CALIFORNIA ATTORNEY'S FEES

Civil Code Section 1717: You Gotta Have A Contract Predicate As A Condition Of 1717 Fee Recovery

Absence of Contract Between the Parties With a Fee Clause Precluded Recovery.

     The Fourth District, Division 1, in Cornelius v. Vogt, Case Nos. D053035, D053286 (4^th Dist., Div. 1 Feb. 5, 2010) (unpublished), reminds us all that there must be a governing contract between the parties to allow recovery of prevailing party fees under Civil Code section 1717.

     In the case itself, there was a Date Street agreement, but between the agreement itself, its revisions and oral modifications, no attorney’s fees clause was included. However, there was a separate deed of trust between one party and an outside bank that did have a fees clause. The prevailing party under the Date Street agreement attempted to recoup fees under the trust deed provision. No way, said the appellate panel in Cornelius. Using section 1717’s own language, plaintiff did not “bring his action on the contract” that involved the trust deed, meaning there was no contract predicate upon which to base a fee award. The lower court correctly denied fees to plaintiff.

Jurisdiction To Award Fees And Prevailing Party Status: Borrower Substantially Reducing Loan Exposure Through Usury Defense Awarded Fees Of $43,960

Trial Court Had Jurisdiction to Award Fees While Merits Appeal Pending and Borrower Was the Prevailing Party.

     Borrower on a loan, even after an initial appeal, reduced a loan balance to only $3,602.72 after an offset for usurious interest. The lower court refused to award costs to lender and also awarded $43,960 to borrower based on a fees clause in the promissory note.

     Lender appealed, but lost all fees/costs issues in Gilbert v. Wisdom, Case Nos. E047235, E048425 (4^th Dist., Div. 1 Feb. 4, 2010) (unpublished).

     Lender first argued that the appeal from the merits judgment, before the fee motion was filed, divested the trial court of jurisdiction to hear borrower’s fee motion. Wrong, because numerous courts of appeal have rejected similar arguments. (See, e.g., Robertson v. Rodriguez, 36 Cal.App.4^th 347, 360 (1995); Bankes v. Lucas, 9 Cal.App.4^th 365, 368 (1992).) Although relying on some isolated language in Butler-Rupp v. Lourdeaux, 154 Cal.App.4^th 918, 928 (2007), the Court of Appeal noted that Butler-Rupp, when viewed in context, did not dictate a different result.

     Lender next argued that the trial court did not explain the legal basis for the fee award. However, the appellate panel found no court rules or statutes that required such a statement of reasons for ruling on a motion for fees. (Slip Opn., p. 36; Laabs v. City of Victorville, 163 Cal.App.4^th 1242, 1272 (2008).)

     Lender also contended that borrower did not prevail for Civil Code section 1717 purposes. Wrong again. A lawsuit attacking a note as usurious is an action on the contract for purposes of fee recovery, and borrower reduced a loan balance to minimal proportions.

     Lender also challenged the striking of his costs memorandum request. However, this appellate challenge was dismissed because lender failed to appeal 60 days after the service of notice of the costs strike ruling.

Civil Code Section 1717: Attorney’s Fees Awarded To Assignor And Against Assignee Reversed Where Nothing Showed Ability to Recoup Fees From the Assignment Relationship

Mutuality Principle Did Not Kick In Where No Basis For Fee Recovery Existed Between Assignor and Assignee.

     Civil Code section 1717’s mutuality principle is well renowned and followed frequently. However, it will not even come into operation if there is no basis for the nonprevailing party to have recovered any contractual fees from the prevailing party had the nonprevailing party won. This particular principle resonated loudly in the assignment situation addressed in the next case we examine.

     DeSantis v. Bilello & Costa Trading, Inc., Case No. F055817 (5^th Dist. Feb. 2, 2010) (unpublished) involved a narrow contractual fees clause stating that “Seller agrees to pay all costs of enforcement or collection incurred by the holder hereof including, reasonable legal fees and costs” to enforce certain contractual obligations. Seller had a contractual relationship with an assignor assigning certain rights to an assignee. In rather convoluted litigation, assignor won a merits judgment and significant attorney’s fees of $575,324 against assignee.

     Although assignee lost challenges to the merit judgment, it did win a reversal of the significant fee award to assignor.

     The main problem was that nothing in the documents indicated a basis for an entitlement to fee recovery as between the assignor and assignee. Rather, the fees clause was narrowly drafted to grant fee entitlement to the assignor (or assignor’s successor) by seller (and no one else). Not close enough, said the appellate court with respect to allocation of fees as between assigning parties. “We decline to be the first court to interpret section 1717 to provide a party with rights to collect attorney fees when that party had no contractual obligation to pay attorney fees. Simply put, before the mutuality of remedy requirement can be applied to create liability, the litigant to be held liable for the prevailing party’s attorney fees must have had a contractual right to recover attorney fees from the party that prevailed, not just any party.” (Slip Opn., at pp. 20-21.)

     Assignor also argued that judicial estoppel should apply because assignee received a $50,000 fees award in early stage default judgment proceedings that were eventually vacated by the lower court. No go. The Fifth District joined with other courts in rejecting the estoppel theory as a basis for imposing a fee award, citing Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4^th 671, 682 (2000) and Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4^th 858, 899 (2008).) [Use our SEARCH function to find past posts on Sessions and Blickman Turkus.]

     Moral:  Ex nihilo nihil fit (out of nothing comes nothing).

 

NOTHING

          BONUS:  Alan Watts On Nothingness.

Civil Code Section 1717: Settlement Of Easement Dispute Under Agreement With Fees Clause, After Defendants Sold The Property, Did Not Allow Fee Award Under Section 1717

 

Procedurally Curious Easement Dispute Resulted in Split Opinion on Propriety of Section 1717 Fee Award.

     Even unpublished decisions result in a difference in opinion, as the next case involving Civil Code section 1717 demonstrates.

     Goldsmith v. Caldwell, Case Nos. C059420/C060427 (3d Dist. Jan. 11, 2010) (unpublished) involved a somewhat gnarly dispute between Nevada County neighbors about plaintiffs’ request that defendant neighbors grant an expanded easement pursuant to a “good faith hearing” type of clause in a Roadside Maintenance Agreement which mandated that property owners consider the request and then vote on it in good faith. Although procedurally entangled, the Third District earlier reversed a trial court judgment granting the easement, but remanded to direct compliance with the good faith and fair dealing covenant and to reconsider whether any attorney’s fees should be granted in favor of plaintiffs. Eventually, a settlement was reached with other defendants after they voted for the expanded easement even though defendant neighbors had sold their property and were disenfranchised from voting on the issue at hand. The trial court, even though it did not grant prospective relief given the settlement, did rule on remand that defendants (ex-neighbors) breached the good faith covenant and then awarded unspecified attorney’s fees to plaintiffs as the prevailing parties under the Agreement (which had a fees clause).

