TL;DR — Key Takeaways
- California follows the American Rule. Each side pays its own attorney’s fees unless a contract or a statute says otherwise. There is no general “loser pays.”
- Costs are a different category from fees, and the prevailing party recovers costs as a matter of right. Filing fees, deposition costs, service, and jury fees are costs. Attorney’s fees are not, unless something independent makes them recoverable.
- The most common route to fee recovery is a contract clause. Civil Code section 1717 makes a one-sided clause mutual, so a provision written to protect only the drafter protects you too if you prevail.
- Section 1717 applies to actions on the contract. It generally does not reach tort claims you bring alongside your contract claim, which is why the same lawsuit can produce fees on one count and not another.
- Statutes shift fees in specific areas, including habitability, civil rights, and wage claims. There is no general statute that does it for ordinary disputes.
- A rejected offer to compromise shifts costs, and expert fees in the court’s discretion. It does not convert your attorney’s fees into a recoverable item.
In California, the losing party does not pay the winner’s attorney’s fees. Each side bears its own, unless a contract between the parties or a statute provides otherwise. That default is set by Code of Civil Procedure section 1021, and it is one of the most misunderstood rules in civil litigation.
Whether your case has a fee-shifting route changes the economics of the entire dispute, so it is worth determining before you file rather than after.
Costs and fees are not the same thing
This distinction does most of the work, and conflating the two produces the wrong expectation about what a win is worth.
Costs are recoverable by the prevailing party as a matter of right under Code of Civil Procedure section 1032. Section 1033.5 sets out what is allowable: filing and motion fees, jury fees, deposition costs including transcription, service of process, court reporter fees as established by statute, models and enlargements, and certain other items.
Attorney’s fees are treated differently. Section 1033.5 allows them as costs only when authorized by contract, by statute, or by law. Absent one of those, your own lawyer’s bill is yours.
The practical effect: winning a $40,000 contract case with no fee clause might return your filing fee, your deposition transcripts, and your service costs, while your attorney’s fees come out of the recovery. Those figures are an illustration of the structure, not an estimate of any particular case.
Section 1033.5 also lists items not allowable as costs and items allowable in the court’s discretion, so even the cost side is not automatic in every category. Our post on is my lawsuit worth it works through how this feeds the decision to file.
The contract route: Civil Code section 1717
Most successful fee recoveries in California trace to a clause in a contract.
What section 1717 does. Where a contract specifically provides that attorney’s fees incurred to enforce it shall be awarded either to one of the parties or to the prevailing party, the party who prevails on the contract is entitled to reasonable fees. The section makes the entitlement reciprocal. A clause drafted so that only the landlord, only the lender, or only the contractor recovers fees becomes mutual by operation of the statute, and the other side can recover under it too.
That is worth knowing on both sides of a signature. If you are handed a contract with a one-sided fee clause, the one-sidedness will not hold. If you are drafting one, understand that you are creating exposure as well as protection.
What it does not do. Section 1717 applies to an action on a contract. Claims sounding in tort are generally outside it, even when they arise from the same facts and are pleaded in the same complaint. A fraud claim and a breach of contract claim against the same defendant can produce a fee award on one and nothing on the other, and apportioning the work between them becomes its own fight.
Prevailing party is a defined question, not an obvious one. Section 1717 directs the court to determine who prevailed on the contract, and provides that where an action has been voluntarily dismissed or dismissed pursuant to a settlement, there is no prevailing party for purposes of the section. A defendant who gets the case dismissed voluntarily may therefore find no fee recovery available, which is a strategic point plaintiffs sometimes use deliberately.
If you are looking at a contract and trying to work out whether its fee clause helps you, that is a short conversation worth having early. Call Bay Legal at (650) 668-8000 in Northern California or (213) 668-8000 in Southern California.
The statutory route
A number of California statutes shift fees in defined areas. They are specific, not general, and there is no catch-all provision for ordinary disputes.
Examples a consumer is likely to meet:
Habitability. Civil Code section 1942.4 provides for attorney’s fees to a prevailing tenant in an action based on a landlord’s demand for or collection of rent on a substandard dwelling meeting the section’s conditions.
Civil rights. Civil Code section 52 provides for attorney’s fees in actions under the Unruh Civil Rights Act, alongside statutory damages.
Wages. Labor Code section 1194 provides fees to an employee who prevails on a minimum wage or overtime claim, and does so one way only. Labor Code section 218.5 provides for fees on certain other wage claims to the prevailing party, with a condition attached.
