Under the so-called “American rule”, the general rule in the United States is that each side pays its own way in civil cases. This is in contrast to other countries where the losing party is required to pay the prevailing party’s attorneys’ fees. This default allocation, however, can be modified in certain contexts. One notable context in North Carolina is in commercial contracts where the law allows the parties to contractually shift attorneys’ fees to the losing party.
Enacted in 2011, N.C. Gen. Stat. § 6-21.6 makes reciprocal attorneys’ fees provisions enforceable in commercial contracts, allowing parties to modify the general rule and shift the burden of attorneys’ fees to the losing party if forced to litigate their disputes. The scope of the statute is limited to provisions in written “business contracts” signed “by hand” by all parties (i.e., no electronic signatures). “Business contracts” are defined as contracts entered primarily for business or commercial purposes. Consumer contracts, employment contracts and contracts with the government are specifically excluded.
Notably, there is no limitation on the amount of fees recoverable, except that the amount cannot exceed the monetary damages awarded the prevailing party and must be “reasonable” in light of certain specified criteria. This is a departure from other statutes where recovery is capped at a specified percentage of the amount at issue (e.g., 15% of the outstanding balance in collections actions under N.C. Gen. Stat. § 6-21.2). There is also no automatic trigger for reimbursement, meaning the parties are free to incorporate conditions on application. The only requirement is that the terms of the provision are reciprocal and applicable to all parties.
Businesses should consider whether a reciprocal attorneys’ provision is something to include in their contracts and also be on the lookout for these provisions in contracts drafted by other parties.