When It Comes To Collecting Fees Under Civil Code Section 1717, A Prevailing Plaintiff Who Sues On A Contract Is Not The Same As A Prevailing Plaintiff Who Shows A Contract Does Not Exist.
Glovia International, Inc. v. Actuant Corporation, et al., B267175 (2/5 12/22/16) (Kumar, Turner, Kriegler) (unpublished) reinforces a theme oft repeated in our fee blawg: the first condition a prevailing party must establish to collect attorney's fees is a legal basis for fee entitlement. In Glovia International, the Court of Appeal reversed a substantial fee award because a basis for fee entitlement under Civil Code section 1717 did not exist.
Plaintiff and respondent Glovia sued defendants and appellants Maxima Technologies & Systems, LLC and its parent Actuant, alleging unauthorized use of Glovia's proprietary software. Glovia prevailed in the trial court by establishing that Maxima had not licensed Glovia's software, obtaining awards of compensatory damages, punitive damages, and attorney's fees. The Court of Appeal affirmed an award of compensatory damages, while reversing a $650,000 award in punitive damages, and a $1,474,151.75 award in attorney's fees pursuant to Civil Code section 1717.
The punitive damages award was reversed because Glovia did not present sufficient evidence of defendant Maxima's financial condition.
As to the fee award under section 1717, Glovia argued, "[W]here a dispute involves a contract that contains an attorney fee provision, section 1717 authorizes fees where a party prevails by proving the contract is invalid or unenforceable." Unfortunately for Glovia, that argument only holds true when a plaintiff sues on a contract containing a prevailing party fee provision, and the defendant prevails by arguing the contract is inapplicable, invalid, unenforceable, or nonexistent.
Glovia, however, did not bring an action on a contract (here, a license) to enforce the contract's terms. "Instead, it brought an action claiming Actuant and Maxima were not valid holders of a license, a claim upon which Glovia prevailed." As the Court explains, because Glovia succeeded in proving it was not a party to a contract with Actuant or Maxima that contained an attorney fees clause, "it was not entitled to its attorney fees."
So we return to our first point: there must be a legal basis for an award of attorney fees. Here, there was no basis for fee entitlement.
NOTE: Blawg co-contributors Mike and Marc are attorneys at AlvaradoSmith. AlvaradoSmith and its attorneys Theodore E. Bacon, David John Masutani, and William M. Hensley represented Defendants and Appellants Actuant Corporation and Maxima Technologies & Systems, LLC.