By: Amy L. Elson
Parties contract with one another to memorialize their mutual understanding of their agreements, to provide structure and certainty to their agreements, and to control and allocate risk associated with their agreements. They enter into a contract with the intention of performance, and, usually, the recognition that something could go wrong. In either scenario, the parties turn to their contract, which provides a guide for performance and non-performance alike. When performance becomes non-performance, and when the parties find themselves at odds with one another, who bears the cost of the dispute? This question is one frequently addressed through inclusion of a “prevailing party” attorney’s fee clause in the contract—a statement that the prevailing party will be entitled to recover its attorney’s fees from the non-prevailing party.
As a general rule, Indiana follows the “American Rule,” which provides that each party to an action is responsible for her/his own attorney fees. Delgado v. Boyles, 922 N.E.2d 1267 (Ind. Ct. App. 2010), reh’g denied, citing Rogers Group, Inc. v. Diamond Builders, LLC, 816 N.E.2d 415, 420 (Ind. Ct. App. 2004), trans. denied. However, parties are free to enter into contracts that provide for alternative arrangements for payment of attorney’s fees. Delgado, 922 N.E.2d at 1270, citing Carter McMahan v. McMahon, 815 N.E.2d 170, 179 (Ind. Ct. App. 2004). One common contractual provision regarding attorney’s fees provides that the “prevailing party” in a challenge is entitled to payment of her/his attorney’s fees. It seems simple enough at first glance—the party who “wins” the dispute will have her/his attorney’s fees paid by the party who “loses” the dispute. But does prevailing mean the same thing as winning? And, if not, which party is responsible for attorney’s fees?
The Indiana Supreme Court issued the governing interpretation of the term “prevailing party” in its 2008 decision in Reuille v. E.E. Brandenberger Construction, Inc., 888 N.E.2d 770 (Ind. 2008). In this case, the parties’ contract contained the following provision regarding the award of attorney’s fees: “In any action at law or in equity, including enforcement of an award from Dispute Resolution, or in any Dispute Resolution involving a claim of $5,000 or more, the prevailing party shall be entitled to reasonable costs and expenses, including attorney fees.” Reuille, 888 N.E.2d at 771. However, the contract did not include a specific definition of “prevailing party.” Because the contract contained no specific definition of prevailing party, the Court adopted the “ordinary meaning” of the term as set forth in Black’s Law Dictionary: “the party to a suit who successfully prosecutes the action or successfully defends against it, prevailing on the main issue, even though not necessarily to the extent of his original contention. The one in whose favor the decision or verdict is rendered and judgment entered.” Id. Thus, in Indiana, when the parties’ contract does not provide a definition of “prevailing party,” the term will be interpreted to require the favorable entry of judgment on the merits.
But is this “ordinary meaning” definition of prevailing party indeed so ordinary? What happens when a party obtains a judgment that is not proportional to the award the party sought in its suit? The Indiana Court of Appeals has held that a prevailing party is the party who obtains a judgment in its favor on the merits, regardless of the relative proportion of the judgment award as compared to the party’s initial claim for damages or relief. In Boyer Construction Group Corporation v. Walker Construction Company, Inc., 44 N.E.3d 119 (Ind. Ct. App. 2015), the general contractor defendant filed a motion for assessment of attorney’s fees and argued that it was the prevailing party because it successfully defended the plaintiff’s complaint by limiting the plaintiff’s recovery to just 2% of the damages the plaintiff sought. The Court of Appeals affirmed the trial court’s decision not to award post-judgment attorney’s fees to the defendant general contractor.
What about the “ordinary meaning” of judgment when it comes to defining the prevailing party? Is there a prevailing party when the parties reach a mutually agreeable settlement through mediation? In the Reuille opinion, the Indiana Supreme Court held that a party who reaches settlement, even if that settlement is favorable to the party, cannot be considered a “prevailing party” for the purpose of awarding attorney’s fees. The Court reasoned that it would be unlikely that parties to a contract would intend for successful mediation to imbue a party with “prevailing party” status: “[o]ne of the purposes of mediation is to provide an atmosphere in which neither party feels that he or she has ‘lost’ or ‘won’ a case.” Reuille, 888 N.E.2d at 772.
Parties are permitted to include definitions of “prevailing party” in their contractual agreements, and Indiana’s courts will honor these definitions. However, if the definition is ambiguously defined, or if the term “prevailing party” lacks a contract-specific definition, Indiana’s courts have held that the term will be defined and applied according to its most basic definition—a prevailing party is a party who has obtained a favorable judgment on the merits of an action. Our state courts have declined to deviate from this plain-meaning definition when presented with arguments asking the court to consider the proportional recovery of damages as compared to the initial claim. Furthermore, Indiana’s courts have refused to characterize the “winner” of a settlement or mediation as a “prevailing party” based on the interpretation that a settlement or mediation does not result in a judgment.