The general rule is that each side in litigation bears its own attorney’s fees.

As lawyers know, in the U.S. the law typically does not require a losing party to pay a winning party attorney’s fees. Instead, generally each party must bear his or her own attorney’s fees. This is called the American rule.

Of course there are exceptions to the American rule that each side bear its own fees.

One exception is attorney fee clauses in contracts. People are free to create contracts of all kinds, with all kinds of terms—pretty much whatever the parties want they can contract to do. Freedom of contract is a fundamental legal principle. Many agreements that parties freely entered into have an attorney fee clause that awards the prevailing party its fees in the event of litigation.

Another exception to the rule that each side bears its own fees is that a statute or case law might award a prevailing party its fees in the event of litigation.

But a problem is that many agreements with winner-takes-all prevailing-party attorney’s fee agreements

incentivize expensive litigation.

Commercial agreements and business transactions of all kinds, such a nondisclosure agreements, leases, license agreements, vendor agreements, environmental remediation agreements, maritial settlement agreements, child custody or parenting plans or agreements, real estate purchase agreements—you name it—often have a prevailing-party-gets-its-fees clause that says something like this:

“In the event of a dispute between the parties resulting in litigation, the prevailing party is entitled to its attorney’s fees.“

That’s a winner-takes-all prevailing-party attorney’s fee clause. Usually it’s near the end of an agreement. In the small print.

But that kind of attorney-fee provision encourages rather than discourages both sides to proceed with the nuclear option—litigation—because one or both sides think they’ll recoup their side’s fees and maybe teach the other side a lesson. If they win, then the cost of their lawyer could be zero, and they don’t feel the pinch of  suing somebody.

Even worse, prevailing party attorney fee clauses tend to discourage negotiation, mediation, rational discussion, and dispute resolution during the litigation, because each side thinks it can be the prevailing party. And each side knows that it must get to a court decision at the end declaring it the winner in order to claim its attorney’s fees. Absent a court decision, such as in settlement, a party has to bear its own fees.

So prevailing-party-attorney-fee agreements encourage combative litigation.

But encouraging litigation versus negotiation and resolution outside court is often wrong-headed and short-sighted.

Even a blind squirrel can find a nut sometimes. The other side can and often does find facts and law that frustrates the effort to become a prevailing party. This prevents the awarding of fees. So no pot of gold is often the result.

I’ve litigated a lot of cases with attorney fee agreements and with statutory attorney’s fees. Yet my side has rarely, well actually, now that I think on it, I think my side has never paid attorney’s fees. I’ve litigated probably a couple hundred cases in which the side initiating the lawsuit claimed fees based on contract or statute. And in all of those cases, only once were fees awarded to a side—and they were awarded to my side, to the defense—not to the side that initiated the litigation. I guess the were overconfident, misguided, misled or blinded by their expectation of getting fees at the end.

 In many business disagreements, normally level-headed business people often set their attorney loose on the other side, thinking of getting zero-cost litigation, confident that they’ll prevail in litigation.

But maybe trashing the relationship with the other side is not the best idea. Businesses at odds with one another over an agreement might be better off negotiating a solution, might become allies, and might work together to mutual benefit if only they had a framework encouraging or requiring negotiation instead of encouraging litigation. Businesses might forge a new relationship via further discussions and mediation, instead of torpedoing their relation permanently with litigation.

For example, startups with intellectual property might find an established business client or customer infringing on IP, potentially violating the terms of an agreement between them such as an NDA, terms and conditions of agreement, IP license, or other contract. But with a mediation provision, instead of alienating a good business client, the startup might be able to create a structure to favorably resolve the dispute such as mediation, which could facilitate the creation of a IP license, giving permission to the client-customer and revenue to the startup, saving the relationship and creating a new path forward for both companies.