     On appeal, in a 2-1 decision, the Third District reversed.

     Acting Presiding Justice Blease, joined by Justice Raye, found that section 1717 drove the reversal in this case. Because defendants were no longer property owners and did not participate in the settlement, there was no prospective relief granted and 1717’s provisions on a settlement driving a result meant that fee entitlement was not to be had by plaintiffs. Plaintiffs achieved their result through the settlement with remaining parties, not through any “relief” entered in the action as against defendant ex-neighbors.

     Justice Hull, in dissent, saw things much differently. This jurist believed that it was illogical to find that defendants could defeat fee exposure simply because they sold their property despite breaching the good faith covenant. Plaintiffs did obtain greater relief, because the order reconsidering the good faith hearing requirement directly led to the settlement producing the expanded easement. In this justice’s opinion, the trial court decision to award fees should have been affirmed.

Mike And Marc’s Top Twenty Decisions For 2009

Part 2 of 2: Second Ten Grouping—Nos. 1-10.

     We already gave you our top 11-20 decisions previously this month.

     As noted in an earlier post, we have accumulated our “top 20” attorney’s fees decisions, recognizing that we limit the list to published decisions and that the order reflects nothing about the importance of the decision. Rather, we try to survey decisions of interest in different areas of the substantive law based on all the decisions we have examined during 2009.

     Without further ado, here we go for nos. 1-10. Happy New Year. 

10. Christensen v. Stevedoring Services of America, 557 F.3d 1049 (9^th Cir. Mar.

2, 2009) and Van Skike v. Director, Office of Workers’ Compensation

Programs, 557 F.3d 1041 (9^th Cir. Mar. 2, 2009)

Author: Chief U.S. Dist. Judge Roll, By Designation

     Longshore and Harbor Workers’ Compensation Act attorneys entitled to higher attorney’s fees under broader “prevailing market” test in venue fora rather than just having fees keyed to LHWCA past awards (which have been generally lower in amount).

(See our March 5, 2009 post on this decision.)

9. Peak-Las Positas Partners v. Bollag, 172 Cal.App.4^th 101 (2d Dist., Div. 6

Mar. 16, 2009)

Author: Presiding Justice Gilbert

     Aggressive/tenacious litigation posturing is a factor to be weighed when awarding fees under Civil Code section 1717.

(See our March 16, 2009 post on this decision.)

8. Silver Creek, LLC v. Blackrock Realty Advisors, Inc., 173 Cal.App.4^th 1533

(4^th Dist., Div. 1 May 20, 2009)

Author: Justice McIntyre

     Scoreboard “tie” approach to deciding Civil Code section 1717 “prevailing party” status rejected, with courts needing to determine if either side won their true litigation objectives for purposes of determining which party prevailed.

(See our May 21, 2009 post on this decision.)

7. Hyde v. Midland Credit Mgt., Inc., 567 F.3d 1137 (9^th Cir. June 9, 2009)

Author: Circuit Judge Fletcher

     Attorney’s fees for “bad faith” actions cannot be assessed against plaintiff’s attorneys in Fair Debt Collection Practices Act cases.

(See our June 10, 2009 post on this decision.)

6. Wood v. Santa Monica Escrow Co., 176 Cal.App.4^th 802 (2d Dist., Div. 6

Aug. 13, 2009)

Author: Presiding Justice Gilbert

     Civil Code section 1717 attorney’s fees are only awardable to the overall winner in the litigation, not just the winner of a discrete attorney’s fees proceeding in the case.

(See our August 14, 2009 post on this decision.)

5. Barrientos v. 1801-182 Morton LLC, 583 F.3d 1197 (9^th Cir. Oct. 9, 2009)

Author: Circuit Judge Wardlaw

     Party winning a preemption issue is entitled to fee award under California Civil Code section 1717.

(See our October 10, 2009 post on this decision.)

4. One Star, Inc. v. Staar Surgical Co., 2009 WL 4193643 (2d Dist., Div. 4

Nov. 30, 2009)

Author: Justice Suzukawa

     Revocation of second Code of Civil Procedure section 998 offer means that the first, nonwithdrawn 998 offer is the measuring stick for an award of costs and fees to prevailing party vis-à-vis the ultimate judgment.

(See our December 1, 2009 post on this decision.)

3. Flir Systems, Inc. v. Parrish, 174 Cal.App.4^th 1270 (2d Dist., Div. 6

June 15, 2009)

Author: Justice Yegan

     Fees and costs can be awarded to a prevailing party in a bad faith trade secret misappropriation case even though the losing party won an earlier denial of a summary judgment motion.

(See our June 16, 2009 post on this decision.)

2. Gilman v. Dalby, 176 Cal.App.4^th 606 (3d Dist. Aug. 10, 2009)

Author: Justice Scotland

     Attorney’s liens in personal injury actions have priority over previously-filed medical liens even where plaintiff’s attorney had awareness of the prior medical lien.

(See our August 13, 2009 post on this decision.)

1. Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4^th 557 (Cal.

Supreme Ct. Jan. 26, 2009)

Author: Justice Moreno

     Predispute provision in attorney retainer agreement, which specifies binding arbitration for fee/costs disputes, is enforceable after Mandatory Fee Arbitration Act (MFAA) requirements are exhausted.

(See our January 26, 2009 post on this decision.)

     BLOG UNDERVIEW—We used “fora” rather than “forums.” There is a big controversy on which word to use, so we simply go with our gut—even though some Internet commentators prefer use of the word “forums.” Guess we better don our togas!

Section 1717 Prevailing Party and Arbitration Grant: Fourth District, Division 1 Decides That Interim Decision Did Not Solidify Status Of Who Prevailed For Fee Award Purposes

Warburton Decision is a Companion to our December 28 Post on Lake v. Griffin, But in Inverse Fashion.

     In our December 28, 2009 post, we reviewed Lake v. Griffin, where the Fourth District, Division 1 held that a denial of a motion to compel arbitration in an ongoing case was not a "discrete proceeding" allowing an award of fees under Civil Code section 1717 to the interim winning party. Here is a companion case, albeit in a different matter, that reaches the same conclusion—but in the context of the winner gaining a grant of a motion to compel arbitration.

