The attorney’s fees clause in the contract they are suing on.

New York follows the American rule: each side pays its own lawyer unless a statute, a court rule, or a contract says otherwise. The fee clause in the contract you are being sued on is that contract exception. Courts construe it strictly, it pays only what is reasonable, and outside consumer contracts a one-sided clause usually stays one-sided.

Is an attorney’s fees clause enforceable in a New York contract?

An attorney’s fees clause is enforceable in New York because contract is one of the three recognized exceptions to the American rule. Under that rule, attorney’s fees are incidents of litigation, and a prevailing party cannot collect them from the loser unless an award is authorized by agreement between the parties, by statute, or by court rule.

That is the whole architecture. There is no general fairness power to make a losing party pay, no matter how thin the claim or how long the case took. Absent a statute or court rule, the authority comes from the four corners of the document sued on, and from nothing else.

Enforceable is not automatic. A clause creates a right only for the party it names, only in the proceeding and on the claims it describes, and only for an amount a court finds reasonable.

The Court of Appeals reaffirmed the rule in 2022 in a dispute between partners. The plaintiff argued that broad, unrestrictive indemnification language showed an intent to shift fees between the parties themselves. The Court disagreed and applied the American rule.

Case: Hooper Assoc., Ltd. v AGS Computers, Inc., 74 NY2d 487 (1989).

Case: Sage Sys., Inc. v Liss, 39 NY3d 27 (2022).

I read the fee clause and the definitions before I read the claims asserted against you, because the verbs in that clause decide who can collect and in what proceeding.

Does a one-sided fee clause run both ways in New York?

A one-sided fee clause in a commercial contract stays one-sided in New York. No general statute converts a lender’s, franchisor’s, or seller’s fee clause into a mutual right. Two statutes create reciprocity, and both are narrow: consumer contracts under General Obligations Law 5-327, and residential leases under Real Property Law 234.

This surprises people. The instinct is that a clause reading “Borrower shall pay all costs of collection, including reasonable attorneys’ fees” must cut both ways if the borrower wins. It does not. Outside the statutory carve-outs, courts leave a one-way street one-way. Other fee-shifting statutes attach to particular claims and parties; none rewrites an ordinary commercial clause.

What does General Obligations Law 5-327 do to a consumer fee clause?

General Obligations Law 5-327 implies a reciprocal fee covenant into an agreement that meets its definition of a consumer contract. Where such a contract says the creditor, seller, or lessor may recover attorney’s fees for the consumer’s breach, the statute implies a promise that the commercial party will pay the consumer’s fees in return.

Three details do the work. First, the definition. A consumer contract is a written agreement between a creditor, seller, or lessor and a natural person as debtor, buyer, or lessee, where the money, other personal property, or services involved are primarily for personal, family, or household purposes. Those commercial roles are defined terms of their own; a creditor, for instance, regularly extends or arranges credit. Second, the mirror. Any limit on the commercial party’s recoverable fees applies equally to the consumer’s. Third, the lock. Any waiver is void as against public policy, so boilerplate cannot bargain the reciprocity away.

Law: General Obligations Law 5-327.

The implied promise covers the consumer’s fees caused by the commercial party’s breach, and the cost of successfully defending an action on the contract that the commercial party commenced. The definition is where most disputes live. It keys on a natural person, a household purpose, and a subject that is money, other personal property, or services; residential leases are Real Property Law 234’s territory. A business borrower does not become a consumer because its principal signed personally. Read the recitals and the use-of-proceeds language before deciding which side of the line the deal sits on.

Reciprocity in New York is a legislative gift to consumers and residential tenants. In a commercial deal, it is a drafting choice — and the other side did the drafting.

How narrowly do New York courts read an attorney’s fees clause?

New York courts construe fee-shifting language strictly and against the party seeking fees. Because a promise to pay the other side’s fees runs against the American rule, an intention to waive that rule must be unmistakably clear from the promise itself. General indemnification wording aimed at third-party claims will not be stretched to cover litigation between the contracting parties.

That is the Hooper rule, a defense tool as often as a sword. Work through the clause element by element:

• Which proceeding? A clause covering “costs of collection” or “enforcement of this Note” may not reach a declaratory judgment action or your counterclaims.
• Which claims? Fee clauses follow the contract. Tort and statutory claims pleaded alongside the breach claim are generally outside a clause tied to the agreement.
• Indemnity or fee shifting? An article speaking of third-party claims, losses, and demands is not a prevailing-party clause.
• Which parties? A clause in the lease does not automatically bind a guarantor, and the guaranty may reach further than the note.
• Fees on the fee fight? Whether the clause pays for litigating the fee application depends on its words. The court will not assume it.

Case: Hooper Assoc., Ltd. v AGS Computers, Inc., 74 NY2d 487 (1989).

A different species of clause liquidates fees at a fixed percentage of the recovery. In a sale-of-goods case, the Court of Appeals treated such a clause as a liquidated damages provision governed by UCC 2-718, testable for reasonableness against anticipated or actual harm and for unconscionability rather than enforceable automatically at the stated percentage. Outside article 2 the percentage still does not displace reasonableness review.

Case: Equitable Lbr. Corp. v IPA Land Dev. Corp., 38 NY2d 516 (1976).