And in hotly contested divorce and child custody battles, prevailing party winner takes all attorney fee provisions risk fueling the fires of conflict that the parties—who once agreed and created an agreement—had decided was resolved. Often the less-empowered spouse is incentivized to hire an attorney—after all it’ll be free if only that party prevails—to pursue the other side.

For example, divorcing spouses might have agreed in a marital settlement agreement, or in a parenting plan or agreement to divide their property or to divide the custody of their children in one way or another. And many times those agreements will have an attorney’s fee provision.

But when something comes up, back to court they go. Because they have a winner-takes-all attorney fee provision, both sides in the event of dispute can simply ring their attorneys and ask them to charge forward with more court motions or litigation.

This costs money that they parties themselves might have kept for their own benefit or for their kids’ benefit. Parties are emboldened by the what they believe is possibly free legal fees, and by the possible pot of gold at the end of the rainbow, so they push forward with more legal work, motions, and combat, often in a cycle that seems to never end.

The common thread is that the side initiating the litigation based on an agreement or statute with an attorney-fee provision in it generally is emboldened by the potential jackpot of getting its fees paid back at the end of the case. Although the client might have to pay fees during the life of the suit, clients hope they’ll win and get their fees back. I’ve seen many such clients on the other side acting like they’re in the catbird seat, only to later be disappointed that they get goose-egged, as when there is no prevailing party, when the other side wins, or after protracted, expensive litigation, level heads prevailed and the case settled via mediation and negotiations.

So at the end of the day, I believe clients are better served by having an agreement that makes them mediate and negotiate a solution instead of litigate. Clients are still in control if they have to mediate. But they can quickly lose control over their fate when they resort to court.

Another problem is that parties sometimes create mediation or dispute-resolution clauses that don’t work, or that the parties or their attorneys simply ignore.

On the other hand, sometimes parties created an agreement with a mediation clause or other dispute resolution clause, but they ignore it at the time of a later dispute.

Often parties find themselves in court litigating a dispute even though the agreement that they had made earlier contains a mediation or other ADR clause in which they agreed to mediate or try ADR before going to court. Such a mediation or dispute-resolution clause is an ineffective mediation clause because it lacks teeth—it is not mandatory—and thus the parties are free to ignore it, and often or even generally do.

2 Sample Mandatory Mediation Clauses to Add to Agreements

I’ve used a variety of dispute-resolution clauses in settlement agreements and other contracts. Common features I often use in mediation provisions are these:

1. Each side must attempt resolution directly with the other party before going to mediation—and each must listen.
2. Compliance is mandatory.
3. Each side each side bears its own attorney’s fees.
4. Each side must go to mediation and spend at least a half day there; attendance cannot be perfunctory.
5. Mediation must be paid for in advance, so a foot-dragging party cannot frustrate mediation scheduling.
6. Mediation compliance is jurisdictional, meaning that no court has jurisdiction over the parties until after compliance with the mediation provision, and a motion to dismiss for lack of jurisdiction can terminate or stay a matter brought without having first mediated.
7. Especially where divorce or other high-conflict situations are present, I also stipulate that communications must be brief, forward-looking, proposal oriented, and not just citations of past alleged misconduct or bad behavior.

The mediation clauses are intended to be at the end of whatever agreement is involved—a maritital settlement agreement, a commercial agreement, a lawsuit settlement agreement, a business contract, lease, whatever.

Obviously the purpose of these mediation clauses is to foster discussions in the event of trouble, building on the parties’ earlier agreement, and keeping the parties from running to the courthourse and filing a new lawsuit.

After all, the parties already agreed—they already signed the agreement of which this mandatory mediation clause is a part—so they’ve demonstrated their ability to negotiate issues and come to agreement.

If there were no such mediation clause—or worse, it there were a prevailing party attorney’s fees agreement instead—then parties might think first about resorting to court to resolve differences, rather than working things out with the other side.

Sample Mandatory Mediation Clause 1, Less Strict

Dispute resolution.