     Much like Lake, defendants petitioned to compel arbitration in a lawsuit where the plaintiffs sued them primarily for fraudulent nondisclosure arising out of a residential home purchase. The trial court granted defendants’ motion to compel arbitration, later awarding them an interim award of attorney's fees and costs for winning the motion to compel arbitration based on a fees clause in the purchase agreement. Plaintiffs appealed the fee award in Warburton v. Zinner, Case No. D054470 (4^th Dist., Div. 1 Dec. 29, 2009) (unpublished).

     The appeal was a good move.

     In reversing, the Fourth District, Division 1 found that there was no final resolution of the parties' contract claims. The parties were still engaged in arbitration, and the trial court stayed further proceedings pending the outcome of the arbitration. As with other litigants in this area, defendants heavily relied on Otay River Constructors v. San Diego Expressway, 158 Cal.App.4^th 796 (2008), out of the same appellate court, in support of their position. However, Otay River was found inapt because nothing else was pending at the time, unlike the pending arbitration and stayed litigation in Warburton. Furthermore, there was no fees clause that allowed for fee recovery for successfully petitioning to compel arbitration rather than prevailing in the overall dispute. Fee award reversed, with the determination awaiting the course of further proceedings.

Arbitration Denial: Discrete Proceeding Or Ruling In A Continuing Action That Awaits A More Definitive Nature?

Fourth District, Division 1 Reverses Fee Award in Case Involving Reggie Bush … And Clarifies Otay River Constructors in the Process.

     Here is one for all of you U.S.C. alumni or fans, involving civil litigation that impacts former collegiate football great Reggie Bush. The decision shows how the procedural context of a case can be critical to the ultimate disposition of attorney’s fees awards. The case is Lake v. Griffin, Case Nos. D053583/D054311 (4^th Dist., Div. 1 Dec. 28, 2009) (unpublished).

Reggie Bush

     Briefly told, sports agent Lloyd Lake brought a complaint against Mr. Bush and his parents contending they were obligated to him and an affiliated partnership for $291,000 in cash payments while Reggie was a college athlete. Defendants moved to compel arbitration based on an arbitration clause in a settlement agreement reached between defendants and third-party Michael Michaels (with the settlement containing arbitration and fee clauses). The trial court denied the motion to compel arbitration, a determination affirmed on appeal. However, the lower court also awarded Plaintiff Lake $24,570 (out of a requested $47,815) in attorney’s fees under Civil Code section 1717 for prevailing on the motion to compel arbitration.

     Defendants also appealed the fee award, and did much better—gaining a reversal and a postponement of any fee determination until there was a more definitive future decision on the merits.

     The basis for reversal? The Court of Appeal—the same one deciding Otay River Constructors v. San Diego Expressway, 158 Cal.App.4^th 796 (2008)—found that the procedural background in Lake was materially different in nature. Otay involved a situation where no action had been filed and the only proceeding was a motion to compel arbitration in which the victor won the only thing pending before the trial court. In Lake, however, there were contractual issues left for the trial court to resolve in a pending action after denial of the motion to compel arbitration. The appellate panel summarized its decision to reverse in these words: “The proceeding brought before us, and the trial court, was essentially only an interim procedural step in the interpretation of the settlement agreement and any binding effect it may have, with respect to Plaintiff. In this procedural context, under [the discussed authorities—Otay and In re Estate of Drummond, 149 Cal.App.4^th 46, 52-53 (2007)], we do not believe that the trial court had an adequate basis to make an award of contractual attorney fees.” (Slip Opn., p. 27.) However, the Court of Appeal was careful to observe that a fee award was not precluded later, after a future determination of a prevailing party at the correct juncture of the case.

                                                                                                                                      Lloyd Lake, San Francisco

Civil Code Section 1717: Mutuality Of Remedy Means Winner Gets Fees Even If Winner Proves There Was No Valid Contract

Recent Case Illustrates Operation of this Mutuality Principle.

     In Silva v. Tong, Case No. A124903 (1^st Dist., Div. 4 Dec. 11, 2009) (unpublished), plaintiff sought to enforce a purchase offer with an attorney’s fees clause as an enforceable contract even though it was never signed by defendants. Defendants were granted summary judgment, and then sought to recoup attorney’s fees and costs. They requested $80,581 in fees and $3,978 in costs, but the lower court awarded defendants $53,721 in fees and $3,978 in costs. Plaintiff appealed.

     Although her appeal of the summary judgment grant was dismissed based as being untimely in nature, the Court of Appeal decided the merits of the fee award despite ignoring some appellate transgressions (namely, failing to cite to the record and filing a noncompliant appellant’s appendix).

     The appellate panel noted an important policy permeating Civil Code section 1717: mutuality of remedy, that doctrine making a unilateral fees clause bilateral in effect. The mutuality principle at issue in this case was that a party prevailing under section 1717 (an action involving a written fees clause in a contract) is entitled to fees even when it wins on the grounds that the contract was inapplicable, invalid, unenforceable or nonexistent, if the party losing the action would have entitled to fees had it prevailed. (Rainier National Bank v. Bodily, 232 Cal.App.3d 83, 86 (1991).) That principle cemented the fee determination in favor of defendants.

     Plaintiff did challenge the amount of fees awarded, but that was easily dispatched as not being an abuse of discretion (the relevant standard on appeal). After all, the awarded fees were $26,860 less than what was requested by defendants.

     Plaintiff also made an interesting argument that the fee award was out of whack with other fee awards rendered in Alameda County Superior Court. This argument was swatted down with this observation: “ . . . fee awards made in other cases are irrelevant in any event, because they have no bearing on the consideration of the particular factors relevant to the determination of fees in this case.” (Slip Opn., p. 4.)

Fee Clause Interpretation and 998 Offers: Court Of Appeal Remands $400,000 Fee Award against Contractor But Affirms Separate $296,148.84 Against Contractor In Favor of Subcontractor

Fourth District, Division 1 Address Plethora of Fee Issues in Unpublished Decision.

     Well, strap your helmets on, readers, because we now synopsize a 75-page unpublished decisions dealing with a cornucopia (a good word in celebration of upcoming Thanksgiving) of attorney’s fees issues under California law.

     In The Gifted Schools v. Grahovac Construction Co., Case No. GIC840032 (4^th Dist., Div. 1 Nov. 19, 2009) (unpublished), plaintiffs Trust and an associated Corporation received an aggregate award of $438,610 against defendant Contractor as well as a Civil Code section 1717 attorney’s fees award of $400,000 to both “Plaintiffs” (out of submitted bills totaling $772,001). Earlier, plaintiffs had rejected a substantial, higher 998 offer of $605,000 made by Contractors jointly to “Plaintiffs.” Contractor also lost his cross-complaint against subcontractor, which was awarded fees of $296,148.84 under section 1717. Everyone appealed except subcontractor.

