Contractual Attorney’s Fee Provisions are Good for the Long Haul

By Courtney M. Gaber, Associate

The Indiana Court of Appeals recently confirmed that post-judgment attorney fee awards are appropriate when provided in a contract.  In Shoaff v. First Merchs. Bank [1], the Court of Appeals found it unreasonable to cap a bank’s award of attorney’s fees at summary judgment when the plain language of the contract provided for recovery of all attorney’s fees.  This decision reiterates the importance of including a broad attorney’s fee provision in all contracts.  Such fee provisions also provide negotiating leverage to the non-breaching party.

Shoaff involved enforcement of a loan guaranty.  In Shoaff, the bank’s loan to a borrower was secured by identical guaranty agreements executed by two guarantors.  The guaranties were unconditional, non-revocable and secured all existing and future debts, including future advances and modifications to the loan.   The guaranties included provisions making the guarantors liable for all attorney’s fees and costs of collection incurred in the bank’s enforcement of the loan documents.

When borrower defaulted bank filed suit against borrower and guarantors.  After borrower and one guarantor were dismissed, the bank filed a motion for summary judgment against the remaining guarantor.  Summary judgment is a procedure which allows a trial court to enter judgment in favor of one party against another without a trial.  To obtain summary judgment the moving party must demonstrate to the court, often through sworn statements and documentary evidence, that no genuine issues of material fact exist and the moving party is entitled to summary judgment as a matter of law.

Summary judgment was granted in favor of the bank and a damages award was entered which included attorney’s fees.  The guarantor then filed a motion to correct errors on the summary judgment and damage award.  A motion to correct error is a motion that asserts there is a mistake in a judgment or order and asks the court for correction.  Although no error was found in granting summary judgment for the bank, the damage award was vacated and a new judgment was entered for a reduced principal amount which still included an award of attorney’s fees.  Still unhappy with the outcome, the guarantor appealed the summary judgment and the second damages award.  The bank then cross appealed the reduced damages award and the denial of the additional attorney’s fees incurred during the post-judgment litigation on the motion to correct error and the recalculation of damages.

In Indiana, trial courts have broad discretion to award attorney’s fees and are limited only by considerations of reasonableness.  Indiana courts also enforce contracts according to the plain meaning of their terms where the contract language is unambiguous.  This same approach is applied to the interpretation of  guaranty agreements.

In Shoaff, the Court of Appeals reversed the damages award with instructions for the trial court to assess a reasonable amount of attorney’s fees for all services rendered in the collection of the debt.  The Court of Appeals determined that since reasonable attorney’s fees were provided in the guaranty agreement, the award of fees up to a certain date, and not for subsequent litigation, was arbitrary and rendered the attorney fee award unreasonable.  The post-judgment attorney’s fees must still be reasonable to be awarded, but a complete failure to analyze the reasonableness of the request was to ignore the plain language of the guaranty agreement in violation of Indiana law.

The Shoaff decision is an important reminder to both sides in litigation that attorney’s fees can and will be awarded post-judgment if they are provided in a contract.   Non-prevailing parties run the risk of paying additional fees when challenging or declining to pay judgments.  On the other hand, the pursuit of additional fees can be a valuable negotiating tool for prevailing parties seeking payment and/or settlement on judgments.  If an attorney’s fees provision is written correctly, it is good for the long haul throughout the entire collection process.

[1]  Shoaff v. First Merchs. Bank, [1] 201 N.E.3d 616 (Ind. Ct. App. 2022)