Missouri Supreme Court Rules on Contractual Clauses for Attorneys’ Fees

By:  HEATHER ROONEY MCBRIDE & ALDEN T. SMITH

In 2021, the Missouri Supreme Court handed down a decision that weakened the enforceability of contractual attorneys’ fees clauses.  The decision, Arrowhead Lake Estates Homeowners Assn., Inc. v. Aggarwal, 624 S.W.3d 165 (Mo. banc 2021), threw out Missouri’s tradition of uniformly granting attorneys’ fees when they are agreed upon in the applicable contract.

The case centered around a dispute between a homeowner’s association (“HOA”) and two of its residents (“Homeowners”).  Homeowners began constructing an unapproved addition to their house that went against the bylaws of their signed HOA contract.  The HOA then served them with a cease-and-desist letter, which Homeowners ignored.  The HOA sued Homeowners to halt construction and for payment of its attorneys’ fees pursuant to the HOA contract.  The circuit court ordered Homeowners to stop construction but ordered both sides to pay their own attorneys’ fees.  The HOA appealed the circuit court’s decision not to award fees.

The HOA contract stated that “…the prevailing party shall be entitled to receive an aware [sic] of attorney’s fees and court costs as deemed appropriate by a court of competent jurisdiction.”  Historically, contractual agreements for attorneys’ fees have been honored by trial courts in the State of Missouri in that the court orders the losing party to pay some amount of the winner’s attorneys’ fees if the parties agreed to it via contract.  This is in line with the “American Rule” for attorneys’ fees.  Nationwide, in states that adopt the American Rule, each party pays its own attorneys’ fees unless the parties agree to an alternate arrangement via contract, or the losing party is mandated to pay attorney fees by an applicable statute.

The Missouri Supreme Court’s decision in Aggarwal found that the circuit court was justified in its decision to force both sides to pay their own attorneys’ fees despite the contractual agreement otherwise.  The Court, in a 3-2 decision, argued that the language in the attorneys’ fees clause, “shall be entitled to” did not mandate a court to award attorneys’ fees, rather, this language merely “qualifie[d] the prevailing party to receive [them].”  Moreover, the Court defined “entitle” as “to give a right.”

Taken together, the Court reasoned that the language “shall be entitled to … attorneys’ fees” qualified the winning party the right to receive attorneys’ fees, but the Court stopped short of granting the winning party an absolute right to them.  This interpretation allowed the trial court to consider the language “as deemed appropriate” as giving the court the ability to grant fees, or not, in its discretion.

This holding is controversial because Missouri courts have historically honored contractual attorneys’ fees clauses regardless of the exact language used to draft them.  While Missouri courts do not always grant the full amount of attorney fees claimed by the prevailing party, a contractual clause awarding fees has normally been construed as dictating an attorney fee award of some amount.  The dissent agrees with the traditional interpretation whereby an attorneys’ fees clause mandates the court to grant attorneys’ fees regardless of the precise language used to draft it.

In Aggarwal, both parties undoubtedly came out of the litigation with steep legal bills.  The HOA felt confident in suing Homeowners because it intended to rely on the contractual attorney’s fees clause.  The Missouri Supreme Court’s decision to disregard the clause was a crushing blow for the HOA, and the repercussions of this decision will be felt by any contracting party who desires to file suit against the other party but has a “loose” attorney fees clause in its contract.

The takeaway for practitioners and clients alike is that attorney fee clauses in contracts must be reexamined.  Phrases like “attorneys’ fees shall be granted as deemed appropriate”, “the winning party is entitled to attorneys’ fees”, or “the winning party shall receive all reasonable costs incurred” are now potentially dangerous and likely give the trial court discretion to grant zero attorney’s fees to the prevailing party if it sees fit.  These phrases should be revised and replaced with succinct and mandatory language that does not allow for an interpretation permitting judicial discretion as to whether attorney’s fees should be awarded in the event of litigation.

If you or your business requires assistance with contract drafting, please contact the attorneys at Rooney McBride & Smith, LLC, at 417-708-9681, today.