Fee Entitlement Was Lacking Because Relied-Upon Clause Was Only A Third-Party Indemnification Provision.
Track reversal system. Jack Delano, photographer. March 1943. Library of Congress.
Talk about a swing of events—something which can happen where an appellate court independently reviews a contractual provision under the de novo review standard.
In Alki Partners, LP v. DB Fund Services, LLC, Case No. D068063 (4th Dist., Div. 1 Oct. 24, 2016) (published), investors losing millions of dollars sued the hedge fund administrator for breach of contract. Unfortunately, administrator won a summary judgment against investors, a ruling affirmed on appeal. But, for investors, the real “stinger” was that the lower court awarded administrator $3,027,237.96 in attorney’s fees based on a contractual provision, “Standard of Care,” which provided for administrator to be indemnified for losses, including reasonable attorney’s fees “resulting in any way from the performance or non-performance of Administrator’s duties hereunder ….”
The appeal of the fees clause was successful, resulting in a complete reversal of fortune in terms of a reversal based as a matter of law. Not only did the appellate court apply a de novo standard of review, but gave investors a further break by considering the legal entitlement argument although not raised in investors’ briefing (even though it did solicit and receive supplemental briefing from both sides upon its own notice of desiring same).
The problem for administrator was that the so-called fee entitlement provision was only a third-party indemnification provision not allowing for fees between contractual litigation combatants, finding the clauses virtually indistinguishable from those construed similarly in Carr Business Enterprises, Inc. v. City of Chowchilla, 166 Cal.App.4th 14, 22-23 (2008) and Myers Bldg. Industries, Ltd. v. Interface Technology, Inc., 13 Cal.App.4th 949, 969 (1993). The 4/1 DCA distinguished cases having differently worded clauses, many of which can be found under our Home Page category, “Indemnity.” However, the reviewing court even went further, offering an additional sentence which would have arguably allowed fee recovery to administrator: “It would have been simple for the parties to provide: If any action is commenced to enforce or interpret the terms of this agreement, the prevailing party shall be entitled to recover reasonable attorney fees.” There you go, transactional attorneys!