Public interest. Code of Civil Procedure section 1021.5 authorizes fees to a successful party in an action that has resulted in the enforcement of an important right affecting the public interest, where the litigation conferred a significant benefit on the general public or a large class, the necessity and financial burden of private enforcement make the award appropriate, and the fees should not in the interest of justice be paid out of the recovery. It is narrower than its reputation and is not a route for an ordinary two-party dispute.
Many other statutes do this in their own areas, from construction to trusts to consumer protection. The question in any given case is whether the specific claim you are bringing carries one, and that is a matter of reading the statute the claim arises under.
What a section 998 offer does and does not do
A rejected statutory offer to compromise changes the cost allocation. It does not create a fee entitlement.
If a plaintiff rejects a defendant’s offer and fails to obtain a more favorable judgment, the plaintiff cannot recover post-offer costs and must pay the defendant’s. Expert witness fees can be shifted in the court’s discretion. But attorney’s fees enter the calculation only where a contract or statute independently makes them recoverable as costs.
That is a frequent overstatement about section 998, and it matters because it is often the assumption behind a decision to reject an offer. How section 998 offers work covers the mechanics.
Working out whether your case has a fee route
Four questions, in order.
Is there a contract, and does it have a fee clause? Read it, including the parts that look like boilerplate. If there is a clause, section 1717 probably makes it mutual regardless of how it is worded.
Is the claim you are actually bringing on the contract? If your real theory is fraud or negligence, the fee clause may not reach it even though a contract exists.
Does a statute cover this claim type? This is claim-specific and worth checking with counsel, because the answer changes the economics substantially.
If the answer to all three is no, does the case still make sense? Often it does, particularly where the amount is large relative to the cost or where small claims is available. Sometimes it does not, and that is a real finding rather than a failure. Our post on judgment-proof defendants and the collectability question covers the other half of that analysis.
When the fee clause cuts against you
Worth stating plainly, because content on this topic rarely does.
A fee clause is symmetrical exposure. If you sue on a contract containing one and lose, you may owe the other side’s fees, and that figure can exceed the amount you were suing over. Section 1717’s reciprocity runs in both directions.
That changes the decision to file more than almost anything else in the analysis. A dispute of, say, $25,000 under a contract with a fee clause is a different risk from the same $25,000 dispute without one, and those figures are an illustration rather than an estimate, and a reader deciding whether to sue should be weighing the downside case, not only the upside. The same is true of a defendant deciding whether to fight rather than settle.
Bay Legal reviews fee provisions before disputes arise and litigates them after. Reach us at (650) 668-8000, (213) 668-8000, or through baylegal.com/contact-us.
Frequently Asked Questions
Does the losing party pay attorney’s fees in California?
Not as a general rule. Code of Civil Procedure section 1021 makes each party responsible for its own attorney’s fees unless a contract or a statute provides otherwise. The prevailing party does recover costs as a matter of right under section 1032, but costs and attorney’s fees are separate categories.
When does a contract fee clause allow fee recovery?
When the contract specifically provides for attorney’s fees incurred to enforce it and the claim is an action on that contract. Civil Code section 1717 then entitles the party prevailing on the contract to reasonable fees. If your claim is really a tort claim, the clause generally will not reach it even though the contract exists.
Which statutes provide for fee shifting?
Specific ones, in defined areas. Examples include Civil Code section 1942.4 for certain habitability claims, Civil Code section 52 under the Unruh Civil Rights Act, and Labor Code sections 1194 and 218.5 for wage claims. Code of Civil Procedure section 1021.5 covers successful public-interest litigation under demanding conditions. There is no general fee-shifting statute for ordinary civil disputes.
How does Civil Code 1717 make one-sided fee clauses reciprocal?
Where a contract provides fees to only one designated party, section 1717 entitles whichever party prevails on the contract to recover them. The drafter cannot reserve the benefit for itself. Note also that under the section there is generally no prevailing party where the action is voluntarily dismissed or dismissed pursuant to a settlement.
How do costs differ from attorney’s fees?
Costs are the expenses of running the case, and section 1033.5 lists what is allowable, including filing fees, jury fees, deposition and transcription costs, and service of process. The prevailing party recovers them as a matter of right. Attorney’s fees are allowable as costs only where a contract, statute, or other law authorizes them.
