When a breach of contract claim arises, the parties have to consider more than just the potential damage award when deciding whether to settle the case. A.R.S. § 12-341.01 provides that the prevailing party in a contested action arising out of a contract may be awarded reasonable attorney fees. The financial risk of having to pay the other party’s attorney fees is an important consideration when deciding whether to settle or litigate a case.
How Fee Shifting Impacts Breach of Contract Settlements
Not only do you have to consider the possibility of losing a case and paying the other party’s attorney fees, but you must also understand that each settlement offer could shift who the “prevailing party” will be. You can lose a case and have to pay damages to the other party, but still be considered the prevailing party and be awarded attorney fees.
Whether you prevail is determined by comparing the proposed settlement to the final outcome. For example, if the other party offers you a $40,000 settlement that you reject, and you then win an award of $30,000, you will have won the case, but the other party will have “prevailed” under the fee shifting statute.
As you can see, your award may end up being dwarfed by the attorney fees you are required to pay to the other party.
How to Analyze a Settlement Offer
Because of the significance of an attorney fee award, every settlement offer needs to be carefully analyzed. Accepting an offer eliminates the risk of losing on the merits, and being ordered to pay the other party’s attorney fees. Declining a settlement offer could expose you to the risk of losing the case and/or giving the other party the edge in obtaining “prevailing party” status. Of course, litigation also prolongs the case and increases the costs to both sides.
Because of these considerations, you need to consider more than just the perceived fairness of an offer or how it might compare to a potential judgment award. An experienced litigator will help you understand the risks and benefits of making, declining, or accepting a settlement offer.
Chernoff Law handles business litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your breach of contract case.