Fee Clause Interpretation: Landlord Awarded Substantial Attorney Fees For Prevailing In Three Actions Against Feisty Former Tenant

 

Court of Appeal Finds Fee Clause is Broad Enough to Encompass All Three Actions.

     Under Civil Code section 1717, the key to recovering fees in disputes involving contract and tort claims often devolves to a determination of whether the fee clause is sufficiently broad to encompass matters “arising out of” or “concerning” the agreement in question. That breadth did occur in the next case we review, which concomitantly led to an affirmance of a sizable attorney’s fees award in favor of a landlord as against former tenants.

     In Lippett v. Lembi, Case Nos. A115453, A116342, & A117583 (1^st Dist., Div. 5 Nov. 17, 2009) (unpublished), landlord basically won three actions against tenants arising out of a lease with a fees clause—an initial action by which the lease was declared to have been forfeited (awarding back rent and an attorney’s fees award of $80,000), a second action in the lease battle by which the parties entered into a settlement agreement (under which tenants were to pay certain principal sums and the $80,000 prior fee award over time on an installment basis), and a third action alleging primarily torts against landlord, in which tenants requested reinstatement of the lease (the lease previously determined to have forfeited by tenants). Landlord successfully obtained summary judgment in the third action, with the trial court awarding landlord $82,050.50 in further attorney’s fees against tenants. Unhappy, tenants appealed.

Fee Clause Interpretation: Narrowly-Worded Fee Clause Did Not Allow For Fee Recovery By Attorney In Successfully Defending Against Legal Malpractice Action

Fourth District, Division 1 So Holds In a Result Consonant With Prior Reviewed Decisions on this Website.

     Here is one we have seen before, but bears repeating.

     Attorney sues to collect on a receivable owed from a former client, but through a cross-complaint after client sues for legal malpractice. Attorney prevails in both actions, defensing the malpractice action and affirmatively recovering on the receivable cross-complaint. Attorney has a retainer agreement, with a fees clause, albeit fairly narrow in scope—allowing for fee recovery if prevailing in any action “to recover any amount due pursuant to the terms of this Attorney/Client Fee Agreement.” Attorney moved to recover fees of $343,205 in fees expended in defending against the legal malpractice action and in recovering on the receivable. The trial court awarded successful attorney $68,641 in fees based on recovery under the receivable cross-complaint. Disgruntled she did not get more, attorney appealed seeking additional fees.

     Not to be had, said the Court of Appeal in Ferrey v. Hasso-Najm, Case No. D053741 (4^th Dist., Div. 1 Nov. 13, 2009) (unpublished).

     The problem here was that the retainer agreement fees clause was narrow in scope, reaching only fees in an action to recover expenses “pursuant to the terms” of the retainer agreement, not more broadly worded “arising out” retainer language. The legal malpractice action did not challenge the enforceability of the retainer agreement, but was one for a tort independent of recovery under the contract. The narrow wording of the fee clause properly did not allow for recoupment of fees expended in successfully defending against the malpractice action, but only recoupment of apportioned fees spent in winning under the receivable lawsuit. Judgment affirmed, given that the lower court only awarded apportioned fees in the non-malpractice segment of the litigation.

     BLOG UNDERVIEW—This case is hardly an aberration. We refer readers to these posts that are consistent with the ruling in Ferrey: July 1, 2008 post on Wolf v. Glassberg, Pollak & Associates (1^st Dist., Div. 4 unpublished) [legal malpractice action was not “on the contract”, but based on a tort, for purposes of Civil Code section 1717 fee recovery] and May 27, 2009 post on Tesh v. LeTourneau (4^th Dist., Div. 1 unpublished) [narrow fee clause did not allow for recovery in action with malpractice claims].

Civil Code Section 1717: Substance Of Motion Or Action Determines If “On The Contract” For Purposes of Contractual Fee Recovery

Two Unpublished Decisions Highlight the Key Distinction.

1. Solomon v. Solomon, Case No. B209627 (2d Dist., Div. 7 Nov. 12, 2009) (unpublished).

     In this one, former wife sued to enforce a settlement agreement containing an attorney’s fees clause. She moved to enforce the settlement under Code of Civil Procedure section 664.6, the statutory summary proceeding codified to enforce settlements. She sought to recoup $394,146 in fees and $45,064.37 in expenses (a total of $439,210.97), and was awarded every penny sought by the trial court. On appeal, ex-husband tried to argue that the fees were incurred primarily for noncontractual causes of action upon which plaintiff did not prevail. Wrong, said the appellate court. Plaintiff’s motion was brought to enforce the settlement agreement with a fees clause, so defendant’s mischaracterization of what was at stake did not disturb the fee award at all.

2. Pfeffer v. Missionary Foundation, Inc., Case No. E046866 (4^th Dist., Div. 2 Nov. 12, 2009) (unpublished).

     Here, plaintiff sought to nullify a prior settlement agreement based on extrinsic fraud and eventually sought damages (after waiving the right to seek rescission). Defendant later obtained a judgment on the pleadings on plaintiff’s claim and sought to recover attorney’s fees under Civil Code section 1717, a fee request denied in entirety by the trial court.

     On appeal, the appellate court agreed with the trial court’s analysis that plaintiff’s claim was not “on the contract” for section 1717 fee recovery purposes. Rather, the action was one for fraud that is not within the purview of 1717. Specifically, the courts have drawn a distinction between fraud actions in which rescission of a contract is sought and fraud actions in which monetary damages are sought. (Contrast Reveles v. Toyota by the Bay, 57 Cal.App.4^th 1139, 1152 & n.6 [fraud action seeking rescission was “on the contract” under 1717], disapproved on other grounds in Gavaldon v. DaimlerChrysler Corp., 32 Cal.4^th 1246, 1261 (2004) and Snukal v. Flightways Mfg., Inc., 23 Cal.4^th 754, 775-776 n.6 (2000) with Walters v. Marler, 83 Cal.App.3d 1, 16, 27-28 (1984) [fraud action seeking monetary damages in not “on the contract” but in derogation of it], overruled on other grounds in Gray v. Don Miller & Associates, Inc., 35 Cal.3d 498, 505-507 (1984).) In this case, plaintiff sought monetary damages for fraud and withdrew his demand for rescission; this election of remedy meant that he forfeited fee recovery under section 1717.

Prevailing Party: Defendants City And Landlord Win Summary Judgment and Gain $184,605 Fee Award As Prevailing Parties Under Civil Code Section 1717

Both Determinations Affirmed on Appeal.

