The Effect of Attorney's Fee Entitlement Language in an Agreement and Florida's Reciprocal Fee Statute 57.105(7)

Creditors beware! Don’t get stuck paying the debtor's fees. Creditors need to know that in instances when a voluntary dismissal is filed or the court enters an involuntary dismissal, creditors face a risk of having to pay the debtor's attorney's fees. Of course, there is also the risk if judgment is entered in favor of the debtor. Unless a statute or contractual provision provides otherwise, Florida courts will apply the “American Rule.”

Most loans, promissory notes, commercial leases, mortgages, commercial agreements and merchant cash advance agreements contain a clause similar to this:

“Attorneys' Fees & Expenses. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender the amount of these costs and expenses, which includes, subject to any limits under applicable law, Lender's reasonable attorney's fees and Lender's legal expenses whether or not there is a lawsuit, including reasonable attorney's fees and legal expense for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs in addition to all other sums provided by law.”

If a contract provision allows attorney's fees to a prevailing party, the court may also allow reasonable attorney's fees to the other party when that party prevails under Florida Statutes Section 57.105(7). The purpose of 57.105(7) is to level the playing field.¹

Florida Statutes Section 57.105(7) states:

“If a contract contains a provision allowing attorney's fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney's fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract. This subsection applies to any contract entered into on or after October 1, 1988.” (Emphasis added.)

This section provides that a contractual fee provision is to be applied for the benefit of both parties even if the fee provision, as written in the contract, is one-sided.² Note, however, that because the right to attorney's fees must be found in a contract or statute, the specific text of the contractual or statutory provision granting the right is critical.³

Consider the following attorney's fees provision:

“Purchaser is responsible for all costs of collection including attorney's fees. And 1.5% of contract amount.”

When faced with this language, the Florida Fourth District Court of Appeals found that Section 57.105(7) did not apply to a breach of contract action by the homeowner against the contractor due to the limited entitlement language in the contract.⁴

Before awarding fees to the prevailing party in a case where there is a one-sided attorney's fee provision in a contract, the court must interpret both Florida Statutes Section 57.105(7), and the parties' contractual provision regarding attorney's fee.

Because the statute is in derogation of common law (the American rule), it must be strictly construed. The plain language of Section 57.105(7) has two requirements. First, the party must have prevailed. Second, the party had to be a party to the contract containing the fee provision.⁵

First, in Florida, a “prevailing party is one who prevails on the ‘significant issues tried before the court.'”⁶

Fair notice to seek attorney's fees must be contained in a party's initial pleading or the right to seek fees is deemed waived. In its 1991 Stockman v. Downs decision, the Supreme Court of Florida long ago established that a claim for attorney's fees must be pled whether the claim is based on statute or contract.⁷ The Florida District Courts of Appeal have adopted the Stockman ruling.⁸ The Supreme Court of Florida further elaborated in its 1998 Green v. Sun Harbor Homeowners' Ass'n decision that the Stockman decision is “to be read to hold that the failure to set forth a claim for attorney's fees in a complaint, answer, or counterclaim, if filed, constitutes a waiver.”⁹

Pursuant to Florida Rule of Civil Procedure 1.525, in order to be considered timely, the party's motion must be filed within thirty (30) days after the entry of the judgment. Note that according to the rule, entry of judgment includes a judgment of dismissal or the service of a notice of voluntary dismissal.¹⁰

In addition to providing fair notice, the party seeking fees must act within a reasonable time to have the motion for attorney's fees heard or risk the court's exercise of its inherent authority to deem the request abandoned. Florida's Fourth District Court of Appeals recently held that a motion for costs that was timely filed, but which languished on the court's docket for 18 months with neither a request for a hearing nor the filing of supporting affidavits, was properly deemed abandoned by the trial court.¹¹

It is important to note that a defendant is not entitled to attorney's fees based on a voluntary dismissal that is a result of successful loss mitigation. Specifically, Florida's Fourth District Court of Appeals in Kelly v. Bankunited, FSB held that neither party is the prevailing party for purposes of the statute governing prevailing party attorney's fees following the execution of a short sale agreement as neither party “achieved their [sic] litigation objectives.”¹² The court held that it must look at “the substance of litigation outcomes—not just procedural maneuvers—in determining the issue of which party prevailed for purposes of awarding attorney's fees.”¹³

