Void Or Voidable?
In the last couple of days, the appellate courts have grappled with when attorney’s fees are awardable under Civil Code section 1717 when a contract is declared to be void (whether illegal or under another statutory provision). For example, see our December 14, 2017 post on the unpublished decision by the 4/3 DCA in Assadian v. Parsi, where a fee recovery was allowed in an illegality context under the “in pari delicto” exception.
The First District, Division 1, wrestled with an illegality challenge to a section 1717 fee recovery in California-American Water Co. v. Marina Coast Water Dist., Case Nos. A146166/A146405 (1st Dist., Div. 1 Dec. 15, 2017) (published). There, certain parties argued that contracts for a desalination plant between the parties were void based on a violation of a Government Code section 1090 conflicts of interest, with the litigants successfully voiding the contracts then later obtaining fee recovery against the party arguing the contracts were not void.
What happened on appeal? Answer: no change in result. Although acknowledging some intuitive appeal to the illegality argument, the appellate court determined that invalidity arguments allow for section 1717 fee recovery given that the desalination contract (unlike a drug deal) is not per se illegal but only subject to voiding based on conflict of interest statutes. So, the fee recovery was sustained on appeal based on the “invalidity” language in many section 1717 cases.