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Paying for Litigation: Recovering Attorneys’ Fees in North Carolina

It is a well-established rule in North Carolina that, unless a statute provides otherwise, the parties to a lawsuit are responsible for their own attorneys’ fees, even if the parties have agreed to the contrary. This article sets out some of the more common statutory provisions allowing attorneys’ fees to be awarded by North Carolina courts in business litigation cases. They are listed in numerical order as they appear in the North Carolina General Statutes (“N.C.G.S.”).

N.C.G.S. § 6-21.2 – Evidence of Indebtedness

Attorneys’ fee provisions in notes, conditional sale contracts, and “other evidence of indebtedness” are enforceable. This allows individuals or companies to recover reasonable attorneys’ fees in a collection action regarding the non-payment of an invoice or a breach of contract where the paper creating the indebtedness contains an attorneys’ fee provision allowing the prevailing party to be compensated their reasonable attorneys’ fee in enforcing their contractual rights. However, recovery of your attorneys’ fees under this section is capped at fifteen percent (15%) of the outstanding balance of the invoice or note. The party seeking to enforce the attorneys’ fees provision must provide notice to the debtor of his intent to enforce. The debtor then has five days from the mailing of such notice to pay the outstanding balance without the attorneys’ fees. If the debtor pays within that window of time, the attorneys’ fee claim is void.

N.C.G.S. § 6-21.6 – Reciprocal Attorneys’ Fees Provision in Business Contracts

Reciprocal attorneys’ fee provisions in business contracts – meaning each party has the opportunity to recover attorneys’ fees as provided under the contract – are valid and enforceable if all parties to the business contract sign by hand. Unlike N.C.G.S. § 6-21.2, this statute applies only to business contracts, not consumer contracts, and the recovery is capped at the amount of monetary damages awarded, rather than 15% of the outstanding balance. However, a party may only recovery reasonableattorneys’ fees and the amount awarded is in the judge’s discretion.

N.C.G.S. § 55-7-46 – Derivative Action against a Corporation

On termination of a derivative proceeding, by settlement or otherwise, the court may order the corporation to pay the plaintiff’s attorneys’ fees and expenses if the proceeding resulted in a substantial benefit to the corporation; order the plaintiff to pay the defendant’s attorneys’ fees and expenses incurred in defending the action if it was commenced or maintained without reasonable cause or for an improper purpose; or order attorneys’ fees and expenses be paid by a party for reasons akin to Rule 11 sanctions.

N.C.G.S. § 55-8-52, 56-57 – Indemnification of Directors, Officers, Employees, and Agents

Unless a corporation’s articles of incorporation provide otherwise, an officer or director of a corporation who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director or officer of the corporation, is entitled to mandatory indemnification, including reasonable attorneys’ fees and expenses. The corporation may also advance the costs of litigation to officers and directors in these cases. These provisions may also be applied to employees or agents of the corporation if it is set forth in the articles of incorporation, bylaws, general or specific actions of the board of directors, or contracts of the corporation. These provisions are not enforceable, however, if the party’ actions at the time taken were known or believed by him to be in conflict with the corporation’s best interests.

N.C.G.S. § 57D-2-32 – Remedies for Breach of LLC Operating Agreements

Attorneys’ fee provisions in an LLC Operating Agreement are valid and enforceable as set forth in the Operating Agreement. The statute specifically allows recovery ofreasonable attorneys’ fees by the non-breaching party, as well as other remedies including interest and liquidated damages.

N.C.G.S. § 57D-8-05(1) – Derivative Actions against LLC

Attorneys’ fees are specifically allowed for a plaintiff in a derivative action against an LLC where the action results in a “substantial benefit to the LLC.” The plaintiff need not be the prevailing party, nor must the derivative claim have proceeded to a final judgment or order. Ekren v. K&E Real Estate Investments, 2014 NCBC 56. In Ekren, the filing of a derivative lawsuit against the LLC resulted in the return of certain LLC assets by an LLC member who had converted the same. The Court in Ekren awarded reasonable attorneys’ fees because the return of the LLC’s assets was a substantial benefit to the LLC.

N.C.G.S. § 59-1004 – Partnership Derivative Actions

A limited partner may bring an action in the right of a limited partnership to recover a judgment in its favor. If the derivative action is successful, in whole or in part, or if anything is received by the plaintiff as a result of a judgment, compromise, or settlement of any action or claim, the court may award the plaintiff reasonable expenses, including reasonable attorneys’ fees. However, the court can order the plaintiff to pay the defendant’s expenses if the action was brought without reasonable cause.

N.C.G.S. § 75-16.1 – Unfair and Deceptive Trade Practices Violation (N.C.G.S. § 75-1.1)

The prevailing party in any suit instituted by a person who alleged the defendant violated G.S. 75-1.1 (the Unfair and Deceptive Trade Practices Act), may be awarded a reasonable attorneys’ fee upon a finding by the presiding judge that: (1) the party charged with the violation has willfully engaged in the act or practice, and there was an unwarranted refusal by such party to fully resolve the matter which constitutes the basis for the suit; or (2) the party instituting the action knew, or should have known, the action was frivolous and malicious.

N.C.G.S. § 78A-56(a), (b1) – Civil Liability for Securities Fraud

Attorneys’ fees may be awarded to a plaintiff who successfully brings a civil action for securities fraud under Chapter 78A if the defendant offers or sells a security in violation of Chapter 78A.

In most cases, attorneys’ fees are awarded in the presiding judge’s discretion and they must be in a reasonable amount. It is important to understand that the award of attorneys’ fees is not guaranteed and does not equate to a substitute for paying your attorney their normal rate throughout the pendency of the lawsuit. Attorneys’ fee awards are meant to reimburse the party their costs in having to pay an attorney to prosecute their claim. Contact a business litigation attorney to determine if your claims could potentially warrant an award of attorneys’ fees.