     In Marinos v. City of Rocklin, Case Nos. C058958/C060844 (3d Dist. Nov. 4, 2009) (unpublished), defendants City and landlord prevailed on a summary judgment motion based on plaintiffs not complying with a notice provision in a settlement agreement with a fees clause. The trial court then awarded defendants $184,605 in attorney’s fees (a 30% reduction from the requested fees of $265,066.50) to defendants as prevailing parties under the fees clause.

     Plaintiffs appealed, and lost.

     They initially argued that the fee motion was untimely because it was filed after the costs memorandum deadline. Not so, said the appellate panel. Fee recovery is governed by CRC, rule 3.1702(b), which is tied to the time period for appealing the underlying merits judgment. Here, defendants timely filed within 30 days after denial of the new trial motion.

     Plaintiffs next argued that the two law firms representing the defendants unreasonably duplicated efforts. The problem with this contention is that the fee award is resolved under an abuse of discretion standard deferential to the lower court’s ruling. (Maughan v. Google Technology, Inc., 143 Cal.App.4^th 1242, 1249 (2006).) Although the notice issue was ultimately determinative, both sides vigorously litigated many issues and engaged in lots of discovery and law and motion practice. The fee claimants provided 112 pages of detailed invoices, such that more than adequate substantiation of work effort was presented before the lower court. Given that the trial judge did reduce the requested fees by 30%, plaintiffs did not do enough in simply posing unreasonableness rhetorical questions rather than “show” the appellate court that the award was patently unreasonable.

     They then argued that the fee motion was deficient because the defendants did not file copies of their fee agreements in connection with the motions. This one lost “ . . . as plaintiffs fail to offer any authority on that point.” (BLOG OBSERVATION—This argument was likely not going to prevail given that, under the Business and Professions Code, fee agreements are confidential attorney-client communications.)

     Because plaintiffs did not meet their burden in showing error, the fee award was sustained on appeal.

Costs And Fees: Defendants “Unified In Interest” Liable For Routine Costs And Are Denied Substantial Attorney’s Fees Because Allocation Was Proper

Second District, Division 3 Address Many, Many Procedural Issues in Unpublished Opinion.

     In Matusek v. Benn, Case No. B206776 (2d Dist., Div. 3 Oct. 29, 2009) (unpublished), two sets of defendants (the Murad and Benn defendants, each set composed of businesses and their principals) contracted to create an infomercial using an appearance by plaintiff Matusek. Matusek sued for breach of contract, fraud and misappropriation of likeness under Civil Code section 3344, while defendants cross-complained on various counts. The jury awarded plaintiff compensatory and punitive damages against three of the four defendants, although the trial court nonsuited the 3344 claim. The lower court granted some JNOV and new trial motions by which the verdicts were substantially reduced or eliminated as to the three remaining defendants (including Mr. Murad personally). Plaintiff appealed to the Second District, which undid some of the postjudgment rulings and awarded costs to plaintiff. Eventually, the lower court entered a post-appeal judgment, finding that plaintiff was the prevailing party for cost purposes against all defendants because they had unified interests (even though Mr. Benn was exonerated completely). The trial court awarded costs of appeal to plaintiff of $5,778.09 against all defendants, and three defendants prevailing on the 3344 count recovered combined, apportioned attorney’s fees of about $13,500 for nonsuiting the 3344 claim. The Benn defendants appealed, and Matusek moved to dismiss the appeal by the Benn corporate defendant.

     With this convoluted procedural history in mind (which we have truncated tremendously), the Second District, Division 3 addressed many gnarly procedural issues that do sometimes pop up for consideration.

Civil Code Section 1717: Nonsignatories Who Were Intended To Be Parties Can Be Entitled To Contractual Fee Recovery Even Though Contractual Clauses Are Very Limited In Nature

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.

Prevailing Party: Tenant Properly Denied Attorney’s Fees As Prevailing Party Where Landlord Got To Obtain Some Of A Security Deposit And Tenant Obtained Some Of The Security Deposit

Second District, Division 7 Sustained “No Prevailing Party” Determination Under Civil Code Section 1717.

     One of our leading cases is Hsu v. Abbara, 9 Cal.4^th 863 (1995). It is must reading for all litigators, and might save your client a substantial amount of fees if you can talk the clients into believing that Civil Code section 1717 fees are discretionary when there is no clear prevailing party. Unless there is a clear winner (monetarily or based on pragmatic grounds), you face long odds to obtain a reversal of a “no prevailing party” determination case in which there are mixed results (even if the results still might tilt in favor of one side). The next case is a nice illustration of that principle. Remember, judges are human beings that try to decide things fairly. They are loathe to hit one side or the other where the results are mixed.

     In Choudhury v. Lancaster Realty Holdings, Case No. B209443 (2d Dist., Div. 7 Oct. 20, 2009) (unpublished), landlord and tenant got into a dispute boiling down to what amount of a security deposit could be retained by landlord. Long story short, landlord got a substantial portion of the deposit, but tenant was entitled to return of some portion of the deposit as improper holdover rent. Both parties sought attorney’s fees, but were rebuffed when the trial court ruled that neither party prevailed in the security deposit declaratory relief action.

     Result? Affirmed. Under Hsu, other than a clear win--a mixed result--means no prevailing party. Under the circumstances, the trial court’s decision, under which one party won something and the other party won something, was reasonable and hardly constituted an abuse of discretion.

Civil Code Section 1717: Ninth Circuit Holds Tenants Winning On Preemption Issue Entitled To Fees Because Issue Arose “On The Contract”

 

Federal Court of Appeals Sustains $180,029.50 Fee Award to Tenants.

     In Barrientos v. 1801-182 Morton LLC, Case No. 07-56697 (9^th Cir. Oct. 9, 2009) (certified for publication), tenants won summary judgment and permanent injunctive relief with respect to illegal notices of eviction served by a landlord arguing that Los Angeles Rent Stabilization Ordinance requirements governing such notices were preempted by HUD’s “good cause” regulation in 24 C.F.R. section 982.310(d)(1)(iv). The district judge also awarded tenants $180,029.50 in attorney’s fees based on fees clauses in the leases under California Civil Code section 1717(a). Landlords appealed.

     The fee awards were affirmed. The leases with fees clauses were hardly peripheral to the dispute, ruled the Court of Appeals. The merits issues concerning all tenants were so factually interrelated such that no apportionment could be practically carried out. No evidentiary hearing on the fees issue was required because landlord failed to challenge the reasonableness of the sought-after fees. Finally, landlord waived the argument that the Legal Aid Foundation of Los Angeles was not entitled to fees because of a statutory prohibition on such fees (see 45 C.F.R. section 1642.3), because the issue was not raised before the district court.

