Arbitration & Mediation

Nonsensical and Poorly Worded Fee Provision Not Enforced

By Christopher B. Hopkins, Esq.

General guidelines of writing attorney fee provisions, like arbitration clauses, typically start with the concept of clear and broad language. This recent Fifth DCA opinion, while involving an attorney fee provision, violates both. It is, however, instructive for those involved in drafting arbitration clauses. Indeed, the wording that entitlement to fees "in the enforcement of this Lease" as opposed to "arising from or relating to the Lease" has become a typical blunder in contract drafting.

The case is Islander Beach Club Condominium, et al v. Skylark Sports, LLC, which involved a dispute where Skylark leased restaurant space in Islander's condominium which was then vacated during a four (4) month repair project. Skylark filed suit against Islander for fraud in the inducement while Islander counter-claimed for a breach of lease. The provision at issue states as follows:

ATTORNEY'S FEES: In the event that either party incurs legal fees or costs in the enforcement of this Lease or any provision hereof, whether suit is filed or not, shall be entitled to recover and to receive payment of reasonable attorney's fees and costs incurred by the other party.

If you read the foregoing provision quickly, it contains all of the right words and, at first blush, looks correct. Multiple readings however, betray a surprising number of problems arising out of one sentence. Below, we have repeated the provision noting in brackets some of our concerns:

ATTORNEY'S FEES: In the event that either party incurs legal fees or costs in the enforcement of this [arising from or relating to the] Lease or any provision hereof, whether suit is filed or not, [the prevailing party] shall be entitled to recover and to receive payment of [its] reasonable attorney's fees and costs incurred by the other party [unless the parties can reach an agreement, the determination of the prevailing party will be made by an arbitrator/court of competent jurisdiction].

After a jury trial, Skylark won its fraud in the inducement count and was awarded approximately $227,000 while Islander lost its breach of lease counter-claim. Skylark then moved for its attorney’s fees and costs under the foregoing provision. During the hearing, the trial court inquired as to how the fee provision came to be. Islander’s counsel indicated that it was negotiated by that Skylark’s principal, Mr. Della Velle, had made significant revisions. Although slightly unclear in the opinion, it appears that the trial court decided to blue pencil and revise the agreement so that it made sense. In the end, Skylark was awarded $192k in fees and costs under this provision.

The Fifth DCA (Sawaya, Palmer, & Monaco) determined that fee provisions are limited by its terms. The Court noted that the fee provision made no sense since some unnamed entity would be entitled to recover fees incurred by the other party. The Court found that the wording did not reflect any clear intention of the parties as to whom, when, and how attorney’s fees or costs should be allowed. Relying upon Fourth DCA precedent, the Court determined that if a term is ambiguous, the judge did not struggle by construction of the language to infer intent for fees that has not been clearly expressed. To that end, the appellate court found that the trial court went too far in rewriting the agreement and, instead, felt that it was clear that there was no meeting of the mind regarding the specific provision.

Thus, the body of the Islander decision rests upon the lack of clearly worded contract provisions. Interestingly, however, in footnote 1. In that footnote, the Court points out that Skylark won under the count of fraud in the inducement. Comparatively, the attorney fee provision discusses an action “in the enforcement” of the lease. Skylark was the prevailing party under a theory that the lease was void due to fraud in the inducement hence it was not an action “in the enforcement of” the lease. Arguably, however, they would be entitled to attorney’s fees since Skylark was the prevailing party when Islander lost its breach of contract counter-claim (although this wasn’t brought up in the opinion). The Fifth DCA did appropriately note that the “in enforcement” wording was insufficiently narrow and that a clause such as “arising out of a contract” would have permitted entitlement to fees even for fraud in the inducement.

Full post as published by Florida Arbitration Law on March 25, 2008 (boomark / email).