Are Attorney's Fees Clauses Enforceable in Minnesota?

What makes an attorney’s fees clause enforceable in Minnesota?

A fee clause works when the contract expressly gives a party the right to recover attorney fees; without that language or a statute, each side pays its own lawyer. With the language, the Minnesota Supreme Court treats the fees as “an agreed element of damages available under the contract and are not collateral.” United Prairie Bank-Mountain Lake v. Haugen Nutrition & Equipment, LLC, 813 N.W.2d 49 (Minn. 2012).

The rule works in both directions:

1. No clause, no fees, even after a big win. In Dunn v. National Beverage Corp., 745 N.W.2d 549 (Minn. 2008), a distributor won $288,000 in damages for breach of contract. The court explained: “Because there is no specific language in the parties’ contract permitting the recovery of attorney fees, Twin City can recover attorney fees only if permitted by statute.” The franchise statute it relied on required relief under that statute, which the jury did not award, so no fees followed.
2. A clause, once there, is enforced like any other promise. In United Prairie, the court rejected the idea that judges may trim a contractual fee right on fairness grounds: “Nor have we suggested that courts can decline to award attorney fees to which a party is otherwise contractually entitled, based on equitable considerations like the doctrine of unclean hands.”

I suggest deciding about fees when the contract is signed, because by the time a dispute starts, the contract’s words are fixed. When a company asked me about suing on an unpaid invoice under a development agreement with no fee provision, the projected cost of litigating through trial preparation came close to the invoice itself. None of that cost could be shifted to the other side. That math is worth working out while the contract is negotiated, alongside the other remedies for breach of contract in Minnesota.

Why does a one-sided fee clause still hold up in Minnesota?

A one-way fee clause, one that lets only the lender, landlord, or employer recover fees, is enforced as written in the Minnesota decisions discussed here. None of those courts treated the lack of a matching right as a defect, although none was asked to rule on that argument. For residential leases, Minn. Stat. § 504B.172 changes a landlord-only clause by adding a matching right for the tenant rather than voiding the clause.

Three decisions applied one-way clauses as written:

1. Lender-only loan clauses. In United Prairie, the notes, mortgage, security agreements, and personal guaranties all required the borrowers to pay the bank’s fees, and the guaranties covered “all costs and expenses (including reasonable attorneys’ fees and legal expenses) incurred by [UPB] in connection with the protection, defense or enforcement of [these guarantees] in any litigation or bankruptcy or insolvency proceedings.” The question presented was “whether the Minnesota Constitution provides the right to a jury trial for a claim to recover attorney fees based on a contract.”
2. Lender-only notes. In Agri Credit Corp. v. Liedman, 337 N.W.2d 384 (Minn. 1983), the notes covered fees “paid or incurred by the Lender,” and the court applied that wording to the amount.
3. Employer-only clauses. In St. Jude Medical, Inc. v. Carter, 899 N.W.2d 869 (Minn. Ct. App. 2017), rev’d on other grounds, 913 N.W.2d 678 (Minn. 2018), an employment agreement gave only the employer “reasonable attorney’s fees, and all other costs and expenses incurred in connection with the enforcement of this Agreement,” and the court sent the employer’s fee request back for decision. That agreement, signed in 2007, contained a noncompete and predates Minn. Stat. § 181.988, which applies to contracts and agreements entered into on or after July 1, 2023.

For residential leases, § 504B.172 provides that when a lease lets the landlord recover fees in an action between landlord and tenant, “the tenant is entitled to attorney fees if the tenant prevails in the same type of action, under the same circumstances, or is entitled to costs under section 549.02, and to the same extent as specified in the lease for the landlord.” A company that rents residential units should plan for fees running both ways.

A one-way clause affects the side without the right most directly. In one equipment-loan dispute, the loan papers and the owner’s personal guarantees made the owner pay the lender’s enforcement fees and gave the owner no matching right. I explained that the longer the lender litigated, the more its own legal bill added to what it could claim from the owner. That made an early settlement, with each side paying its own fees, the better path. If you sign a one-way clause, I suggest pricing it into how long you can afford to fight, because the other side’s fees grow the claim against you.

How does a fee clause’s wording limit what you can recover?

