Can You Recover Legal Fees In A Business Lawsuit Without A Contractual Provision?

Understanding the American Rule and When Fee-Shifting Is Actually Permitted Under New Jersey Law

Can You Recover Legal Fees In A Business Lawsuit Without A Contractual Provision?

One of the most common misconceptions clients bring into business litigation is the belief that, if they win, the other side will be required to pay their attorney’s fees. Many assume that being “right” or prevailing at trial automatically entitles them to full reimbursement. It does not. In New Jersey, as in most jurisdictions, the default rule is clear: each party pays its legal fees, regardless of who wins the case.

This is known as the American Rule, and it applies broadly to civil litigation unless there is a contractual, statutory, or court rule-based exception. While there are situations in which legal fees may be recovered, these situations are limited, narrowly applied, and often misunderstood. Clients who enter litigation expecting automatic reimbursement of legal fees are often surprised—and disappointed—when they learn otherwise.

The Default: The American Rule

New Jersey courts follow the American Rule, which holds that each party is responsible for paying its legal fees unless a specific exception applies. This includes fees for litigation counsel, expert witnesses, motion practice, and trial preparation. The rule exists to avoid discouraging legitimate claims and defenses out of fear that one party may be bankrupted by the other’s legal costs.

Courts in New Jersey have consistently upheld this principle, refusing to award attorney’s fees to prevailing parties unless the law explicitly provides for it. The result is that even a business that prevails completely in court will typically bear its own legal expenses, unless it can point to a valid fee-shifting provision or legal basis for recovery.

When Fee-Shifting Is Permitted

There are only a few exceptions to the American Rule, and they generally fall into three categories: contractual provisions, statutory authorizations, and sanctionable litigation conduct.

1. Contractual Fee-Shifting Provisions

The most common basis for recovering attorney’s fees in a business case is a written contract that includes a fee-shifting clause. These clauses typically state that, in the event of a dispute or enforcement action, the prevailing party is entitled to recover reasonable attorney’s fees and costs.

New Jersey courts routinely enforce contractual fee provisions, provided the language is clear and unambiguous. These clauses are enforceable in breach of contract claims and, in some cases, may also apply to related tort claims if the language is broad enough.

For example, a clause stating, “In any action arising out of this agreement, the prevailing party shall be entitled to recover attorneys' fees,” may cover not only breach of contract claims but also fraud or conversion claims arising from the same transaction.

If there is no written agreement or the agreement is silent on fees, the parties are left to rely on statutory or equitable remedies, which are far more limited.

2. Statutory Fee-Shifting

Certain New Jersey statutes provide for fee-shifting in narrowly defined circumstances. These statutes are typically designed to encourage specific types of litigation or protect vulnerable parties. Examples include:

• Consumer Fraud Act (N.J.S.A. 56:8-19) – Allows a prevailing plaintiff to recover attorney’s fees in cases involving deceptive business practices.

• New Jersey Law Against Discrimination (N.J.S.A. 10:5-27.1) – Permits recovery of attorney’s fees by prevailing parties in discrimination claims.

• Franchise Practices Act (N.J.S.A. 56:10-10) – Allows prevailing franchisees to recover legal fees in actions against franchisors.

• CEPA (Conscientious Employee Protection Act) – Includes a statutory fee-shifting provision for prevailing whistleblower plaintiffs.

  
  

These statutes typically do not apply in straightforward breach of contract disputes or internal business partner disagreements. They are narrowly construed, and courts will not apply them by analogy or implication. If a business lawsuit does not fall squarely within the statute’s scope, the fee provision will not apply.

3. Court-Ordered Sanctions for Bad Faith

In rare cases, attorney’s fees may be awarded as a sanction for bad faith conduct, frivolous litigation, or abuse of court process. This includes filing baseless claims, refusing to comply with discovery orders, or engaging in deliberate misconduct during the litigation process.

New Jersey Court Rule 1:4-8 and N.J.S.A. 2A:15-59.1 allow courts to impose fees against parties who pursue claims or defenses that are frivolous, not well-grounded in fact, or brought solely to harass or delay. However, these sanctions are not awarded simply because one party loses. They require a showing of objective unreasonableness or bad faith, and courts apply these standards with caution.

In business disputes, fee sanctions are typically reserved for cases involving repeated misconduct, litigation abuse, or violations of court orders, not ordinary disagreements over contract interpretation or performance.

Fee-Shifting in Settlement Negotiations

Even where fee-shifting is not guaranteed by contract or statute, the possibility of recovering—or avoiding—legal fees can be used as leverage during settlement discussions. A party with a strong contractual claim to attorney’s fees may demand a higher settlement, knowing that continued litigation will increase the other side’s exposure.

Conversely, a party facing a fee-shifting statute may settle early to avoid escalating risk. For example, a business accused of consumer fraud may resolve the matter to avoid both compensatory and statutory fee exposure.

But where there is no fee-shifting clause and no applicable statute, parties must be realistic about their recovery. The vast majority of litigants in New Jersey bear their own fees, whether they win or lose. Settlement expectations must reflect that reality.

Why Legal Counsel Should Review Fee Language at the Outset

One of the first questions that should be asked in any business dispute is whether a valid fee-shifting mechanism exists. That determination requires careful review of all contracts, applicable statutes, and procedural history. Too often, clients assume they can recoup their legal fees, only to learn after trial that their victory came at a steep, and unrecoverable, cost.

Businesses should ensure that all key contracts contain clear, enforceable fee provisions, particularly in vendor agreements, service contracts, partnership agreements, and customer terms of service. Waiting until a dispute arises is too late.

Conclusion: Do Not Assume You Will Recover Your Legal Fees

In New Jersey business litigation, there is no automatic right to recover attorney’s fees. Unless a valid contractual provision, specific statute, or court rule applies, each party must bear its costs. This principle, known as the American Rule, is foundational, and failure to understand it can lead to disappointment and miscalculated risk.

Businesses must approach litigation with a clear understanding of what is at stake, including the financial burden of legal fees and expenses. When fee-shifting is available, it must be invoked properly and supported by clear evidence. When it is not, clients must be prepared to fund their defense or prosecution, regardless of the outcome.

For more information about fee-shifting in New Jersey litigation or to schedule a consultation, please contact the Law Offices of Peter J. Lamont at www.pjlesq.com, call 201-904-2211, or email info@pjlesq.com.

Contact us today to discuss your business or legal matter. Put our 20+ years of legal experience to work for you.

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For detailed insights and legal assistance on topics discussed in this post, including litigation, contact the Law Offices of Peter J. Lamont at our Bergen County Office. We're here to answer your questions and provide legal advice. Contact us at (201) 904-2211 or email us at  info@pjlesq.com.

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About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.

Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magazine and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.

As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals​.

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