The Parties agree that in the event of disputes pertaining in any way to this agreement or to the circumstances giving rise to any dispute between them, they shall first attempt to resolve their disagreement pursuant to the provisions of this section.

Each party shall succinctly state his or her issue(s) in writing and shall share the writing with the other Party. The other Party shall respond within 48 hours days addressing each item, point by point, in an effort to come to agreement.

The Parties agree that all communications will be brief, not combative, and focused on forward-thinking remedies and solutions, and not on past transgressions.

The Parties agree to make three such back-and-forth interchanges-three each—for every dispute arising after the Effective Date in an effort to resolve their dispute.

Only if the back-and-forth discussion fails to reach a conclusion acceptable to both sides, then they shall submit the matter to a mediator in an effort to resolve the dispute. If the parties cannot agree on a mediator, each shall nominate a mediator, and the medaitors nominated shall then decide on a third mediator to resolve the dispute. The mediator’s fees shall be paid by each Party in advance. The Parties agree to participate in a mediation session for not less than one-half day, unless their dispute is resolved in less time.

Only if the mediation fails to achieve resolution may the parties file suit on their dispute, brng a motion, or seek other legal relief. The Parties agree that compliance with this paragraph is jurisdictional, and that a motion to dismiss or stay litigation, or similar procedural motion, may be heard to bar or stay the action for failure to comply with this mediation section.

Sample Mandatory Mediation Clause 2: Stricter and More Detailed, Especially for Use in Divorce and High-Conflict Issues

Section 1. Mediation of Disputes. The Parties agree that in the event of disputes pertaining in any way to the agreement of which this mediation clause is agreement, or to the dispute(s) giving rise to the Action, (if any), they shall always attempt to resolve their disagreement pursuant to the provisions of this paragraph, before seeking the assistance of any court, tribunal, or other decision-maker.

