Attorney fee shifting provisions in commercial contracts are enforceable

Ohio law provides that parties have a fundamental right to contract freely. With limited exceptions, the terms of contracts entered into freely will be enforced – particularly contracts between sophisticated parties (e.g. corporations or other entities).  This includes the right to collect attorneys fees.

In 2-J Supply, Inc. v. Garrett & Parker, L.L.C., 2015-Ohio-2757, Ohio’s Fourth District Court of Appeal reversed a local court’s ruling denying attorney fees to the successful Plaintiff. The trial court failed to enforce the contract provision calling for the defendant to pay the plaintiff’s attorney fees as part of the terms of a credit account for the purchase of goods, finding, erroneously that the trial court did not have the power to enforce this contract provision.

2-J Supply provided materials to Garrett & Parker, LLC under a contract that provided payment terms. Additionally, Garrett & Parker, LLC’s principals signed the contract as personal guarantors. When Garret & Parker, LLC failed to pay the invoices as they became due, 2-J Supply brought suit for the unpaid invoices (approximately $16,000.00) and sought attorney fees of approximately $4,000.00. Neither Garrett & Parker, LLC nor its principals responded to the suit, resulting in a default judgment for 2-J Supply in the amount of the unpaid invoices, but not the attorney fees.

Ohio has a statutory prohibition against attorney fee shifting for “contracts of indebtedness” that do not exceed $100,000.00. The trial court relied upon this statute in denying 2-J Supply’s request for attorney fees.

However, the Court of Appeals reasoned that the indebtedness was not realized until the date the payment was due, rather than on the date of the contract.  Under this reasoning, the Court of Appeals determined that the contract at issue was not a “contract of indebtedness.” Based upon this analysis and prior case law, the Court of Appeals found that the trial court erred in denying the request for attorney fees.

Before signing any contract, make sure you read and understand the contract.