When are attorney fee clauses unconscionable? Another look
Ebadom VA, LLC v. Lee (Fairfax Cir. Ct. Apr. 6, 2020)
Earlier this year, we covered a Virginia Supreme Court decision, Flint Hill School v. McIntosh, which held an attorney fee clause unconscionable. Now, from the Fairfax Circuit Court, the flipside. The facts are these.
A restaurant company with 200 locations worldwide is opening its first location in Virginia. The company negotiates a lease with a landlord. The lease contains an attorney fee clause. It states, “Landlord shall be entitled to its reasonable attorney fees and court costs in connection with Landlord’s enforcement of the terms and provisions of this Agreement.” A dispute arises, with the restaurant asserting claims and the landlord asserting counterclaims. At trial, the landlord wins. Is the landlord entitled to its attorney fees?
Fairfax Circuit Court: Yes.
Flint Hill School shows why. There, the attorney fee clause was in a non-negotiable “take it or leave it” contract imposed by the school on the parent. Here, the restaurant negotiated significant changes to the lease. There, the attorney fee clause required the parent to pay all of the school’s attorney fees, regardless of their reasonableness, even if the school was the one to file suit and even if the suit was meritless. Here, the attorney fee clause is limited the landlord’s reasonable fees if it is the prevailing party. Thus, the landlord is entitled to its fees for both prosecuting and defending the case.
Bottom line: When drafting an attorney fee clause under Virginia law, limit your fee award to: (1) your reasonable attorney fees (2) when you’re the prevailing party.
Bonus point: Under Virginia law, you don’t need to make this clause reciprocal to be enforceable — that is, you can draft the clause so that you receive your attorney fees if you win, but the other side will not get its attorney fees if it wins.