Posted In: Litigation
Litigation Blog: Attorney Fees Remain Available as Compensatory Damages for Breach of Settlement Agreement
By David Sporar on December 8, 2020
Whether one can recover attorney fees incurred in a lawsuit, in addition to standard monetary damages, is a common question clients have when they are required to sue others to vindicate their rights and recover for their harm. Typically, the answer to that question is: no. Ohio adheres to what is called the “American Rule,” which states that a party that prevails in a lawsuit can recover its attorney fees only if allowed by a statute or a contract between the parties, or if the non-prevailing party acted in bad faith.
For twenty years, however, Ohio courts have recognized a so-called exception to this rule: attorney fees can be recovered as compensatory damages when they are incurred as a direct result of a breach of a settlement agreement, even if the settlement agreement does not provide for them. See Shanker v. Columbus Warehouse Ltd. P’ship, 10th Dist. Franklin No. 99AP-772, 2000 WL 726786 (June 6, 2000). This exception to the American Rule has since been recognized in at least the Third, Fifth, Sixth, Seventh, Eighth, Ninth, and Tenth Districts. See Smith v. E.S. Wagner Co., 2016-Ohio-8096 (3d Dist.); Brown v. Spitzer Chevrolet Co., 2012-Ohio-5623 (5th Dist.); Raymond J. Schaefer, Inc. v. Pytlik, 2010-Ohio-4714 (6th Dist.); Wehr v. Petraglia, 2016-Ohio-3126 (7th Dist.); Berry v. Lupica, 2011-Ohio-5381 (8th Dist.); Niederst v. Niederst, 2018-Ohio-5320 (9th Dist.); Tejada-Hercules v. State Auto. Ins. Co., 2008-Ohio-5066 (10th Dist.).
The Eighth District Court of Appeals re-affirmed the exception as recently as last year in Rayco Manufacturing, Inc. v. Murphy, Rogers, Sloss & Gambel, 2019-Ohio-3756, but the Ohio Supreme Court accepted review of that decision, which called the validity of the exception into doubt. See 2020-Ohio-122. Last month, however, the Court dismissed the case because, ironically, the parties settled. Therefore, in at least those Districts that recognize the exception, attorney fees remain available as compensatory damages for breach of a settlement agreement even if the settlement agreement does not provide for them.
This exception can give some measure of confidence to parties engaging in settlement that their opponent should adhere to the agreement lest they incur the cost of any future litigation for breach. Further, the exception can facilitate settlement because it removes attorney fees as a bargaining chip and potential stumbling block to an agreement. Nevertheless, because there has been some push-back on the exception questioning its legitimacy, it is a good idea to expressly include attorney fee provisions in your settlement agreements. This will ensure that, whatever jurisdiction you are in, you can avoid the American Rule and pursue compensation if you later must sue for breach.
This blog is intended to provide information generally and to identify general legal requirements. It is not intended as a form of, or as a substitute for legal advice. Such advice should always come from in-house or retained counsel. Moreover, if this Blog in any way seems to contradict advice of counsel, counsel's opinion should control over anything written herein. No attorney client relationship is created or implied by this Blog. © 2021 Brouse McDowell. All rights reserved.