You’re Moving for Attorneys’ Fees? But We Have a Signed Settlement Agreement . . .

Sometimes when you’re negotiating, drafting, and revising a settlement agreement, you include language just because the language was contained in a sample or template. This is especially so when you’re a new attorney. One provision that I frequently came across in different settlement agreements was a provision that each party shall bear their own costs and attorneys’ fees. It is simple and straightforward on its face, and I never thought it merited much billable time. If the provision was in the settlement agreement, I usually left it there (unless the parties had agreed that one party was going to pay for the other’s costs or fees). If the provision was not in the settlement agreement, I wasn’t majorly concerned about it because obviously the parties were going to bare their own costs and fees absent some provision in the settlement agreement saying otherwise. But it’s actually an important provision because …

A Judgment on the Merits Is Not Required to Move for Attorneys’ Fees

There is no necessity that a matter proceed to trial with a party securing a favorable judgment on the merits in order to become a prevailing party entitled to attorneys’ fees. The Economist Newspaper Ltd. v. The American Economist Inc., 1994 U.S. Dist. LEXIS 11811, *5 (S.D.N.Y. 1994) (plaintiff permitted to seek attorneys’ fees even though parties settled case without a judgment on the merits); Zila Swab Technologies, Inc. v. Dyke, 2003 U.S. Dist. LEXIS 5156, *5-6 (N.D. Ill. 2003) (defendant permitted to seek attorneys’ fees even though plaintiff dismissed action without a judgment on the merits).

Just Because the Parties Settled, It Doesn’t Mean One of Them Didn’t Prevail

To move for attorneys’ fees in a trademark case under the Lanham Act (35 U.S.C. § 1117), a party must be the “prevailing party.” With a judgment rendered by a judge or jury, determining the prevailing party on a particular claim is usual not difficult. But can there be a prevailing party when two parties have decided to settle rather than litigate a case? Yes, Virginia, there can.

For example, in The Economist, the court found that the plaintiff was clearly the prevailing party in the settlement:

Defendants first argue that the plaintiffs cannot be awarded attorney’s fees because they are not the prevailing party. That contention, however, must fail. The plaintiffs secured a settlement which satisfies all of their demands–defendants’ withdrawal of their applications in the PTO for registration of American Economist and North American Economist; defendants’ agreement to publish under the title The American Economist’s Journal, to avoid a trade dress likely to cause confusion with plaintiffs’ magazine; and an understanding that whatever trade dress defendants do decide on must be subject to plaintiffs’ approval. The terms of the settlement constituted defendants’ complete capitulation.

The Economist, 1994 U.S. Dist. LEXIS 11811, at *4-5; Zila, 2003 U.S. Dist. LEXIS 5156, at *6 (“Capitulation or settlement is the practical equivalent of success.”).

The Each Party Shall Bear Their Own Costs and Fees Provision

This all brings into focus the provision that each party shall bear their own costs and fees. If you believe the settlement is more likely to be construed as a capitulation by your client such that the other side would be considered the prevailing party, you should definitely include such a provision. I’d even make it a little more explicit in terms of prohibiting the other party from moving for attorneys’ fees. On the other hand, if you believe your client is clearly the prevailing party under the settlement agreement, maybe you want to leave out the provision in order to try to move for attorneys’ fees. And if it’s just uncertain as to who the prevailing party might be, you might want to include the provision to have certainty.

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Bruno Tarabichi