Civil Code Section 1717: Victorious Defendant In Case Involving Promissory Note Entitled To Fees, Even Though Foreclosure Contemplated Further Action—Prevailing Party Status Established Where Plaintiff Allowed Foreclosure Remedy To Lapse

 

First District, Division 2 Deals With Interesting Finality Issue With Respect to Prevailing Party Status.

     The interesting (and fun) part of this blog is reviewing unpublished decisions that actually confront very challenging issues arising from the array of procedural twists that can (and do) occur in civil litigation.

    The next one deals with a situation where a prevailing party was found because a plaintiff lost under a promissory note and then failed to timely pursue foreclosure remedies under an equitable mortgage—establishing defendant as the prevailing party under Civil Code section 1717.

     In Penna v. Ergur, Case Nos. A117629, A118491, & A118699 (1^st Dist., Div. 2 Sept. 29, 2009) (unpublished), defendant executed a promissory note with a fees clause in favor of plaintiff, but no trust deed was signed (even though the parties contemplated that it would be secured). Plaintiff sued to recover under the note, and defendant brought a cross-claim for fraud and negligent performance of contract. Defendant’s cross-claims were dismissed in an unconventional procedural context, but plaintiff’s note/common count claims went to trial. The trial court held the note was an equitable mortgage such that defendant’s one action rule/security first defense was well taken. Importantly, the trial court also denied a motion to amend to allow plaintiff to foreclose on the mortgage, finding that the failure to allege this earlier was prejudicial given the dismissal of defendant’s cross-claims. Defendant moved to recover fees as the prevailing party, with the trial court awarding him $85,230 fees out of a requested $116,000 in fees and costs.

     Plaintiff appealed.

Voluntary Dismissal Of Tort Claims: Be Careful—If Contract Clause Allows For Recovery, You May Not Seek Refuge Under Santisas

Second District, Division 1 Affirms Fee Award to Broker Under Broadly Worded CAR Form Agreement.

     Under Santisas v. Goodin, 17 Cal.4^th 599 (1998), a voluntary dismissal will end fee exposure on contract claims. However, there is a hitch (usually is). The dismissal will not necessarily insulate against fee exposure for tort or noncontract claims. That hitch came to bite the losing litigants in the next case, Kymm v. O’Loughlin, Case No. B211512 (2d Dist., Div. 1 Sept. 24, 2009) (unpublished).

Consumer Statutes And Requests For Admissions: Court Of Appeal Denies Unfair Competition Defendants' Request For Fees Under Section 17200 Or Under RFA Sanctions Statute

No Basis For Fees Based On Defensed Claims; No Abuse of Discretion in Denying RFA Sanctions.

      In Chichi v. Ennen, Case No. D053410 (4^th Dist., Div. 1 Sept. 18, 2009) (unpublished), plaintiffs brought a class action under California's unfair competition statute based on violations of several other California statutes. After plaintiffs rested their case-in-chief at a bench trial, the trial court decertified the class and granted an oral motion for judgment against plaintiffs.

     Defendants then moved to recover attorney's fees based on two grounds: (1) a contractual attorney's fees clause in the contract involved in the overall tapestry of the UCL claim; and (2) the RFA statute that allows a party to recoup fees for proving the truth of certain requests that were denied by plaintiffs.

     Defendants did not succeed on appeal.

     As to the first ground, the Court of Appeal found no basis to award fees to defendants under the UCL. "The unfair competition law does not provide for attorney fees. Although a prevailing plaintiff on an unfair competition claim may seek attorney fees as a private attorney general under Code of Civil Procedure section 1021.5, a prevailing party has no such right." (Slip Opn., at p. 4, citing Walker v. Countrywide Home Loans, Inc., 98 Cal.App.4^th 1158, 1179-1180 (2002).)

     Defendants then tried to argue there was a contractual basis for fee recovery under Civil Code section 1717. Wrong again, said the appellate panel. The UCL claim did not allege any contract was breached and did not seek enforcement of the contract; so, only a UCL claim was involved that conferred no basis for a fee award.

     Defendants then defaulted to Code of Civil Procedure section 2033.420(b), which allows a court to award fees as a cost of proof for failing to admit an RFA under specified circumstances. (See our category "Requests for Admissions" to explore this statute more fully.) The problem with this argument is that any challenge to a lower court ruling is reviewed under a deferential abuse of discretion standard. (Laabs v. City of Victorville, 163 Cal.App.4^th 1242, 1275-1276 (2008).) In this instance, nothing in the record indicated that the plaintiffs lacked a reasonable basis for contesting the matters referred to in the RFA. Given this determination, the refusal to award fees was sustained on appeal.

Civil Code Section 1717 And Assignees: Second District Publishes The Vons Companies, Inc. v. Parks

 

Case Is Reviewed On Our August 18, 2009 Post.

     For those of you who might represent the assignee of documents with a fees clause, we reviewed an interesting decision from the Second District, Division 8—The Vons Companies, Inc. v. Lyle Parks, Jr., Inc.—in our August 18, 2009 post dealing with the interaction between Civil Code section 1717 and assignment principles.

     It was unpublished at the time, but the Second District decided to make it citable as precedent via a September 17, 2009 publication order. So, go to our August 17 post for a complete review of the newly published decision.

Civil Code Section 1717 Apportionment: Trial Court Did Not Err In Failing To Apportion Fees Where Conjoined Claims Cannot Be Separate For Fee Recovery Purposes

Second District, Division 4 So Rules in Unpublished Decision.

     Apportionment of attorney’s fees, as between covered and uncovered claims, is a discretionary call, as the next decision demonstrates.

     Hur v. Lee, Case No. B210502 c/w BC361921 (2d Dist., Div. 4 Sept. 9, 2009) (unpublished) involved a sushi restaurant seller and his brokers, who suffered an adverse bench trial verdict for fraud in the sale of the restaurant to plaintiff buyers. The court awarded separate compensatory awards of $505,000 and $170.545.88 as well as $100,000 in punitive damages against seller and his brokers. The trial court also awarded attorney’s fees to plaintiffs, as against seller, in the amount of $206,025 based on a fees clause in the sales agreement between seller and buyers. Seller and brokers appealed.

Corporate Dissolution: Voluntary Dissolution Action, With Only A Buy-Sell Agreement Containing a Fees Clause In the Background, Did Not Entitle Petitioning Shareholder To Fees

Sixth District Affirms Fee Denial by Lower Court.

     As we have stated before, the first step in seeking fee recovery in California state courts is to find a firm fee “entitlement anchor,” either a contract or statute conferring the ability for a litigant to recoup attorney’s fees. In the next case, there was a buy-sell agreement, but it was not really involved in the corporate voluntary dissolution action brought by one of the shareholders. The lesson: no fees basis, no fees.