1. FIRST—THE AGENDA TOPICS ROUND. The purpose of this initial discussion round is to develop an AGENDA of all items that need to be discussed and decided. In this first round of discussions, each Party shall:
   1. Create and then
   2. Share with the other(s) a Proposed Agenda listing each issue of controversy that needs resolution.
   3. Any party receiving a Proposed Agenda from another Party may within 24 hours add items to the proposed agenda, but may not remove items from the other’s proposed agenda. The initial side may then also respond to newly added items with any additional proposed agenda items, if any. Once the Parties agree that they have developed the AGENDA, or if there is no response to a proposed agenda after 24 hours, then the item(s) set forth in the proposeed agenda(s) become(s) the AGENDA of all items that need to be discussed.
2. SECOND—THE ORDER OF DISCUSSIONS ROUND. The purpose of this round is to determine the ORDER in which the parties will discuss agenda items, and to create an ORDERED AGENDA. Agenda items will be discussed one at a time, in the order in which the Parties agree. Within 48 hours (or such other time as the Parties agree), the Parties shall meet and confer either personally or by electronic means (such as email) about the ORDER in which they will discuss each agenda item, using the following method (unless they have otherwise decided on the order of discussion). NOTE: Generally speaking the Parties should discuss the LEAST controversial topics FIRST, and the MOST controversial topics LAST.
   1. COIN FLIP. Unless the Parties can agree on who goes first, the Parties shall flip a coin to decide who goes first.
   2. ITEM NOMINATION, PARTY BY PARTY. The Party who goes first shall identify the agenda item that party would like to discuss FIRST, and shall mark the agenda accordingly. Next, the other Party or Parties shall identify the item to be discussed SECOND, and shall mark the agenda accordingly. This back-and-forth process shall continue until the agenda items all are marked with with their order of discussion, thus creating the ORDERED AGENDA.
   3. Again, Generally speaking the Parties should discuss the LEAST controversial topics FIRST, and the MOST controversial topics LAST.
3. THIRD—PROPOSALS DEVELOPMENT ROUND. The purpose of this round is to CREATE PROPOSALS. Each party shall transform the items it placed on the ORDERED AGENDA into PROPOSALS. Examples:
   1. EXAMPLE 1:
      1. CONCERN: “On your parenting days, I don’t like you parking in front of my house, staring in the windows, and waiting for the beginning of your parenting time to begin.”
      2. CONCERN TRANSFORMED INTO PROPOSAL: “I propose that on your parenting days, I’ll meet you at 3:00 p.m. at the Walmart parking lot where you can pick up the kids.”
   2. EXAMPLE 2:
      1. CONCERN: “I don’t like you using my trade name and trade dress in your advertising materials. It confuses people about the origin of the products I am selling.”
      2. CONCERN TRANSFORMED INTO PROPOSAL:“I propose that that you clearly indicate in at least 12-point high-contrast type in all your advertising materials that you are a licensee of my company and its products..”
4. FOURTH—THE AGREE, DISAGREE, AND PROPOSED SOLUTIONS ROUND. The purpose of this round is to discuss all ORDERED AGENDA items—as PROPOSALS—and to either REACH AGREEMENT, or identify items of NONAGREEMENT, or DEVELOP NEW PROPOSALS. Method: Within 48 hours after creating the ORDERED AGENDA, the Parties shall address each item in order. The Parties have THREE options as to each item discussed,
   1. “I AGREE.” A Party may agree to the other side’s PROPOSAL.
   2. “I DISAGREE, and have a NEW PROPOSAL.”
      1. A Party may disagree with a PROPOSAL.
      2. But any party diagreeing with a proposal MUST make a NEW  PROPOSAL. 
      3. The other side must then Agree, Disagree (and must make another new proposal), or indicate that it needs more time to think about it.
   3. “THINK ABOUT IT—I NEED MORE TIME.”
      1. A Party can indicate “I’ll think about it,” indicating that the Party needs more time to consider. The Parties will then table that item, and reserve it for futher discussion, taking instead the next item on the ORDERED AGENDA.
5. If the Parties reach agreement on all items, the matter is concluded, and the new agreement with its AGREED UPON PROPOSALS modifies their earlier agreement.
6. If the Parties still have disagreements, then for all those items as to which they disagree, the Parties agree that they will submit the matter to MEDIATION to help them resolve the dispute.
7. If the parties cannot agree on a mediator, each shall nominate a mediator, and the nominated mediators shall decide on a different mediator to help resolve the dispute.
8. The mediator’s fees shall be paid by each Party in advance of the mediation, or as the mediator otherwise requires or agrees. Each Party shall bear their own proportionate share of mediation fees. If the Parties are represented by counsel or consultants, each side shall bear its own attorney’s or consulatant’s fees.
9. The Parties agree to mediate for not less than one-half day, unless they reach agreement in a shorter time. Each agrees to make genuine efforts to resolve the dispute, or to at least narrow the items of controversy.
10. Only if the mediation fails to achieve resolution may the parties seek relief in a court or other tribunal.
11. Full compliance with this mediation section is MANDATORY.
12. The Parties agree that compliance with this paragraph is jurisdictional, and that a motion to dismiss or similar procedural motion may be heard to bar or to stay the motion or action for failure to comply with this paragraph. The parties agree that any party may attach to a motion to dismiss or similar motion a copy of this agreement in whole or in part for review by any court or tribunal determining the existence of jurisdiction.

Locations Served

Doug Simpson is located in Puyallup, Washington, one of few a divorce mediators in Tacoma, Seattle and Olympia. He also is a mediator of business disputes, insurance, and other matters. And Doug is one of few environmental mediators in Tacoma—and one of few environmental mediators in Seattle and Olympia too. With special arrangements, he is available as an environmental mediator in San Diego and Los Angeles also. Mediations can take place at a side’s attorney’s office, at local Regus or other spaces with appropriate conference rooms for the expected size of the mediation. Doug has been handling environmental property cases for more than 30 years. .  See mediation practice areas.