A court awards only the fees the clause’s words cover, for the claims the words reach. Small phrases change the amount. The words “paid or incurred” can bar fees for future collection work, a claim outside the contract can earn nothing, and “costs” is a separate, fixed statutory allowance rather than a synonym for attorney fees.

The Minnesota decisions show each limit:

1. Fees “paid or incurred.” In Agri Credit, the notes covered fees “paid or incurred by the Lender,” and the trial court had added fees for expected future collection work. The Minnesota Supreme Court reversed: “We therefore conclude that under the language of the contracts between these parties, an advance award of attorney fees in anticipation of future services or litigation, which may never occur, is unreasonable.”
2. Broader wording reaches further. The note in Southwest Fidelity State Bank of Edina v. Apollo Corporate Travel Inc., 360 N.W.2d 668 (Minn. Ct. App. 1985) called for “reasonable attorney’s fees and legal expenses” without the “paid or incurred” limit. The guaranties in that case covered fees “at any time paid or incurred” as well. The Court of Appeals distinguished Agri Credit on that wording and affirmed an award that partly covered anticipated future work.
3. Claims with no contractual basis. In United Prairie, the bank also litigated whether a contract for deed was an equitable mortgage. “The district court did not award UPB attorney fees for litigating the equitable mortgage issue because the court could not identify a contractual basis for doing so.”
4. “Costs” and “attorney fees” are different words. Under Minn. Stat. § 549.01, “certain sums may be allowed to the prevailing party for expenses in an action, which are termed costs” by the statute. Minn. Stat. § 549.02, subd. 1 sets those costs at fixed amounts: “Upon a judgment in the plaintiff’s favor of $100 or more in an action for the recovery of money only,” the amount is $200. A clause meant to shift lawyer fees should say “attorney fees” in those words rather than leave the point to the word “costs.”

Wording disputes are ordinary contract-interpretation fights, decided under the same rules as any other term; the page on how Minnesota courts read ambiguous contract language covers those rules.

How do Minnesota courts decide whether a fee award is reasonable?

A Minnesota court awards a reasonable amount, and a percentage schedule is only a guideline. Whether the award can cover future work turns on the clause’s words: “paid or incurred” barred it in Agri Credit, while “reasonable attorney’s fees and legal expenses” allowed it in Southwest Fidelity. The court weighs the work performed against factors the Minnesota Supreme Court has listed, and it will reverse an award that outruns the work.

Agri Credit shows how the court tests the amount. The trial court awarded $23,850 by applying a judicial district’s percentage schedule for collection cases. The Minnesota Supreme Court held that such schedules “have never been considered by us as determinative of the attorney fees a creditor may collect in suit upon notes or contracts containing attorney fee clauses, but rather, such schedules have been considered only as a guideline in setting such attorney fees.” On about 15 hours of work, the award came to “more than $1,500 an hour,” and the court called it “patently unreasonable.” It directed the trial court to consider the time spent and “the ability and experience of the attorneys involved, the amount involved, the responsibilities assumed by the attorneys in the case, and the results obtained.”

Proof follows a set form. Under Minn. Gen. R. Prac. 119.01, “application for award or approval of fees shall be made by motion” when the fees sought are $1,000 or more, and Rule 119.02 requires an attorney’s affidavit giving “A description of each item of work performed, the date upon which it was performed, the amount of time spent on each item of work, the identity of the lawyer or legal assistant performing the work, and the hourly rate sought for the work performed.” Clean, task-by-task time records from the start of a dispute make that affidavit possible; reconstructed estimates invite the kind of cut Agri Credit made.

Are contingency fee arrangements affected by a contract’s fee clause?

A contingency fee and a fee-shifting clause are two different agreements with different parties. The contingency fee is a deal between a plaintiff and the plaintiff’s own lawyer; the fee clause decides whether the other side to the business contract pays fees. Minnesota law leaves the first to the client and lawyer: under Minn. Stat. § 549.01, “A party shall have an unrestricted right to agree with an attorney as to compensation for services, and the measure and mode thereof.” That sentence governs what you pay your own lawyer; it does not make the other side pay anything.