     In Carpentier v. Mangar, Case No. H032731 (6^th Dist. Sept. 9, 2009) (unpublished), one of the shareholders brought a voluntary dissolution petition in the name of the company, and the other shareholder consented to a decree winding up the corporation. Petitioning shareholder was also ordered to reimburse certain sums to the corporation, and a corporate dissolution decree was entered also. Petitioning shareholder then moved for an award of $148,906.50 in attorney’s fees, citing Civil Code section 1717, Code of Civil Procedure section 1021, and Corporations Code section 1904. The lower court denied the motion, and petitioning shareholder appealed.

Settlement: Attorney’s Fees Awarded When Party Seeking Enforcement Of Settlement Agreement Did Not Expressly Obtain Retention Of Jurisdiction Prior To Lawsuit Dismissal

First District, Division 3 Highlights Pitfalls of CCP Section 664.6 in the Retention of Jurisdiction Area.

     Code of Civil Procedure section 664.6 concerns judicial enforcement of settlement agreements through an expeditious motion procedure. The last sentence of this provision states: “If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement.” However, that request must be made orally before the court or in a signed writing, must be made by the parties (not their attorneys, spouses, or other such agents except in certain construction defect actions), must be made before dismissal of suit, and must be granted by the court. (Wackenn v. Malis, 97 Cal.App.4^th 429, 433, 437 (2002); Hagan Engineering, Inc. v. Mills, 115 Cal.App.4^th 1004, 1010 (2003); Hines v. Lukes, 167 Cal.App.4^th 1174, 1182 (2008).) Meet all those requirements or suffer an adverse fee award from losing an enforcement motion … as the unsuccessful litigant learned in our next case for discussion.

     Steele v. Spina, Case No. A123860 (1^st Dist., Div. 3 Aug. 28, 2009) (unpublished) involved a situation that we would guess is faced by many litigants, but ultimately demonstrates the care with which retention of jurisdiction requests must be made in settlement discussions that are court supervised.

     There, parties settled a case by which two insurance carriers were to make future payments after arbitration/mediation and a note secured by a trust deed against defendants’ property was to be executed. The court accepting settlement indicated it would “maintain jurisdiction over this through completion of a written settlement agreement.” The lower court also indicated later, on the record, that this was a judicially enforceable settlement under section 664.6 after all the parties approved the settlement terms on the record. The parties’ subsequent settlement agreement indicated that the court would retain jurisdiction to enforce it and would determine if a prevailing party in any proceeding involving a claimed breach of the settlement would be entitled to attorney’s fees. The settlement agreement apparently was never filed or presented to the court, and the underlying lawsuit was dismissed with prejudice.

     Almost 6 years later, plaintiffs filed a section 664.6 motion to clarify certain terms of the settlement agreement. The lower court—a different judge because the one accepting the settlement had retired—denied the motion because no one had the previous judge actually retain jurisdiction before the lawsuit was dismissed. The lower court also awarded defendants $2,500 in attorney’s fees under the fees clause in the settlement agreement.  Plaintiffs appealed.

Prevailing Party: Voluntary Settlement Of Contractually-Based Claims, Even Though In Tort Or Equity, Prevents Award Of Fees Under Santisas

Fifth District So Rules In Unpublished Decision, Rejecting That “Labels” Rather Than Substance Are Governing. 

     Santisas v. Goodin, 17 Cal.4^th 599 (1998) [one of our Leading Cases] held that Civil Code section 1717 bars an action voluntarily dismissed as a result of a settlement to the extent contract claims were involved in the dismissed action. In the next case, Santisas was found applicable, with the appellate court rejecting arguments that the “labels” on causes of action should determine their substance as far as determining if contract or noncontract claims were at issue.

     In Norris v. Herrera, Case No. F056374 (5^th Dist. Aug. 27, 2009) (unpublished), landlords and tenants were locked in litigation over no-assignment/no-subletting/purchase option clauses in a written lease with a fees provision. Eventually, the parties reached a settlement by which a purchase option was exercised and tenants became owners of the property. The complaint and cross-complaint in the action were voluntarily dismissed pursuant to the settlement. Tenants then moved to recoup $53,532.75 in fees under Civil Code section 1717, arguing they prevailed against the claims in landlords’ complaint. The lower court denied the request, and tenants appealed.

     The Fifth District, in a 3-0 decision authored by Acting Presiding Justice Wiseman, affirmed. Landlords’ claims were for ejectment (tort), declaratory relief (equitable, asking for a declaration that tenants breached the lease), and quiet title (real property claim). In arguing for a reversal, tenants claimed that the court must be limited to the labels attached to the causes of action in the complaint, finding that their claims were noncontractual rather than contractual in nature. That did not sit well at all with the Fifth District: “The tenants’ view that the labels control over the substance is not supported by authority or reason.” (Slip Opn., p. 4.) It found that the relief sought by tenants was for nothing but a set of alleged breaches of contract. “ There is no authority for the idea that a lawsuit is a contract action only when the remedies sought are damages or an eviction order, however.” (Slip Opn., p. 7.) Substance prevailed in this one, not the “labels” on the underlying claims.

Civil Rights: Rejected Informal Settlement Offers Can Be Used As An Indicator Of Success For Purposes of Calculating Attorney’s Fees Lodestar

Third Circuit Court of Appeals So Holds Under 42 U.S. C. Section 1988; California State Court Decisions Split In Analogous Areas, But Ninth Circuit Disagrees.

     On July 23, 2009, the Third Circuit Court of Appeals, in Lohman v. Duryea Borough, __ F.3d __, 2009 WL 2183056 (3d Cir. 2009), affirmed a district judge’s decision to award a successful plaintiff’s attorneys only $34,251.77 in attorney’s fees/costs ($30,000 being fees) out of a requested $112,883.73 after the plaintiff recovered only $12,205 in lost wages and nominal damages following a jury trial. Employer defendant made three informal settlement offers after trial commenced, including one for $75,000, all of which were rejected. In setting the lodestar for purposes of awarding fees under the germane civil rights fee-shifting statute (42 U.S.C. section 1988), the district judge did consider the settlement offers as an indicator of the success of plaintiff in terms of what employee ultimately recovered.

