The Court of Chancery interpreted a fee-shifting provision found in a Master Purchase/Service Agreement (the “MPSA”). The provision provided:
“In the event that either party commences any action or proceeding to enforce it’s [sic] rights under this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorneys’ fees.”
The Court determined that this language required payment of the prevailing party’s attorneys’ fees in each separate action brought by any prevailing party. This included early disputes regarding proper venue to actions resulting in final resolution of the merits of the case. The Court noted that in complicated litigation such as the case before it, it made sense to wait until a decision on the merits of the case was issued before shifting attorney’s fees. However, such a decision could not be reconciled with the plain language of the MPSA.
Bottom Line: Fee-shifting provisions that mandate legal fees be paid to the “Prevailing Party” in “any Action” taken to enforce contractual rights apply to each and every action related to the enforcement of such rights. Parties who want to use a fee-shifting provision in business agreements, but want it to apply only upon the final resolution of the merits of the case, must include a “more encompassing reference to substantive dispute conclusion (or the final merit-based litigation outcome).”