Bolton v. McKinney (Va. April 1, 2021)
McKinney sues his former business partner, Bolton. They later enter into a settlement agreement. It states they “agree and covenant not to sue” each other. The agreement is silent about attorney fees.
Over the next year, McKinney sues Bolton three times. Bolton prevails in all three lawsuits. Bolton then sues McKinney breaching the settlement agreement. He claims the attorney fees he incurred as his damages. Are these attorney fees recoverable as damages?
Virginia Supreme Court: Yes.
Virginia generally follows the “American rule.” Under this rule, attorney fees are not recoverable as damages. Instead, a court can award attorney fees only if authorized by an express contract term or statutory provision.
But in this case, the court recognizes a new exception. The Court decides that “Virginia law allows an award in the amount of attorney’s fees as damages for the violation of a covenant not to sue,” even if the agreement says nothing about attorney fees.
The court explains, “Allowing damages in this circumstance compensates the injured party for its loss and puts it back in the same position in which it would have been had the other party adhered to its promise. To prevent [injured parties] from obtaining direct damages from the breach of an express term of the contract simply because they happen to also be attorney’s fees would rob them of the benefit of their bargain.”
Bottom line: Breach a covenant not to sue, and you will be liable for the other side’s attorney fees, even if the contract is silent on attorney fees.