Fee Shifting Denied When Purported Fee-Shifting Clause Lacked Clear Language Suggesting Fee Shifting in Litigation

On September 26, 2024, Justice Joel M. Cohen of the New York County Commercial Division issued a decision in Bloodhound Partners LLC v. Wearsafe Labs Holding LLC, Index No. 654718/2022, granting a motion for entry of a default judgment but denying attorneys' fees to plaintiffs on the ground that the purported fee-shifting clause on which plaintiffs relied lacked "clear language suggesting fee shifting in litigating," explaining:

Plaintiffs' request for an award of litigation fees and costs pursuant to section 10(h) of the Notes is denied. That section provides as follows: "Fees and Expenses. The Company [Wearsafe Labs] shall be responsible for its own and the Investor's [Bloodhound's] fees and expenses incurred in connection herewith" (NYSCEF 27-29 at § 10(h)). Unlike section 10(g) ("Waiver of Jury Trial"), section 10(h) contains no reference to "any claim or cause of action based upon or arising out of this Note," and instead seems to refer more generally to fees and costs in connection with the transaction itself, not litigation thereafter. In the absence of clear language suggesting fee-shifting in litigation, the Court declines to render such an award, particularly on a motion for default judgment."

A party may agree in a contract to pay another party's attorneys' fees in litigation. But the purported fee-shifting clause in the contract must make it "unmistakably clear" that this fee shifting is what the parties agreed to. Here, according to the court, had the parties intended for their contract to cover fee shifting in litigation, they should have made that clearer. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning fee-shifting clauses in contracts.