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Indiana – Attorney Fee Provision

BK Cap, LLC v. Captec Franchise Trust, 2000-2001, 701 F. Supp. 2d 1030 (ND Ind. 2010)

As the United States District Court for the Northern District of Indiana points out “this case is a recurring lesson on the importance of carefully drafted contract provisions.” At issue is one line in an attorney fee provision existing within a series of twelve loan agreements. The attorney fee provision in the loan documents stated borrower shall reimburse lender for all costs and expenses, including attorneys fees, incurred by lender in enforcing the rights of lender under this note or the other loan documents. The lender claimed that under the unambiguous language of the agreements, the borrowers are obligated t o pay its attorney fees incurred in any dispute. The borrower on the other hand claimed that the agreements only allowed for the lender to recover fees when it is enforcing its rights, and responding to a lawsuit does not constitute enforcement. The court agreed and found that the loan agreement provided for the recovery of fees only when the lender affirmatively takes action to enforce its rights against the borrower and that defending it against a declaratory judgment action and breach of contract claim does not constitute enforcement. The court stood by the American rule that parties pay their own attorney fees. The court reasoned that because any statute allowing for the recovery of attorney fees is in derogation of common law, it must be narrowly construed.

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