For general counsel, founders, and executives managing legal risk, attorneys’ fees are not a footnote. In California business litigation, they are often the central strategic variable that dictates how a case is fought, settled, or abandoned.
The baseline rule in California is simple but frequently underappreciated: we follow the “American Rule,” meaning each side pays its own attorneys’ fees unless a specific statute or contract shifts those fees to the losing party. California Code of Civil Procedure section 1021 makes clear that, absent a statute, the measure of attorney compensation is left to the parties’ agreement.
For contract disputes, California Civil Code section 1717 is the heavy hitter. It dictates that where a contract provides that attorneys’ fees incurred to enforce the contract shall be awarded to the prevailing party, the party determined to have prevailed is entitled to reasonable attorneys’ fees.
Crucially, Section 1717 makes one-sided contractual fee provisions reciprocal — and this is a feature of California law that does not exist in every state. In many jurisdictions, a contract clause that awards fees only to one named party is enforceable exactly as written. Not in California. Here, a one-sided fee clause will not stand. Consider a common example: a commercial lease drafted by the landlord that reads, “If Landlord brings any action to enforce this Lease, Landlord shall be entitled to recover its reasonable attorneys’ fees from Tenant.” That clause names only the landlord as the potential fee recipient. Under Section 1717, if the tenant prevails in an action on the contract — whether they brought the suit or the landlord did — the tenant is entitled to fees on the same basis. The clause becomes reciprocal by operation of law, regardless of what the drafter intended. The California Supreme Court’s decision in Hsu v. Abbara, 9 Cal.4th 863 (1995), illustrates the force of that rule: where a defendant obtained a simple, unqualified victory on the only contract claim, the defendant was entitled to attorneys’ fees as the prevailing party under section 1717 — even though the fee clause had been drafted to favor the plaintiff.
The practical implication is significant: companies that draft one-sided fee provisions expecting to be the only beneficiary may find that those clauses become a liability if the other side wins. Section 1717 levels the playing field, and California courts apply it consistently.
But knowing the rule is only the starting point. The real question is how fee-shifting changes the economics of a dispute before the first motion is ever filed.
Why We Check for Fee-Shifting Before Taking a Case
When a client brings us a new dispute, one of the very first things we do is identify every potential fee-shifting provision — whether in the contract or in the relevant statutes. We do this because fee-shifting fundamentally alters the leverage in the room.
Without fee-shifting, a plaintiff with a strong claim might have to walk away or settle for far less than it is worth because the cost of litigating it through trial can easily exceed the amount in controversy. To use a hypothetical: a $200,000 contract dispute taken through trial in Los Angeles can realistically cost $250,000 to $350,000 or more in legal fees depending on complexity, discovery, and expert witnesses. The defendant knows this and can simply wait the plaintiff out. But when a valid fee-shifting provision applies, the math changes entirely. The defendant is no longer just risking the $200,000 principal. They are risking the principal plus the plaintiff’s legal fees, plus their own defense costs. A hypothetical $200,000 dispute can carry $700,000 or more in total exposure once fees on both sides are modeled. That compounding risk often forces the likely losing party to the settlement table much earlier.
The California Supreme Court’s decision in Santisas v. Goodin, 17 Cal.4th 599 (1998), is a useful anchor for understanding how contractual fee provisions and Civil Code section 1717 interact — including the distinction between contract claims and noncontract claims after a voluntary dismissal. The lesson for litigants is this: do not assume fees are recoverable just because the case is expensive or the other side acted badly. There must be a fee-shifting basis. And do not assume a one-way fee clause only benefits the party named in the clause. In California contract litigation, Section 1717 may make the remedy reciprocal.
The Anti-SLAPP Statute: When Fee-Shifting Deters Weak Claims
Fee-shifting is not just a contract concept. Statutory fee-shifting can be an equally powerful defensive weapon, and one of the most potent examples in California is the Anti-SLAPP statute — California Code of Civil Procedure section 425.16.
SLAPP stands for Strategic Lawsuit Against Public Participation. We frequently see plaintiffs attempt to weaponize the legal system by filing defamation, interference, or fraud claims that are, at their core, disguised attacks on a defendant’s protected speech or petitioning activity. The Anti-SLAPP statute allows a defendant to file a special motion to strike these claims at the very beginning of the case, before expensive discovery begins.
Here is where the fee-shifting teeth come in: if the defendant wins the Anti-SLAPP motion, the statute mandates that the plaintiff pay the defendant’s attorneys’ fees. There is no discretion — the fee award is automatic upon a successful motion. In our experience, this mandatory fee-shifting provision radically changes plaintiff behavior. When a plaintiff realizes that filing a weak, unverifiable claim against protected speech will not just get thrown out, but will result in them writing a check to cover our client’s legal defense, the appetite for frivolous litigation evaporates. The fee-shifting threat acts as a structural deterrent against bullying tactics and meritless claims designed to impose litigation costs rather than vindicate a genuine grievance.
This is one reason we evaluate Anti-SLAPP applicability at the outset of every case involving speech, petitioning activity, or public participation. The statute’s fee-shifting mechanism is not just a remedy — it is a strategic tool that can reshape the entire dispute from the first filing.
Strategic Considerations When Fee-Shifting Applies
If you are entering a dispute where fees are in play, you have to adjust your approach across several fronts.
1. Reassess Settlement Value Early and Often
Fee-shifting changes the expected-value analysis. A claim worth $500,000 may not be a $500,000 case if the prevailing party can also recover substantial fees. Conversely, a technically meritorious claim may become commercially unattractive if the client’s downside includes paying the opposing party’s fees after an adverse ruling. For executives, the strategic question is not simply, “What is the claim worth?” It is: what is the claim worth after accounting for fee exposure, litigation duration, procedural risk, collectability, and the probability of prevailing?
2. Identify Which Claims Are Covered
Many disputes include both contract and noncontract claims: breach of contract, fraud, negligent misrepresentation, fiduciary duty, unfair competition, or interference. The exact wording of the fee provision matters. Some clauses cover only actions “to enforce” the agreement. Others sweep more broadly, covering disputes “arising out of or relating to” the agreement. The broader the clause, the more likely fee exposure becomes a major settlement lever across the entire case.
3. Evaluate Prevailing-Party Risk, Not Just Liability Risk
A party can win something and still face a fight over whether it “prevailed” for fee purposes. In mixed-result cases where both sides win on different claims, the prevailing-party analysis becomes highly contested. This matters when deciding whether to pursue marginal claims, overplead theories, reject settlement offers, or continue litigating after the core business objective has been achieved.
4. Account for Ability to Pay and Collectability
Fee-shifting risk is not felt equally by every litigant. A party with a weak case but limited assets — or one that is effectively judgment-proof — may not be particularly deterred by an adverse fee award because the practical ability to collect is limited. That party may take litigation positions that seem economically irrational to a well-capitalized opponent. By contrast, a solvent company with a strong claim must still account for the off-chance downside: if it loses, it may be exposed not only to its own legal fees, but also to the opposing party’s recoverable fees. This asymmetry means fee-shifting analysis must include both legal exposure and collection reality. The right question is not only, “Who is likely to win?” It is also: if fees are awarded, who can actually pay, and how does that affect settlement leverage today?
5. Preserve Reasonableness
Even when fees are recoverable, the requested amount must generally be reasonable. Litigation strategy should account for how the billing record will look to a judge two years later. Overstaffing, inefficient motion practice, avoidable discovery battles, or disproportionate tactics may be slashed in a fee motion. The same point applies defensively: a party opposing fees should develop a record of the other side’s inefficiency, duplication, or unnecessary work from day one.
Drafting Implications for Companies
Fee-shifting strategy begins before litigation. Companies should review their commercial agreements with several questions in mind: Does the agreement include an attorneys’ fee provision at all? Is the provision narrow or broad? Does it apply only to contract enforcement, or to all disputes arising from the relationship? Does it cover arbitration, appeals, collection efforts, and post-judgment enforcement? Does it interact with limitation-of-liability provisions, indemnity provisions, or dispute-resolution clauses? And would the clause help or hurt the company more often, given its likely role in future disputes?
For founders and CEOs, an attorneys’ fee clause is not boilerplate. It is a litigation economics clause. For general counsel, it is a tool that can either deter weak claims, strengthen meritorious ones, increase settlement pressure, or magnify downside risk. Before filing, defending, or settling a California business dispute, identify the fee-shifting basis and model the case with fees, collectability, and downside risk included. The attorneys’ fee provision may be one of the most important economic terms in the dispute.
How Tajima LLP Approaches Fee-Shifting
Tajima LLP represents businesses, executives, and organizations in complex commercial disputes throughout California. We evaluate fee-shifting provisions at the outset of every engagement because they shape the litigation strategy from day one — not as an afterthought when a fee motion is due. Whether the issue involves a contractual fee clause, a statutory fee-shifting scheme, or the Anti-SLAPP statute’s mandatory fee award, we build that analysis into the case from the first conversation.
If you are facing a California business dispute and want to understand how fee-shifting affects your position, contact Tajima LLP for a case evaluation.