Washington law makes a unilateral attorney-fee provision in a contract (i.e., awarding fees to one party) bilateral, such that the “prevailing party” in an action on the contract can recover fees.[1] For this reason, it’s often assumed that there’s no practical difference between bilateral and unilateral fee provisions. But that’s not always the case. Under the statute, fees are awarded to the “prevailing party” only in the event of a “final judgment.” In contrast, when a contract includes a bilateral fee provision, a final judgment may not be necessary to justify a fee award. The difference can be material.

For instance, what happens when the plaintiff voluntarily dismisses an action—whether due to unfavorable evidence developed in discovery, the wish to avoid the continuing costs, or other changed circumstances? Washington courts traditionally follow the “American Rule” and require that each party in a lawsuit pay their own fees and costs, regardless of the lawsuit’s outcome. But attorneys’ fees are recoverable where a contract, statute, or equitable exception provides otherwise.[2] With a contractual fee provision, whether it is unilateral or bilateral may determine whether the defendant who “prevails” by voluntary dismissal can recover fees.

A unilateral fee provision favors one party over the other. Unilateral fee provisions are commonly found in standard forms like leases, mortgages, promissory notes, retail installment contracts, and contracts for the sale of goods. They tend to give an advantage to the stronger drafting party, leaving the weaker party unable to recover attorneys’ fees even if they prevail in the lawsuit. A typical unilateral attorneys’ fees provision includes language such as:

In event of litigation arising from this contract, [the weaker party] must pay for [the stronger party’s] attorney’s fees and costs of litigation.

Washington’s RCW 4.84.330 attempts to address the inherent inequity of unilateral fee provisions. It provides that where a “contract or lease specifically provides that attorneys’ fees and costs… shall be awarded to one of the parties, the prevailing party, whether he or she is the party specified in the contract or lease or not, shall be entitled to reasonable attorneys’ fees in addition to costs and necessary disbursements.” Thus, the statute effectively makes unilateral fee provisions bilateral, in favor of the “prevailing party.”

But the statute defines the “prevailing party” as “the party in whose favor final judgment is rendered.”[3] Washington courts have confirmed that, for a unilateral fee provision to be governed by RCW 4.84.330, there must be a “final judgment.”[4]

A bilateral fee provision provides equal rights to recover fees to both parties to the contract. A typical bilateral attorneys’ fees provision includes language such as:

In the event of any litigation arising from breach of this agreement, the prevailing party shall have the right to collect from the other party its reasonable costs and attorneys’ fees incurred in enforcing this Agreement.

Where a contract’s fee provision is “bilateral,” the statutory definition of “prevailing party” in RCW 4.84.330 doesn’t apply. Instead, “[w]hen a contract includes a bilateral attorneys’ fees provision, ‘it is the terms of the contract to which the trial court should look to determine if such an award is warranted.’”[5] And “‘[w]here the terms of a contract are plain and unambiguous, the intention of the parties shall be ascertained from the language employed.’”[6]

Thus, the difference between a unilateral fee provision and one that is bilateral is material where a plaintiff is in a position of needing to voluntarily dismiss before final judgment. If the fee provision is unilateral, the defendant would not be allowed to recover its attorneys’ fees and costs from the plaintiff: even if the fee provision favored the defendant, RCW 4.84.330 would apply, and voluntary dismissal is not a “final judgment.” But where a fee provision is bilateral, Washington courts have held that a voluntary dismissal can be sufficient to render the defendant the “prevailing party.”[7]

For example, in Hawk v. Branjes,[8] the plaintiff moved for voluntary dismissal and the defendants requested attorney fees pursuant to the contractual provision which read:

In the event either party employs an attorney to enforce any terms of this agreement and is successful, the other party agrees to pay a reasonable attorney’s fee. In the event of a trial, the amount shall be as fixed by the court.

The Court of Appeals held that, where an “agreement already contains a bilateral attorneys’ fee provision, RCW 4.84.330 is generally inapplicable” and instead looked to whether the “parties intended to adopt the statutory definition of prevailing party contained in RCW 4.84.330.”[9] The court found “no compelling reason to stray from the plain meaning of the parties’ words in interpreting this agreement.”[10]

This law’s treatment of contractual fee provisions has at least two practical implications. First, parties to a contract in position to determine the language of a fee provision should think twice about making them unilateral. While a provision awarding fees to Company A in an action to enforce may have a nicer ring to it, it has no advantages over a bilateral provision where a judgment is rendered for one side or the other or a settlement is reached—i.e., in most cases. But in the event of a suit by Company B that Company B eventually dismisses, Company A may only be able to recover fees if the fee provision is bilateral, not if it is unilateral. The result is counterintuitive. [11]

Second, the law has implications for settlement. In an action on a contract with a bilateral fee provision where the plaintiff wishes to dismiss its suit, the defendant who is able to force the issue rather than stipulating to a dismissal without an award fees may be in position to recover its fees following dismissal. True, that prospect alone may cause the plaintiff to continue the litigation, but not if the price is too high or the plaintiff is not fully aware of the implications.

–Michael Licata