more established companies, including prevailing attorneys fees provisions helps level the playing field by providing a financial deterrent to potential wrongdoers.  Knowing that they may be held liable for the other parties, attorneys fees, in the event of a dispute can dissuade unscrupulous behavior and promote good faith dealings.

Enhancing contract enforcement:

What are the primary goals of a business contract is to provide a framework for resolving disputes and enforcing the terms. Prevailing attorneys fees, provisions align, with this objective, by incentivizing both parties to honor their contractual, obligations and resolve disagreements.

Pitfalls to consider:

While prevailing attorneys fees provisions can offer significant advantages, business owners should be aware of potential pitfalls.

Litigation is inherently uncertain, and even with a prevailing attorneys fees provision there is no guarantee that a court will award fees in every case. Business owners must be prepared for the possibility of not recovering their fees which could lead to an unexpected financial burden.

Prevailing attorneys fees provisions may also incentivize strategic lawsuits where parties may initiate litigation solely to impose financial pressure on the other party

Including these provisions in contracts can be a point of contention during negotiations. Some parties may resist their inclusion leading to prolong discussions or even a breakdown in contract negotiations. 

In the end, adding prevailing attorneys fees provisions to business contracts can be a powerful tool and an invaluable asset to business owners. 

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