The American Rule and “Fees on Fees”: Contractual Language Matters

By: Jeffrey M. Haber

Under the American Rule, each party ordinarily bears its own attorneys’ fees unless a statute, court rule, or agreement provides otherwise. Parties are free to contract around that rule, but New York courts require their intention to do so to be unmistakably clear. And even when an agreement provides for prevailing party attorneys’ fees, a separate question can arise: does the provision also permit recovery of the attorneys’ fees incurred in obtaining or defending an award of attorneys’ fees, commonly referred to as “fees on fees”?

That distinction was at the center of the Appellate Division, Second Department’s recent decision in Hershfield v. Davidoff. There, a promissory note permitted the prevailing party in “any action” relating to the subject note or loan to recover reasonable attorneys’ fees and costs. The question was whether that language was broad enough to permit the prevailing party to recover the additional fees incurred in defending an earlier fee award on appeal and in bringing a new action to recover those fees. The Second Department held that it was not.

The Applicable Legal Principles

The principle that litigants ordinarily bear their own attorneys’ fees has deep roots in American law. The “American Rule” “was originally derived from federal legislation passed in 1853 which recognized that ‘losing litigants were being unfairly saddled with exorbitant fees.’”[1] Under the American rule, “attorney’s fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule.”[2] 

“The American rule is intended to increase ‘free access to the courts’ for those who would otherwise be discouraged from seeking ‘judicial redress of wrongs’ for fear of having to pay a defendant’s attorney’s fees.”[3] As explained by the New York Court of Appeals, the American Rule “reflects a fundamental legislative policy decision that, save for particular exceptions or when parties have entered into a special agreement, it is undesirable to discourage submission of grievances to judicial determination and that, in providing freer and more equal access to the courts, the present system promotes democratic and libertarian principles.”[4] 

“In the context of private agreements to avoid the rule, courts have had to determine the intent of vague fee-shifting language and broad indemnification provisions that do not explicitly allow for the prevailing party in an action between contracting parties to collect attorney’s fees.”[5] The Court of Appeals addressed this issue several years ago, holding that courts examining “broadly worded indemnification provisions”, which “by their nature are intended to cover attorney’s fees in direct party actions,” must hue to the “Court’s exacting standard that the agreement must contain ‘unmistakably clear’ language of the parties’ intent to encompass such actions.”[6]

“The best evidence of what parties to a written agreement intend is what they say in their writing.”[7] As such, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.”[8] “Courts may not ‘by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.’”[9] 

“‘Whether an agreement is ambiguous is a question of law for the courts … Ambiguity is determined by looking within the four corners of the document, not to outside sources.’”[10] “The entire contract must be reviewed and ‘[p]articular words should be considered, not as if isolated from the context, but in the light of the obligation as a whole and the intention of the parties as manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought.’”[11] “Where the language chosen by the parties has ‘a definite and precise meaning,’ there is no ambiguity.”[12]

Evidence outside the four corners of the agreement – parol evidence – is admissible only if a court finds an ambiguity in the contract. As a general rule, extrinsic evidence is inadmissible to alter or add a provision to a written agreement. This rule gives “stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses … infirmity of memory … [and] the fear that the jury will improperly evaluate the extrinsic evidence.”[13] Further, when a contract contains a merger clause, a court must fully apply “the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing.”[14] 

Hershfield v. Davidoff

Hershfield grew out of a $250,000 loan that plaintiffs made to defendant, their then-son-in-law. On January 22, 2016, defendant executed a promissory note governing the loan. The note permitted prepayment and contained a broad prevailing party provision, stating that the prevailing party in any action concerning a dispute relating to the note or the loan, or any collection matter relating to them, would be entitled to recover reasonable attorneys’ fees and costs.

In October 2018, plaintiffs commenced an action against defendant and others seeking declaratory relief and recovery under the note. Plaintiffs alleged that defendant had failed to make the required payments and that $155,000 in principal remained due and owing. Defendant moved to dismiss the claims against him and sought an award of attorneys’ fees under the note.

By order dated May 24, 2019, the Supreme Court, Westchester County, granted the relevant portions of defendant’s motion. The motion court determined that the payments defendant had made to plaintiffs actually exceeded the amount that was then due under the note, which allowed prepayment. The motion court therefore dismissed plaintiffs’ claim for breach of the note and determined that defendant was the prevailing party entitled to recover the attorneys’ fees he had incurred in defending against that claim.

Following a hearing on the amount of those fees, the motion court issued an order dated April 30, 2020, awarding defendant $20,207.86 in attorneys’ fees. Plaintiffs appealed from the portion of the order granting defendant attorneys’ fees and fixing the award at that amount. The Second Department ultimately affirmed the fee award.

The conclusion of the first appeal did not end the parties’ dispute over attorneys’ fees. Defendant subsequently commenced a new action against plaintiffs, contending that the same provision of the note also entitled him to recover the additional attorneys’ fees and costs he had incurred in successfully defending the original fee award on appeal. He further sought the fees and costs incurred in bringing the new action to enforce that contractual right. According to defendant, the additional attorneys’ fees and costs totaled more than $50,000.

