The American Rule for Payment of Attorney's Fees

Coming out of the Court of Appeals of Tennessee at Nashville is a decision on whether the phrase "cost and expenses" in enforcing a declaration of easements and restrictions includes the recovery of attorneys' fees. The court says NO.

Cracker Barrel sued their neighbor alleging that the neighbor's plan to expand their building violated the declaration of reciprocal rights and easement and restrictive covenant. This declaration governed the use of the Cracker Barrel property and the neighbor's property. Cracker Barrel ended up winning. The provision in the declaration stated: "All costs and expenses of any suit or proceeding shall be assessed against the defaulting party."

The Tennessee Court pointed out that Tennessee "follows the 'American Rule' which provides that litigants must pay their own attorney's fees unless there is a statute or contract providing otherwise." The court goes on to cite a case that the rule in Tennessee requires that the statute or contract specifically provides for the recovery of attorneys' fees.

The dissenting judge found that the use of "all cost and expenses" should be given its ordinary meaning and would include attorney's fees. After all the biggest cost of a "suit or proceeding" is going to be attorneys' fees.

You can follow these links for the decision in Cracker Barrel Old Country Store, Inc., et al. v. Richard Epperson, et al. (M2006-02424-COA-R3-CV) and the dissent.

Remember to always include the words "attorney's fees" when drafting a contract provision for the recovery of costs and expenses.

In the first draft of this post I failed to thank Mike Frisch of The Legal Profession Blog for pointing out this case.

IHOP Is Not Fast Food

In the case of McDonald v Rappaport et al, Judge Tauro of the United States District Court of Massachusetts, found that the International House of Pancakes is not a fast food restaurant. Judge Tauro also highlights a few drafting points for restrictive covenants.

In a lease with McDonald's Corporation, the landlord agreed to a provision that prohibited the landlord allowing a "so-called fast food restaurant, food service establishment, drive-in or walk-up eating facility" on property owned, leased or controlled by the landlord within two miles.

The court found the provision ambiguous as to whether "so-called fast food" modified only "restaurant" or also modified "food service establishment," "drive-in" and "walk-up." The court found that "so-called fast food" applied to each term after a bench trial. In evidence was an earlier draft of the provision that did not include "fast food."

The court also went on to note that a restrictive covenant like this is a restraint on alienation. In Massachusetts, "restrictions on land are disfavored, and they in general are to be construed against the grantor and in favor of freedom of alienation.” [citing Stop & Shop Supermarket Co. v. Urstadt Biddle Props., 740 N.E.2d 1286, 1289 (Mass.App. Ct. 2000)] So the narrower reading of applying the "so-called fast food" modification applies to all of the cited uses.

Even though the McDonald's lease does not define “so-called fast food,” McDonald's and IHOP did not dispute that IHOP is not a fast food restaurant under any definition of “fast food” or “quick service.” McDonald’s and IHOP both agreed that IHOP is a full service, family style restaurant.

Reasonable Efforts versus Best Efforts

Ken Adams, author of A Manual of style for Contract Drafting, published this article in The Practical Lawyer: Understanding Best Efforts and Its Variants.

I particularly liked his chart of the different "effort" phrases used in contracts filed with the SEC in 2004: