Also, Two Defendants Entitled To Fee Recovery Based On Alter Ego Allegations And Plaintiff’s Failure To Ever Dismiss/Abandon The Theory.
In Kern Health Systems v. Allied Mgt. Group Special Investigation Unit, Inc., Case No. B258326 (2d Dist., Div. 7 Apr. 25, 2016) (unpublished), plaintiff lost contractual and tort claims after a jury trial against three defendants, but the lower court still awarded $1.38 million on a negligent misrepresentation claim against all defendants based on its perception that the jury intended to award recovery on this claim in its special verdict. The trial judge also denied all three defendants’ requests for an award of attorney’s fees for defeating plaintiff’s contractual claim where a fees clause was involved in an audit engagement agreement. (One defendant requested recovery of $2.385 million in fees, while two other defendants—alleged to be “alter egos” of the first defendant--asked for a total of $1.245 million in fees.)
Defendants won a clean sweep on appeal, with the compensatory award going away and with a remand to allow them to seek fee recovery again.
Defendant #1 was denied fees because the lower court did not believe that it satisfied a so-called contractual condition precedent for court fee recovery “if a legally binding mediation does not resolve legal disputes,” although indicating that it would have apportioned some fees and lowered the requested attorney hourly rates but for its ruling on the mediation language. The appellate court did not view this quoted contractual language as a binding condition precedent, because (1) it was not worded strongly enough to be one, (2) construing it as such made no sense given that a binding mediation result is equivalent to an arbitration award such that no litigation would ever be needed giving rise to fees (an oxymoronic result under the circumstances), and (3) plaintiff’s own pre-dispute conduct in praying for fees in the suit tended to bolster that mediation was not a precondition for recovery of court fees.
As far as the other two defendants were concerned, plaintiff never voluntarily dismissed the alter ego allegations and actually beat back an oral nonsuit motion relating to these allegations. This gave rise to Civil Code section 1717 fee recovery under Reynolds [one of our Leading Cases, see home page on upper left hand side].
However, in remanding, the reviewing court left it up to the trial judge to decide whether to apportion as it indicated it might do with respect to any of the defendants (especially defendant #1).