Plaintiffs moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the new complaint. Defendant opposed the motion and cross-moved for summary judgment on liability, relying on the language of the note and the prior proceedings. The parties’ dispute thus centered on the scope of the note’s attorneys’ fee provision and, more particularly, whether its language permitted defendant to recover the fees incurred in defending the earlier fee award and in pursuing his contractual entitlement to those additional fees.

Plaintiffs argued, among other things, that defendant was seeking what are commonly referred to as “fees on fees,” and that a party seeking reimbursement for attorneys’ fees incurred in recovering other attorneys’ fees bears a heavy burden. Defendant, in contrast, maintained that the issue was controlled by the language of the note, which expressly provided for recovery of reasonable attorneys’ fees and costs by the prevailing party in “any action” relating to a dispute concerning the note or loan, as well as any related collection matter.

The motion court agreed with defendant. In an order dated June 5, 2025, the motion court granted his cross-motion for summary judgment on liability, concluding that the clear terms of the note entitled him to recover the reasonable attorneys’ fees incurred in connection with both the prior appeal and the present action. In light of that determination, the motion court denied plaintiffs’ motion to dismiss as academic.

Plaintiffs appealed, asking the Second Department to determine whether the note’s prevailing party provision was sufficiently broad to permit recovery of these additional attorneys’ fees. The Second Department reversed.

The Court held that the motion court “should have denied [defendant’s] cross-motion for summary judgment on the issue of liability and should have granted [plaintiffs’] motion pursuant to CPLR 3211(a) to dismiss the complaint.[15] The Court found that defendant “failed to establish his prima facie entitlement to judgment as a matter of law on the issue of liability for breach of contract.”[16] The Court explained that the “note did not contain clear language expressly providing for the prevailing party to recover fees on fees or any reference to fees incurred to recover attorneys’ fees.”[17] “Given the absence of unmistakably clear intent regarding the recovery of fees on fees,” said the Court, “a right to recover those fees should not be implied.”[18] Accordingly, the Court concluded that the motion court “should have denied [defendant’s] cross-motion for summary judgment on the issue of liability” and “for the same reasons, the [motion] court should have granted [plaintiffs’] motion pursuant to CPLR 3211(a) to dismiss the complaint.”[19]

Takeaway

Hershfield highlights the distinction between a contractual right to recover attorneys’ fees and a right to recover “fees on fees.” Under New York law, the latter will not be implied merely because an agreement contains a broad prevailing party fee provision.

A party seeking fees incurred in obtaining or defending an attorneys’ fee award must point to specific contractual language establishing that entitlement. Thus, even language authorizing the prevailing party to recover reasonable attorneys’ fees in “any action” relating to the agreement may be insufficient if the contract does not expressly address fees incurred in recovering attorneys’ fees.

The decision also reinforces a basic principle of contract interpretation: courts will enforce an unambiguous agreement according to its terms, but they will not expand those terms to impose an obligation the parties did not unmistakably intend.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm.

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[1] Sage Sys., Inc. v. Liss, 39 N.Y.3d 27, 30-31 (2022) (quoting Alyeska Pipeline Service Co. v. Wilderness Soc’y, 421 U.S. 240, 251 (1975)). This Blog examined Sage, here.

[2]  Id. at 30-31(quoting Hooper Assoc. v. AGS Computers, 74 NY2d 487, 491 (1989)).

[3] Id. (quoting Matter of A.G. Ship Maintenance Corp. v. Lezak, 69 N.Y.2d 1, 5 (1986)).

[4] Mighty Midgets, Inc. v. Centennial Ins. Co., 47 N.Y.2d 12, 22 (1979) (citations omitted).

[5] Sage, 39 N.Y.3d at 31.

[6] Id. (citing Hooper, 74 N.Y.2d at 492).

[7] Greenfield v. Philles Records, 98 N.Y2d 562, 569 (2002) (internal quotation marks and citation omitted).

[8] Id. 

[9] Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009) (quoting Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001)).

[10] Id. at 404 (quoting Kass v. Kass, 91 N.Y.2d 554, 566 (1998)).

[11] Id. at 404 (quoting Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524 (1927)).

[12] Id. at 404 (quoting Greenfield, 98 N.Y.2d at 569).

[13] W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) (internal quotation marks and citation omitted).

[14] Matter of Primex Intl. Corp. v. Wal-Mart Stores, 89 N.Y.2d 594, 599 (1997).

[15] Slip Op. at *2

[16] Id.

[17] Id., citing Hawthorne Funding, LLC v. Karish Kapital, LLC, 236 A.D.3d 998, 1001 (2d Dept. 2025); 214 Wall St. Assoc., LLC v. Medical Arts-Huntington Realty, 99 A.D.3d 988, 990 (2d Dept. 2012).

[18] Id., quoting IG Second Generation Partners, L.P. v. Kaygreen Realty Co., 114 A.D.3d 641, 643 (2d Dept. 2014) (internal quotation marks omitted); and citing see 546-552 W. 146th St. LLC v. Arfa, 99 A.D.3d 117, 121 (1st Dept. 2012).

[19] Id.