The lawyer’s ethics rules set the form. Under Minn. R. Prof. Conduct 1.5(c), “A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal.” The same rule requires the agreement to “clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party.”

A plaintiff with a contingency lawyer who also holds a contract fee right should plan for both. The fee motion still runs through Rule 119, and its itemized affidavit described above asks for the time spent and the hourly rate for each item of work. So the lawyer should keep hourly records even though the client is not billed by the hour. The court then sets the award under the Agri Credit factors above, which look to the work, the lawyers, the amount involved, and the results rather than the percentage in the client’s agreement. How a fee award is shared between client and lawyer should be settled in the written contingency agreement at the start.

What does “prevailing party” mean in a Minnesota fee clause?

When a clause awards fees to the “prevailing party” without defining it, a split outcome turns into a second fight over who won. The contract can settle that in advance by defining the term, and it should, because the default test is a judgment call.

For the statutory costs awarded to a prevailing party under chapter 549, not for a contract clause, the Minnesota Supreme Court has said that “the general result should be considered, and inquiry made as to who has, in the view of the law, succeeded in the action.” Borchert v. Maloney, 581 N.W.2d 838 (Minn. 1998). In that case the net final judgment was less than the defendant’s settlement offer, and the court still held, “on the facts presented in this case, we conclude that Borchert is the prevailing party.” A court reading an undefined contract term may look to the same idea, but nothing guarantees it.

Contracts can choose their own test. The agreement in Weiss v. Private Capital, LLC, 839 N.W.2d 106 (Minn. Ct. App. 2013) let the “substantially prevailing party” recover its fees. A clause can go further and say who prevails when each side wins some claims, when a case is dismissed without prejudice, or when a party recovers less than it offered to accept. Each of those situations can start a second dispute after the first one ends.

How do you collect fees under a contract clause in Minnesota?

I suggest treating the fee claim as part of the damages case, because United Prairie treats contract fees as damages with a jury right. That means pleading it, proving the amount with records, and keeping it alive through trial. A contract fee request also keeps the judgment from becoming final until it is decided.

Four rules shape the process:

1. It is a damages claim with a jury right. In United Prairie, the Minnesota Supreme Court held 5-2 “that appellants are entitled to a jury trial on attorney fees under Article I, Section 4 of the Minnesota Constitution,” because a contract fee claim is a legal claim for contractual indemnity. The court explained that “a jury determines both the liability for a breach of contract and the amount of damages to award for the breach, if any, assuming genuine issues of material fact exist with respect to both questions.” The bank there had pleaded fees in its complaint, seeking “reasonable attorneys’ fees and costs … in an amount to be determined at trial.”
2. The fee motion needs the Rule 119 record. The motion and itemized affidavit described above apply. In default cases, Rule 119.05 lets a party that “has established a basis for the award under applicable law” obtain approval of the fees “administratively without a motion hearing” only when all three of its conditions are met: “the fees requested do not exceed fifteen percent (15%) of the principal balance owing as requested in that party’s pleadings, up to a maximum of $3,000.00”; “the requesting party’s pleading includes a claim for attorney fees in an amount greater than or equal to the amount sought upon default”; and “the defaulting party, after default has occurred, has been provided notice of the right to request a hearing under section (c) of this rule, a form for making such a request substantially similar to Form 119.05 as published by the state court administrator, and the affidavit required under Rule 119.02.” The defaulting party keeps a right to ask for a hearing.
3. Waiver takes clear and convincing evidence of intent. In St. Jude, the trial court found the employer had given up its contract fee claim through statements in briefs and at trial. The Court of Appeals reversed, holding that the other side had “the burden of presenting clear and convincing evidence showing that St. Jude intended to abandon this right,” and it read the employer’s statements against the entire proceeding rather than on their own. Correcting the error took an appeal, so your pleadings and briefs should claim contract fees consistently from the complaint through trial.
4. The judgment waits for the fee ruling. In Weiss, the Court of Appeals held “that a judgment is not final and appealable while such a request is pending,” and dismissed an appeal filed too early. That affects when either side can appeal in a Minnesota state-court case, so the fee request should be on the litigation calendar from the start.

When do Minnesota statutes add to a contract’s fee terms?

