When are attorney fee clauses unconscionable?
Flint Hill School v. McIntosh (Va. Jan. 2, 2020)
A mom enrolls her child at Flint Hill School. The school has her sign an enrollment contract, which states the mom agrees “to pay all attorneys’ fees and costs incurred by Flint Hill School in any action arising out of or relating to this Enrollment Contract.” After the child is injured, the mom wants to sue the school, but is worried about the attorney fee clause. So instead, she files a lawsuit asking the circuit court to declare the clause unenforceable.
Can the court make this declaration? And if so, is the attorney fee clause unconscionable? Virginia Supreme Court: Yes and yes.
Under Virginia law, declaratory judgments are curious things. They’re only available in “cases of actual controversy.” But they’re not available when the “claims and rights asserted have fully matured.” In short, you need a real dispute, but one that has not fully matured.
Here, the mom’s case threads that needle. The child’s injuries have happened, so there’s an actual controversy, but the school's attorney fees (in the lawsuit over those injuries) haven’t been incurred, so the claims and rights asserted have not fully matured. Thus, declaratory judgment is appropriate.
And the attorney fee clause is unconscionable. It’s in a “take it or leave it” standard-form contract. It requires the mom to pay all of the school’s attorney fees regardless of their reasonableness — even if the school was the one to file suit and the suit was meritless. This inequality is "so gross that it shocks the conscience.” Thus, the attorney fee provision is unenforceable.
Takeaway: When drafting an attorney fee provision under Virginia law, limit your fee award to: (1) your reasonable attorney fees (2) when you're the prevailing party.
(Under Virginia law, you need not make this provision reciprocal — that is, you can draft the provision so that you receive your attorney fees if you win, but the other side does not get its attorney fees if it wins.)