And where the clause gives no one a fee right, weakness in the other side’s case does not supply one. A court has no inherent authority to impose fees as a penalty for frivolous litigation. That authority comes from court rule, and it is discretionary, available only after notice and an opportunity to be heard.

Case: Matter of A.G. Ship Maintenance Corp. v Lezak, 69 NY2d 1 (1986).

Rule: 22 NYCRR 130-1.1.

Who is the prevailing party if the case ends without a trial?

Prevailing party status in New York does not require total victory. A court considers the true scope of the dispute litigated and compares what was achieved within that scope. The party that prevails on the central claims advanced and receives substantial relief is the prevailing party, even if some claims or defenses failed along the way.

The First Department applied that test where a landlord sued for 54 months of rent and the tenants won an abatement covering about four and a half months. Measured against the true scope of the fight, the landlord had prevailed under the lease. The amount still had to be fixed as reasonable.

Case: Excelsior 57th Corp. v Winters, 227 AD2d 146 (1st Dept 1996).

Case: Board of Mgrs. of 55 Walker St. Condominium v Walker St., LLC, 6 AD3d 279 (1st Dept 2004).

The comparison can come out empty. Where neither side prevails on the central claims, a court may find no prevailing party and award fees to no one, even under a mutual clause.

Endings short of judgment matter too. Where the parties resolved the substance by stipulation releasing escrowed funds, the First Department looked past the absence of a judicial determination and found the plaintiffs had prevailed.

Case: Sykes v RFD Third Ave. I Assoc., LLC, 39 AD3d 279 (1st Dept 2007).

Silence cuts the other way. Where a case ends by stipulation and no party reserves its fee claim, courts have declined to award fees at all. Every stipulation should say in terms what happens to fees. Silence invites a second lawsuit inside the first.

How does an attorney’s fees clause change the math of settling early?

A fee clause changes settlement arithmetic because it puts the other side’s litigation cost into your potential liability. The number at risk is no longer the amount demanded in the complaint. It is the demand, plus interest, plus the fees the plaintiff can recover if it prevails on a covered claim — fees that grow while the case lives.

Run the numbers as a range, at each stage:

• The claimed principal and contractual interest.
• The plaintiff’s projected fees through the next real event: motion, discovery, trial.
• Your own defense cost, which a one-sided clause never reimburses.
• The discount a reasonableness review might apply: a haircut, not a shield.
• The value of any counterclaim, and whether the clause covers it at all.

Two consequences follow. Early resolution is worth more with a fee clause, because the plaintiff’s meter may be running on your account. And a meritorious motion filed early beats the same motion filed late: dismissal stops the meter, unless the case continues on appeal.

Without a fee clause, delay costs you your own defense. With a one-sided fee clause, delay costs you both sides of the ledger.

How are attorney’s fees proven at the end of a New York case?

A fee award in New York must be reasonable and supported by evidence, not asserted. The applicant carries the burden of proof. Courts weigh a familiar set of factors, and a court may hold a hearing where the submission is thin or contested. A clause entitling a party to fees does not entitle it to whatever its invoices total.

The factors New York courts apply to reasonableness include the following.

• The time and labor actually required.
• The difficulty of the questions involved and the skill required to handle them.
• Counsel’s experience, ability, and reputation.
• The amount involved and the benefit obtained for the client.
• The customary charge for similar services.
• The contingency of compensation, the results obtained, and the responsibility involved.

Case: Matter of Freeman, 34 NY2d 1 (1974).

Those factors come from a proceeding fixing an attorney’s compensation, and courts draw on them when fixing a contractual award. So the fee application is litigable. Block-billed entries, work on claims outside the clause, duplicated effort, and hours spent on claims the applicant lost are fair targets. Demand the records, contest entries that do not match covered work, and ask for a hearing where the papers do not establish the number; holding one is the court’s call.

The reciprocal statutes matter here too. Under General Obligations Law 5-327 a limit on the commercial party’s fees applies equally to the consumer’s, and Real Property Law 234 speaks of the tenant’s reasonable fees. Reasonableness is the ceiling in every direction.

What should you do first when the contract they are suing on has a fee clause?

The first step is documentary, not tactical. Locate the executed version of the instrument sued on, read the fee clause word by word, and identify the proceeding, the claims, and the parties it actually covers. Then answer one question: does the clause name only the plaintiff, or does it turn on who prevails?

From there, in order:

• Collect every signed document. The note, guaranty, security agreement, and lease may each carry different fee language, and amendments change it.
• Classify the transaction. A natural person, a household purpose, and a creditor, seller, or lessor on the other side put General Obligations Law 5-327 in play; a residential lease puts Real Property Law 234 in play.
• Compare the fee clause to the claims pleaded. Contract claims may be covered; fraud and statutory claims often are not.
• Calendar the response date from the date of service, not the date on the papers. The time to appear is shorter when the summons was delivered to you personally in New York than when service was made another way, so confirm how service happened.
• Decide the fee question before you negotiate anything. Any stipulation should address fees expressly, in writing, for both sides.

I ask for the executed signature pages and every amendment before I ask what the dispute was about, because an unsigned draft and a superseded version answer the fee question differently.

The fee clause is not decoration at the back of the document. It decides what losing costs and what winning is worth. Read it first.