Watch Out for the Big Stick in Small Contract Disputes

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It’s a lucky year for any business that does not go through some sort of contract disagreement or dispute.  Although good communication and flexibility can resolve many disputes, there are times when each side of a disagreement feels strongly that it has the better argument and negotiations screech to a halt. At those times, businesses are left with the choice of letting go of the disagreement or taking legal action.

Here in the United States, we have traditionally held to the practice that each party pays its own way in litigation. Court costs and legal fees can quickly outpace the value of small contract disputes, which means that, as a historical practice, taking a small contract dispute to court was not worth the cost of litigation. As a result, when parties got to a point of a breakdown in a small contract dispute, they were frequently left with the economic reality of kicking the dirt and walking away dissatisfied.  

 
However, that is not necessarily the case in present-day Oregon.  Oregon Revised Statute 20.082 provides that, under certain circumstances, the party who prevails in litigation on a contract dispute that involves a claim for $10,000 or less is entitled to have the losing party pay the prevailing party’s attorney fees.

 
This fee-shifting provision looms large in the world of small business disputes:  not only does it create the potential that claims for relatively small amounts might it be worth pursuing through litigation, but it also creates a risk that forces businesses to take seriously demand letters that previously might have been thrown in the trash without a second thought. A demand for $2,000 can quickly become a legitimate claim for $4,000 or more in damages and attorney fees if a party retains an attorney and files a complaint using ORS 20.082.

 
Although ORS 20.082 opens the door for the litigation of claims that otherwise may have remained unresolved, in practice it forces parties to negotiate disputes.  In order to obtain attorney fees, the party asserting the claim (the “plaintiff”) must have made a written demand for payment of the claim on the party believed to owe it (the “defendant”) not less than twenty days before filing a lawsuit or otherwise commencing a legal action. Thus, if a party skips the step of sending a written demand for payment and goes straight to the courthouse, that party loses the ability to obtain an award of attorney fees.


The defendant also has an incentive to negotiate. If, after receiving the written demand but before the lawsuit is filed, the defendant offers to settle the dispute for an amount that turns out to be not less than the amount that the plaintiff is ultimately awarded, the plaintiff once again is not entitled to receive an award of attorney fees. The defendant therefore has an incentive to consider early on what damages the plaintiff may realistically be entitled to receive and then offer to settle the dispute for that amount to avoid the prospective liability for attorney fees after arbitration or trial.


The fee-shifting provision of ORS 20.082 has the potential to bring parties to the negotiating table before litigation is initiated and keep them honest. Both sides need to consider whether they have the ability to succeed at arbitration or trial, how much a claim is ultimately worth, and whether the settlement offers on the table are sufficiently close to that value to prevent ORS 20.082 from awarding attorney fees. ORS 20.082 also has the potential to convert a minor dispute into a major dispute if one side does not take a demand or settlement offer seriously, and business owners should keep that risk in mind as they weigh how to proceed in contract disputes.  


If you have any questions about whether ORS 20.082 may be used to your advantage or concerns that it may be used to your disadvantage, contact Adam Adkin at 541-382-3011 or ata@karnopp.com.

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