Second District, Division 4 Explores Some “Nooks and Crannies” of Section 1717 in Unpublished Opinion.
This next case, albeit unpublished, is a very scholarly discussion of Civil Code section 1717, exploring nonsignatory and fee clause breadth issues. And, best for us, only a challenge to a denial of attorney’s fees is involved. So, with type of narrow issue on which we regularly report and with no further delay, here we go.
Trading Post Loan v. Kiss, Case No. B212886 (2d Dist., Div. 4 Oct. 22, 2009) (unpublished) involved some defendant real property owners selling a business to plaintiffs and leasing the property back to plaintiffs under a lease agreement with a purchase option (complete with an attorney’s fees provision covering all reasonable fees “necessary to enforce Lessor’s rights”). Later, the parties executed a purchase agreement for sale of the real property (plaintiffs being the buyers), also with a fees clause but which was cancelled mutually through escrow with a release of liability relating to the escrow. Plaintiff lessees/buyers sued defendant lessors/sellers on the ground plaintiffs had exercised the lease purchase option, but defendants obtained summary judgment on the ground that the later purchase agreement had superseded the earlier option and that the parties had cancelled the later purchase transaction (because plaintiffs had never properly exercised the lease purchase option). Defendants sought an award of attorney’s fees, a request denied by the lower court. They appealed solely on the fee denial.
Good appeal.
The Court of Appeal, in a 3-0 unpublished opinion authored by Justice Manella, concluded that fees were justified under the lease option fees clause. The lower court erred in concluding that the narrowly drafted clause did not cover broader subjects of the entire contract under section 1717, unless each party was represented by counsel in the contractual negotiations and the fact of the representation was specified in the contract for purposes of enforcing a narrower construction. (Accord, Paul v. Schoellkopf, 128 Cal.App.4th 147, 152-153 (2005); Kangarlou v. Progressive Title Co., Inc., 128 Cal.App.4th 1174, 1177-1178 (2005); Harbor View Hills Community Assn. v. Torley, 5 Cal.App.4th 343, 345-349 (1992).) Because full section 1717 mutuality is in force unless the counsel negotiation/representation recitals are made, defendants were entitled to fees even if the fees clause was narrowly drafted to only cover certain claims.
Plaintiffs then tried to parse the lease, arguing that the purchase option was severable and distinct from the remaining lease provisions. However, because the purchase option did not arise if tenant was in default under the lease, the option was tied to other terms of the lease and was not severable. (See also Prichard v. Kimball, 190 Cal. 757, 764 (1923).)
Plaintiffs next argued that certain named defendants were not parties to the lease, although defendants in their successful summary judgment conceded they were parties. Based on this admission, they were parties, with Justice Manella noting that parties to an agreement—not signatories—happens to be the crucial test and distinguishing one possible amorphous remark otherwise in Reynolds Metals Co. v. Alperson, 25 Cal.3d 124 (1979) [one of our Leading Cases]. (See Slip Opn., at pp. 13-14 n.6.)
However, the appellate panel rejected defendants’ suggestion that they were entitled to fees based on the purchase agreement. It was clear from this transaction that the parties did not intend the fees clause in the lease option to carry forward to the purchase agreement. The purchase agreement was a separate transaction not to be governed by the fees provisions in another contract. (Pilcher v. Wheeler, 2 Cal.App.4th 352, 353-354 (1992).)
The end result was that the matter was remanded with directions that the trial court proceed to determine defendants’ entitlement to fees under the lease agreement.
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