Florida's Third District Court of Appeals decision in Bank of New York Mellon Trust Co. v. Fitzgerald is succinct, but immensely significant:

“Because [the Borrower] successfully obtained a judgment below that the [Plaintiff] lacked standing to enforce the subject mortgage and note against her . . . no contract existed between the [Plaintiff] and [Borrower] that would allow [the Borrower] to invoke the reciprocity provisions of Section 57.105(7).”¹⁴

Creditors will need to consider the following when faced with a demand for attorney's fees under Florida Statutes Section 57.105(7):

1. Has the court ruled that there was indeed a contract?¹⁵
2. Is the party seeking fees a party to the contract?
3. Is the contract provision for fees for collection or enforcement?
4. Is the defendant the prevailing party?
5. Was the matter resolved through settlement?
6. Did the defendant provide proper notice that it was seeking fees?
7. Did the defendant timely file its motion seeking fees?
8. Has the defendant's motion been deemed abandoned?

Once these questions have been answered, a proper response or objection may be drafted. The risk of having to pay the debtor's attorney’s fees arises when there is a dismissal or a judgment in debtor's favor. If there is a legitimate business or legal reason to dismiss the action, keep this risk in mind when evaluating whether to dismiss. Be sure to consider the answers to the questions above to ensure a proper evaluation of the risk.

¹ See Mediplex Constr. of Fla., Inc. v. Schaub, 856 So. 2d 13, 15 (Fla. 4th DCA 2003) (citing Lanahan Lumber Co. v. McDevitt & Street Co., 611 So. 2d 591 (Fla. 4th DCA 1993).

²HFC Collection Ctr., Inc. v. Alexander, 190 So. 3d 1114, 1115 (Fla. 5th DCA 2016).

³ Florida Medical Ctr. v. McCoy, 657 So. 2d 1248 (Fla. 4th DCA 1995).

⁴ Florida Hurricane Protection & Awning, Inc. v. Pastina, 43 So. 3d 893, 894 (Fla. 4th DCA 2010) (internal quote omitted).

⁵Nationstar Mortg. LLC v. Glass, 219 So. 3d 896, 898 (Fla. 4th DCA 2017).

⁶ Raza v. Deutsche Bank Nat. Trust Co., 100 So.3d 121, 123 (Fla. 2d DCA 2012).

⁷See Stockman v. Downs, 573 So.2d 835, 837 (Fla.1991).

⁸ See: Fanelli v. HSBC Bank USA, 170 So.3d 72, 73 (Fla. 4th DCA 2015); Lopez v. Bank of America, N.A., 153 So.3d 922 (Fla. 2d DCA 2014); and Creamer v. BAC Home Loans Servicing, LP, 159 So.3d 168, 170 (Fla. 2d DCA 2015).

⁹ Green v. Sun Harbor Homeowners' Ass'n, 730 So.3d 1261, 1263 (Fla. 1998).

¹⁰ Florida Rule of Civil Procedure 1.525.

¹¹ See Grosso v. HSBC Bank USA, N.A., 2016 WL 1688564 (Fla. 4th DCA April 27, 2016). See also, Ramos v. Deutsch Bank Nat. Trust Co., 2016 WL1696435 (Fla. 4th DCA April 27, 2016) (motion for attorney's fees languished on the docket for 22 months without a request for hearing or other final resolution by defendant); Berenson v. Deutsche Bank Nat. Trust Co., 2016 WL 1696441 (Fla. 4th DCA April 27, 2016) (motion for attorney's fees languished on the docket for 14 months without a request or other final resolution by the movant).

¹² Kelly v. Bankunited, FSB, 159 So.3d 403, 406 (Fla. 4th DCA 2015).

¹³ Id.

¹⁴Bank of New York Mellon Trust Co. v. Fitzgerald, Case No. 3D16-981, at *2 (3d DCA Mar. 1, 2017).

¹⁵ Bank of New York Mellon Trust Co. v. Fitzgerald, Case No. 3D16-981, at *2 (3d DCA Mar. 1, 2017).