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New Case Regarding Award of Attorneys' Fees in a Collection Action

Posted Monday, August 6, 2012 by Christopher L. Thayer

alt textIn Atlas Supply, Inc. v. Realm, Inc., Division One of the WA Court of Appeals answered the question: if a contract provides for an award of the “cost of collection, including reasonable attorney fee” does this include fees and costs incurred in defending a counterclaim? The Court of Appeals overruled the trial court and found that, yes, in this instance at least the supplier (Atlas) was entitled to an award of its fees and costs incurred, not only in its effort to collect on payment, but also the fees incurred defending defendant’s counterclaims.

Atlas sold construction materials and suppies to Realm on credit. The products allegedly failed, and Realm refused to pay for the materials. Atlas filed suit and Realm counterclaimed, asserting breach of contract and breach of warranty, among other claims. The parties were subsequently able to resolve their substantive claims, but were unable to agree on liability for Atlas’ attorneys’ fees. The trial court declined to award fees and costs incurred in defending the counterclaims.

On appeal, the Court of Appeals determined that Realm’s counterclaims where considered “compulsory counterclaims” - which means counterclaims that related to the same underlying transaction, and therefore had to be asserted in the underlying action, or risk being deemed waived. The Court of Appeals held that these counterclaims had to be resolved for Atlas to prevail on its collection action, and found that Atlas was entitled to an award of its fees and costs incurred in defending the counterclaims.

A few observations: (1) keep in mind that in WA, absent statute or contract, in civil litigation each party is generally responsible for its own attorneys’ fees and costs; and (2) the language contained in the contract concerning attorneys’ fees can be key. In the Atlas case, Atlas initially did not get an award of its fees incurred in defending the counterclaim, based on a narrow interpretation of the contract. It is important to review the contracts that you use every day in your business. With few exceptions, you will almost always want an attorney fee provision, and as the Atlas case demonstrates, the specific language can be key.

For more information, please contact Christopher Thayer at (206) 805-1494.

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