Its a contract clause that can be a double-edged sword: “In any claim, arbitration or litigation brought under the terms of this agreement, the prevailing party shall be entitled to receive full reimbursement from the non-prevailing party for the prevailing party’s reasonable and necessary attorney’s fees and costs.” On the one hand, if you live up to the letter of the agreement and the other side doesn’t, you can bring an action and know that if successful, you will get your lawyer’s fees back in addition to damages. But, should you breach the contract, you may face a whopping penalty on top of the damages caused by your breach.
The value of the clause was demonstrated recently in an arbitration award won by Jessica Simpson and her business manager, David Levin. Levin negotiated a deal for Simpson to star in a fitness video made by fitness guru Alex Astilean for his company SpeedFit. After the video was shot in 2005, Simpson nixed it as she did not like how the video came out. I presume the contract gave her the right to reasonably withhold consent if she felt the final product was not up to snuff. As per the terms of the agreement, SpeedFit then filed for arbitration to force Simpson to agree to the release of the video.
During the time Astilean was discussing business issues with the Simpson team, he was also secretly taping conversations with them. While the arbitration was pending he “released or caused to be released” recordings of phone conversations with Levin in which Levin seemed to say nasty things about Simpson and her father-manager, Joseph Simpson. Gossip website Gawker.com obtained the tapes in 2009 and reported that on the tape Levin called Jessica Simpson a “bitch” and her father an “asshole.”
Levin then filed counterclaims for defamation in the arbitration. After Levin obtained the full recordings, it was determined that they had been doctored and that Levin had actually said that Astilean “would be justified in calling her a bitch, in calling Joe an asshole” if they were acting the way Astilean claimed—but [he added] since they were not, Astilean was not justified in calling them those names. Oops, big difference.
The arbitrator ruled that Simpson validly cancelled the contract because of SpeedFit’s not being able to produce a quality video in the agreed upon time. He also found that the false name-calling claim defamed Levin in the amount of $50,000. But the coup de grace was the arbitrator’s awarding Levin and company their legal fees in the amount of $350,000.00. Now that’s a bitch!
So the case demonstrates the value of having an attorney’s fees clause because who could afford to pay $350,000 to bring or defend a claim resulting in $50,000 in damages? It also helps guarantee that a party to a contract won’t breach it near the end when there is little left to perform, since the damages would be minor; the prevailing party could get all its litigation costs back even if they dwarf the damages amount. It helps keep both sides honest to the bitter end.