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Attorneys’ Fees: Sometimes an Obstacle to Settlement

February 25, 2016

Lately, I have seen attorneys’ fees – whether paid, incurred or contingent – becoming more of an issue for disputants in mediation.

I am not criticizing my colleagues at the Bar; rather, I am asking that they be mindful of, and careful about, the possible effect of their attorneys’ fees on the prospect of settlement.

In the real estate and business disputes that come before me as mediator, litigants are usually being charged on an hourly basis, or similar, by their attorneys, and they struggle to pay, or moan about paying, their attorneys’ fees, which can be pricey.

Consequently, if they are the parties seeking money in settlement, they generally want reimbursement of their attorneys’ fees as part of the funds they are demanding to settle.

For the disputants, attorneys fees are a tangible out of pocket cost of the dispute.

However, unless the attorney fees are recoverable by contract or statute, attorneys’ fees are a sunk cost and not something to be yielded at trial, so not usually includable in a mediated settlement.

Even so, if a term of a contract between the disputants provides for reasonable attorneys fees to the prevailing party, there is generally no prevailing party in a mediated settlement, so contractual attorneys fees are not usually includable in a mediated settlement either.

This is why settlement agreements usually contain a provision that “each party will bear his or her own attorneys fees and costs.”

But the litigants don’t like it; they perceive that they have spent too much in and for the dispute, and they want their money back.

Even in contingency cases, the percentage of funds that would go to the attorney decreases the net recovery by the client, and the client doesn’t like receiving less rather than more.

So, there is a delicate balance to be achieved by the lawyers: doing enough lawyering to create the right leverage for settlement without causing the fees to become too large a component for resolution.

If the case is over-lawyered, and yes there are some, the fees become “the tail that wags the dog” which may create an insurmountable obstacle to resolution.

This makes it so much more difficult to help the client settle.

That is, unless the lawyer has prepared the client, early and often, for the prospect that, likely, “each party will bear its own attorneys fees and costs” in the mediated settlement.

***

David I. Karp is a full time independent mediator of real estate and business disputes in Southern California. His website is at http://karpmediation.com .

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