Your company is sued over a commercial agreement. You hire counsel, litigate the matter and incur legal fees obtaining a successful dismissal. The contract says the prevailing party can recover its legal fees. You expect the other side to reimburse the expense of defending the case.
That expectation deserves a closer look. A favorable result, a contractual right to fees, and a court’s authority to award them are separate questions. Business owners should evaluate all three before treating reimbursement as part of the litigation budget.
A new decision exposes a gap in that expectation
In SWN Production Co. LLC v. Blue Beck Ltd., No. 24-2076 (3d Cir. Sept. 29, 2026), a published decision, a gas-lease dispute ended in dismissal because the claims were not yet ripe – the requested relief depended on future events. The defendant then sought fees under the lease. The trial court denied the request because it concluded the defendant was not a prevailing party (that is the dismissal was without prejudice).
The Third Circuit Court of Appeals took a different path. It held that, after the determination that Article III jurisdiction was absent, the contractual fee motion supplied no independent basis for jurisdiction. In practical terms, the court lacked constitutional authority to decide the original dispute, and the contract could not supply it. The court vacated the fee order and directed dismissal of the motion. It did not resolve whether the defendant qualified as a prevailing party.
The holding concerns constitutional limits on federal courts, including those in New Jersey. It does not decide every fee request following dismissal. The opinion distinguishes sanctions and reserves questions involving statutory fee provisions and cases lacking only statutory jurisdiction. Businesses should therefore avoid treating the decision as a rule that dismissal always defeats fee recovery.
Start with the actual right to recover fees
New Jersey generally follows the American Rule: each party bears its own legal fees. Recognized exceptions include an applicable statute, court rule, or contractual provision. Winning an ordinary commercial dispute does not, by itself, make the opponent responsible for the winner’s lawyer’s fees.
A fee provision can materially change the economics of a dispute, but its language matters. In fact, the New Jersey Supreme Court has long held that contractual fee provisions are strictly construed. Accordingly, the analysis begins with what the parties agreed to cover.
For an owner evaluating a claim, the useful question is specific: which provision authorizes this business to recover these fees for this dispute? Ask counsel to identify the language and explain the conditions for recovery. A reference to legal expenses elsewhere in the agreement may require more analysis than a quick reading suggests.
Define the outcomes the contract is meant to cover
When negotiating an agreement, discuss how the fee provision should operate if a dispute ends without a trial. Consider a voluntary withdrawal, dismissal followed by refiling, partial success on competing claims, or a negotiated resolution. These outcomes can have very different commercial consequences.
Review whether the provision covers defending a claim, enforcing payment, seeking declaratory relief, an appeal, and proceedings to collect a judgment. Consider pre-suit expenses and the expense of pursuing the fee request itself. These are questions to resolve with counsel based on the transaction and governing law, rather than items to assume are included.
Also consider reciprocity. A provision that allows your company to seek reimbursement may expose it to the other side’s fees if the dispute ends differently. Before insisting on broad language, evaluate how the provision would work with your company on either side of the disagreement.
Budget for the expense before counting the reimbursement
For planning purposes, maintain a litigation budget that shows the company’s expected cash outlay without assuming a subsequent fee recovery. Then evaluate reimbursement separately, including the legal basis, likely opposition, additional proceedings, and practical ability to collect. This approach gives management a clearer picture of the cash commitment it is making.
For example, consider a purely hypothetical dispute involving $250,000, with a projected $50,000 defense budget. A contractual fee provision should not turn that $50,000 expense into a zero-cost assumption. The owner still needs to decide whether the business can fund the defense and whether the expected commercial benefit justifies the spending.
Set decision points with counsel. Before substantial discovery, a major motion, or an appeal, revisit the expected expense, the business objective, and the prospects for reimbursement. Ask what additional work a fee application would require.
Support the amount requested with a usable record
Entitlement to fees does not establish the recoverable amount. A fee application requires a reasonableness assessment and consideration of the results achieved. Mixed success and work on different claims can complicate that assessment. Related work is not necessarily treated the same as work on distinct, unsuccessful claims.
Discuss documentation at the beginning of the case. Clear billing descriptions, identification of major workstreams, and periodic review of spending can help explain what work was necessary and why. Ask counsel how the records should distinguish work potentially covered by the fee provision from other work that may not be covered. Reconstructing those distinctions after the case ends can create avoidable expense.
Resolve fees expressly when resolving the dispute
During settlement discussions, put legal fees on the agenda alongside the underlying payment, release, and dismissal terms. Is the proposed amount intended to include fees? Will each side bear its own expenses? Is a fee request being reserved, and if so, what process will address it? The written settlement should reflect the intended answer.
A business may reasonably accept less reimbursement to obtain certainty, prompt payment, or an end to management distraction. Another may have a substantial, well-supported fee claim worth pursuing. Counsel together with business owners should evaluate that choice together, with the likely additional expense in view.
The goal is a realistic understanding of what success will cost. Before relying on a fee clause, have counsel assess the contractual language, the procedural route to recovery, and the likely amount and collectability of an award. That assessment belongs as part of the litigation strategy from the outset.
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