KMK Law Corporate & Securities Blog

Late television curmudgeon Andy Rooney is said to have observed that “nothing in fine print is good news.” Based on a recent decision from the Sixth Circuit, the fine print can be good news for some, and costly for others.

Buried in the fine print of many contracts—that most people fail to read or show to their attorneys—are provisions that can have a significant impact on parties in the event of a breach.  Fine print provisions like these are usually enforced but often courts will not give effect to provisions that are substantially unfair or against public policy.

A clause present in many contracts is an attorneys’ fee provision which may require that a losing party in a lawsuit pay the attorneys’ fees of the victorious party. A particular type of these clauses is a unilateral fee-shifting provision, which grants to just one contractual party the right to recover its fees upon successful enforcement of a contract.

The Sixth Circuit recently addressed the enforceability of a unilateral fee-shifting provision in Allied Industrial Scrap, Inc. v. Omnisource, Corp., No. 14-3403, 2015 U.S. App. LEXIS 920 (6th Cir. Jan. 21, 2015).  In Allied Industrial, the court revisited whether unilateral fee-shifting clauses for attorneys’ fees were enforceable under Ohio law, citing the recent Ohio Supreme Court case of Wilborn v. Bank One Corp., 906 N.E.2d 396, 402 (Ohio 2009).  Ohio generally applies the “American rule” in which each party bears its own litigation costs, but under Ohio law, contracts may shift the cost of litigation, including attorneys’ fees.  The court noted that these fee-shifting provisions were not enforceable where they violated statutory law, or where the contract is the result of coercion.  See Wilborn, 906 N.E.2d at 402 (prohibiting fee shifting that conflicted with foreclosure laws); State v. Taylor, 10 Ohio 378, 380-81 (1841) (denying attorney’s fees that operated to evade usury statutes).  The Sixth Circuit therefore clarified Sixth Circuit law on the subject and remanded the case with instructions to the district court to determine the fair, just, and reasonable value of the attorneys’ fees specifically provided for in the contracts. 

The Allied Industrial decision generally holds that contractual fee-shifting provisions are enforceable, particularly between business entities.  Not only are fee-shifting provisions permitted under Ohio law, but the recent decision emphasizes that they will likely be enforced in boilerplate pre-printed contracts between sophisticated commercial parties. 

This holding establishes the importance of reading the fine print of contracts prior to signing, and making changes where necessary.  If a contract does contain a provision for attorneys’ fees, it should be negotiated before signing the contract, and not discovered when a deal goes bad. The fine print, in other words, should be read or it could be costly.

The Sixth Circuit’s full decision is available here.