Are attorney fees recoverable in Colorado construction and real estate cases?

The American Judicial System is time-consuming and expensive. Homeowners and small business owners can find themselves in a situation where they have been wronged in some way and are left asking “how can I afford to recover my damages?”

The default answer is that under the “American Rule” each party pays their own attorney fees. Despite the American Rule, there are still a few ways attorney fees can be recovered in Colorado construction and real estate litigation. We have summarized a few common scenarios below.

First, a party may recover attorney fees if a contract exists that permits an award of attorney fees. Contractual attorney fees provisions can be one-sided meaning that one party to the contract is awarded attorney fees. This type of clause can be concerning because one party may be required to pay the other party’s attorney fees. A legal argument can be made, however, that a party should not be rewarded for breaching the contract by recovering attorney fees incurred in defending against a claim.

Another common contractual attorney fees provision is that the prevailing party is entitled to recover their attorney fees. Under this standard, the party seeking attorney fees must establish that it is in fact the “prevailing party.” To be a prevailing party, a claimant (i) must have succeeded upon a significant issue in the litigation and (ii) must have achieved some of the benefits sought in the lawsuit. The difficulty with this type of attorney fees provision is that the party must request the court make a determination that it is the “prevailing party” and thus entitled to recover its attorney fees. Contractual attorney fees provisions can mean a claimant runs the risk of not only paying their own legal fees, but may also be forced to pay the other party’s legal fees effectively doubling the cost of litigation.

A second way a party may be entitled to recover attorney fees is when a statute or law permits recovery. For example, Colorado’s landlord/tenant laws permit recovery of attorney fees to promote access to the legal system and encourage attorneys to assist cases when damages may be in the hundreds of dollars or a few thousands of dollars. Other Colorado statutes such as Colorado’s Mechanic’s Lien Trust Fund, Civil Theft, and Insurance Bad Faith permit recovery of attorney fees as a punitive measure to punish violators of that specific law.

A third way a party may be entitled to recover attorney fees is when the court orders fees awarded as a sanction. This avenue to an award of attorney fees is rarely enforced and difficult to achieve. Essentially, courts follow the presumptive position that each side pays their own attorney fees. Unless the case involves major issues of delay, harassment, frivolousness, substantially groundless claims or substantially vexatious claims, the court is unlikely to award attorney fees. While attorneys and their clients may claim they should be entitled to attorney fees because a claim lacked substantial justification, courts rarely award attorney fees under these circumstances.

Even if a party is entitled to an award of attorney fees, such award is not automatic. First, an award of attorney fees is only considered at the very end of the litigation, after a trial or other determination on the merits. Second, the party seeking an award of attorney fees must request and obtain the court’s permission to receive the attorney fees, which permission may be denied. Third, the party seeking attorney fees has the burden of proving the fees were reasonable under several factors established by the courts. This analysis often results in the opposing party’s objection to the reasonableness of fees and a reduction in the amount awarded by the court.

At Johnson Law we understand the expenses our clients face in dealing with the unfavorable position of correcting a wrong, and we work with our clients to make the best out of bad situation. Johnson Law will not sugarcoat the realities of access to the American Judicial System or the potential risks associated with pursuing claims. Instead, our attorneys pride themselves on cultivating creative partnerships with our clients to achieve the best outcome for each individual client. Contact an attorney on our team to discuss the specific facts of your circumstances.

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