Recently, in Intercontinental Group Partnership v. KP Home Loan Star, L.P., the Texas Supreme Court was confronted with the task of interpreting what is commonly referred to as a prevailing party provision of a contract. A prevailing party provision is a boilerplate provision that can be found in most written agreements, regardless of subject matter, and typically provides that in the event of any litigation between the parties with respect to that agreement, the prevailing party will be entitled to reimbursement by the non-prevailing party for its attorney's fees and court costs. The definition of prevailing party may be set forth in the provision or may, as is more commonly the case, be absent all together. After all, most people assume that in the event that litigation actually occurs, one party will emerge as the clear cut "winner" and the other the "loser."
In Intercontinental, the parties had included a typical prevailing party provision in their contract, but "prevailing party" was not defined. A disagreement between the parties ensued and KP sued Intercontinental Group for breach of contract. KP sought lost profit damages in the amount of $1,000,000 as a result of the alleged breach. The jury found that Intercontinental Group had in fact breached the contract but found $0 in damages. KP sought attorney's fees as the prevailing party.
In its opinion, the majority of the Court declared that whether a party prevails turns on whether or not that party prevailed upon the court to award it something, either monetary or equitable. In this particular circumstance, KP recovered no damages, nor did it secure any declaratory or injunctive relief. As a practical matter, the Court pointed out that "no misconduct was punished or deterred, no lessons taught." In the end, the Court found that KB was not the prevailing party despite having successfully convinced the jury that Intercontinental Group had in fact breached the agreement in question.
When considering including a prevailing party provision in a contract, the parties to the agreement should understand that they can tailor the definition of prevailing party exactly to their expectations, but if they do not, the courts will define it for them.