A few statutes add fee rights or limits beside the contract. The ones covered here govern arbitration, an employee’s rights under the noncompete statute, and residential leases (discussed above). Sanctions in civil actions fall under Minn. Stat. § 549.211, and attorney’s fees in mortgage foreclosures fall under Minn. Stat. § 582.01.

• Arbitration. Under Minn. Stat. § 572B.21(b), “An arbitrator may award attorney fees and other reasonable expenses of arbitration if such an award is authorized by law in a civil action involving the same claim or by the agreement of the parties to the arbitration proceeding.” If your contract sends disputes to arbitration, the arbitration clause should say the arbitrator may award fees under the contract’s fee provision.
• Employee rights under the noncompete statute. Minn. Stat. § 181.988, subd. 2(a) provides that “Any covenant not to compete contained in a contract or agreement is void and unenforceable,” apart from covenants agreed upon during the sale of a business or in anticipation of its dissolution under subd. 2(b). The enacting law is 2023 Minn. Laws ch. 53, art. 6, sec. 1. Its effective-date section reads “This section is effective July 1, 2023, and applies to contracts and agreements entered into on or after that date,” so the ban reaches only agreements made on or after July 1, 2023. Under subd. 3, an employer may not require an employee “who primarily resides and works in Minnesota, as a condition of employment,” to agree to a provision that would “deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota,” and subd. 3(e) limits that bar to “claims arising under this section” alone. Subd. 2(d) provides that “a court may award an employee who is enforcing rights under this section reasonable attorney fees,” so the statute itself lets a court shift fees to the employee. An employer’s fee clause in an employment agreement sits beside that statutory right; the rules on covenants themselves are on the page about Minnesota’s noncompete statute.
• Bad conduct is not a substitute for a clause. In Barr/Nelson, the jury found a surety “acted willfully and maliciously” in failing to perform its bond, but “The bond makes no provision for recovery of attorney fees.” The court held that the bad-faith statute then in force “only incorporates bad faith as to an issue in litigation,” so the willful breach alone did not shift fees.

How should a Minnesota business draft a fee clause that holds up?

I suggest drafting the clause for the dispute you expect, using the wording the decisions above rewarded or punished, because a court awards only what the words cover. Each item below traces to a rule earlier on this page.

1. Attorney fees named expressly. The clause should say “attorney fees,” not only “costs” or “expenses,” because Minnesota statutes use “costs” for a fixed allowance (§ 549.02).
2. The claims it covers. If the intent is broad coverage, the clause should extend to claims arising out of or relating to the agreement, the guaranty, and any related security documents. That way a side claim like the equitable-mortgage issue in United Prairie is not left without a contractual basis.
3. “Incurred” wording chosen on purpose. If the clause should reach future collection work, it should say so, as the “at any time paid or incurred” wording did in Southwest Fidelity; “paid or incurred” alone limited the award in Agri Credit.
4. A definition of who prevails. The clause should set the test for split results, dismissals, and partial recoveries, because otherwise a court decides it after the dispute.
5. One-way or mutual, chosen deliberately. The Minnesota decisions above applied one-way clauses as written, although none was asked to rule on a mutuality argument. Outside residential leases under § 504B.172, the choice turns on negotiating position and risk.
6. The clause in every document it needs to work in. Personal guaranties are separate contracts, so each should carry the clause, and the arbitration clause should authorize fee awards under § 572B.21(b).
7. Coordination with indemnity. An indemnification clause may also mention legal fees; the two provisions should say the same thing about fees between the parties, so one cannot be read to undercut the other.
8. Records kept from day one. I suggest keeping dated, task-by-task time entries from the start, because the Rule 119 affidavit needs them and the reasonableness factors in Agri Credit reward a clear record.

Will Your Fee Clause Hold Up in Minnesota?

A fee clause is a promise like any other in your contract, and Minnesota courts enforce it on its words, in a reasonable amount, when the party claiming it pleads and proves it. I can read the fee, guaranty, and dispute-resolution provisions of a contract you are about to sign or enforce and tell you what fees each side could recover. If you would like that, email aaron@aaronhall.com with a brief description of the deal or dispute and the names of the parties. More on drafting and enforcing business agreements is in my contracts material.