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Contract claims often include substantial legal fees when business disputes escalate to court. But what happens when a business successfully defends itself on a contract-based affirmative defense? California’s recent case, Am. Bldg. Innovation v. Balfour Beatty Constr. offers valuable insight for business owners facing contract disputes. Understanding how attorney’s fees work in these cases can significantly affect legal strategies and potential recoveries. 
What is an Affirmative Defense in Contract Disputes?
In contract litigation, an “affirmative defense” is a legal argument that could invalidate the plaintiff’s claims, even if they are valid. Essentially, an affirmative defense can help a defendant prove why they aren’t liable under the contract terms, without disputing the facts presented by the plaintiff. For instance, if a contractor sues a business for non-payment, the business may argue that the contractor lacked a proper license, making the contract unenforceable.
Does Winning an Affirmative Defense Mean You Get Your Legal Fees Paid?
California Civil Code Section 1717 allows attorney’s fees to be recovered if you win a contract claim, but until recently, it was unclear if this applied to affirmative defenses. In the 2017 case Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, the California Supreme Court ruled that an affirmative defense alone does not constitute a claim under the contract for purposes of recovering attorney’s fees.
However, in the recent case of Am. Bldg. Innovation v. Balfour Beatty Constr. (2024) changes this understanding. Here, the court ruled that a business prevailing on a contract-based affirmative defense may indeed recover attorney’s fees, as long as both the defense and the plaintiff’s claim are tied to the same contract.
Why This Ruling Matters for California Business Owners
In contract disputes, legal fees can add up quickly. By knowing your rights under Civil Code Section 1717, you can prepare a more informed defense strategy. Winning an affirmative defense may now allow your business to claim attorney’s fees, making a court battle potentially less financially draining.
This ruling means that if you’re engaged in a contract dispute and need to defend against a claim, carefully evaluating your affirmative defenses can put you in a better position to recover costs. If the affirmative defense is directly tied to the contract in question, there’s now a pathway for attorney’s fees recovery.
Practical Tips for Business Owners Facing Contract Disputes
- Evaluate Your Contracts and Defenses: Not all contract claims allow for fee recovery. Work with a litigation attorney who can assess if your defense qualifies under Section 1717.
- Consider Filing a Cross-Claim: If you’re defending against a contract claim, consider filing a cross-claim for declaratory relief. This way, if you prevail, it enhances your chance to recover attorney’s fees.
- Document Licensing and Compliance: Ensure your business complies with licensing requirements, as this often forms the basis of affirmative defenses in construction and contractor disputes.
Turn Legal Knowledge Into Savings
Understanding contract defenses can save you more than just legal headaches—it can save money. With the right approach, businesses defending contract claims in California may now recover significant attorney’s fees. If your business is facing a contract dispute, schedule an appointment with our experienced business litigation team. We’ll help you understand your legal options and make the best decision for your bottom line.