     The Third Circuit affirmed the district judge’s fees/costs award, finding that consideration of the prior settlement offers was one factor that was probative on the “indicator of success” lodestar factor, following the lead of EMI Catalogue Partnership v. CBS/Fox Co., 1996 WL 280813 (S.D.N.Y. May 24, 1996) (a copyright case). The federal appeals court also found that a district judge could properly reject consideration of such offers if the negotiations occurred at an early stage of proceedings (before discovery) or if they were not a true measure of what a party was truly seeking in damages. The Third Circuit agreed with the district judge’s analysis that, even under a contingency fee arrangement of 33% or 40%, plaintiff would have obtained much more if the $75,000 offer had been successful and that plaintiff’s attorney would have received either $25,000 or $30,000 from acceptance of such an offer.

     The Third Circuit also distinguished or found that other frequently cited cases in the areas did not categorically reject consideration of the informal settlement offers in the lodestar analysis. See Ortiz v. Regan, 980 F.2d 138, 140-141 (2d Cir. 1992); Clark v. Sims, 28 F.3d 420 (4^th Cir. 1994); Cooper v. State of Utah, 894 F.2d 1169 (10^th Cir. 1990). For another case that came to a similar result of the Third Circuit in Lohman, see Moriarty v. Svec, 233 F.3d 955, 967 (7^th Cir. 2000) (a “substantial settlement offer,” even if the offer is noncompliant with F.R.Civ. P. 68, can cut off fees incurred after the date of the offer). The Third Circuit also did not find that the consideration of the prior settlement offers was improper even when defendant’s offers were informal rather than made under Rule 68.

     So how do California state decisions weigh in on this issue? They are split. Although occurring primarily in analogous substantive areas, one says a fee reduction is improper (given the existence of California Code of Civil Procedure section 998, Rule 68’s state analog), while another did allow for consideration of rejected informal offers. Compare Greene v. Dillingham Construction N.A., Inc., 101 Cal.App.4^th 418, 425-426 (2002) [FEHA case; fee request should not be reduced for rejecting informal offer] with Meister v. Regents of University of California, 67 Cal.App.4^th 437, 449-450 (1998) [Information Practices Act of 1977 case; plaintiffs were “penalized” for rejection of reasonable informal offers]. A recent decision, City of Novato v. MCCE Development, 2009 WL 1695943 at *23-24 (lst Dist. June 17, 2009) [reviewed in our June 18, 2009 post], noted the conflict, but did not have to resolve it because the settlement at issue had primarily non-monetary components that made it difficult to value for lodestar reduction purposes. So, stay tuned with us, because there will be more jurisprudence on this issue at the California state level.

     But what about the Ninth Circuit Court of Appeals? We do not think they would follow Lohman. In a case involving an award of contractual attorney’s fees under California Civil Code section 1717, the Ninth Circuit in Berkla v. Corel Corp., 302 F.3d 909, 922 (9^th Cir. 2002) found that informal settlement offers were not probative on the issue—adhering to the view that a Rule 68 offer was needed to shift the “balance of power.” Why do we say that? Berkla expressly disagreed with Meister, finding it was further suspect by relying on Marek v. Chesny, 473 U.S. 1 (1985), a case evaluating success when a Rule 68 offer was made. Berkla was also recently followed by a district court in Gregor Leasing Corp. v. Potrero, 2008 WL 4830751 at *4 (N.D.Cal. Nov. 6, 2008) (Conti, D. J.).

Prevailing Party: Plaintiff Who Dismissed Action But Beat Back Defense Fee Request Was Not Prevailing Party Under Civil Code Section 1717 In The Overall Sense So As To Garner Fees For Beating Opposition Fee Request

Second District, Division 6 Follows Presley and Mustachio in so Deciding.

     The beginning quote in this case nicely summarizes the lesson from the next case: “A party who prevails on appeal is not necessarily the prevailing party in an action.”

     Wood v. Santa Monica Escrow Co., Case No. B205939 (2d Dist., Div. 6 Aug. 13, 2009) (certified for publication) involved a defendant escrow company that prevailed in an underlying lawsuit when the plaintiff dismissed his elder abuse and contract suit with prejudice. Defendant moved for attorney’s fees of $24,773.75 based upon a fee clause in the escrow instructions, a request denied by the trial court and affirmed by Division 6 in a prior opinion. (In that previous published decision found at 151 Cal.App.4^th 1186 (2007), the appellate court found that the elder abuse statute only allows fee recovery for a prevailing plaintiff rather than a defendant, with an award of fees to escrow company under Civil Code section 1717 frustrating the elder abuse legislative policy.) Plaintiff then tried to reverse fortunes by moving to recover his attorney’s fees on appeal for beating back defendant escrow’s earlier fee request. The trial court denied the fee motion, and the Second District, Division 6 affirmed.

     Writing on behalf of a 3-0 panel, Presiding Justice Gilbert relied on Presley of Southern California v. Whelan, 146 Cal.App.3d 959, 961 (1983) and Mustachio v. Great Western Bank, 48 Cal.App.4^th 1145, 1149-1150 (1996) to determine that Civil Code section 1717 fees are only awarded to the overall winner in the litigation—in this case, defendant escrow that was dismissed with prejudice. The appeal of the denial of the attorney’s fees did not decide who won the overall lawsuit. The appellate panel also distinguished appellate routine costs, which were recoverable by plaintiff for winning the prior appeal, from appellate attorney’s fees, which entails a completely different contextual analysis of what litigant prevailed in the overall context of the litigation.

Civil Code Section 1717: Party Sued Last Minute Wins Attorney's Fees Of $142,690.75, But Loses Bid For More

Appellate Court Decides That More Fees Would Be Unfair Because Half of Fees Paid By Another.

     Courts do apply equitable principles in awarding fees to victorious litigants under Civil Code section 1717, even where the winner was a last minute add-on litigant. The next case is one illustration of how equities enter into the section 1717 equation.

     Add-on litigant was actually added as a plaintiff on the first day of trial, eventually declared the winner along with another plaintiff in a lease assignment dispute. The lease had a written contract clause, with the lower court awarding add-on plaintiff $142,690.75 (out of a requested $240,000 in fees by both plaintiffs). Both plaintiffs challenged the fees awarded to add-on plaintiff in an appeal of the postjudgment order.

     They lost in Sossikian v. Ennis, Case Nos. A119693 et al. (1^st Dist., Div. 3 July 16, 2009) (unpublished), mainly on equitable grounds. Defendant argued that the award was not "on a contract" under section 1717, but that argument did not resonate because the statutory "on a contract" element is construed liberally and the implied-in-fact theory was accepted such that add-on plaintiff was found to be a party to the written lease. However, the lower court was correct in halving some pieces of the fees in crafting its award to add-on plaintiff given that its fees were being paid by other plaintiff. If another result were to occur, add-on would have essentially been awarded fees for work that was done when it was not a party to the litigation. That would be unfair, ruled the trial court, with the Court of Appeal seeing nothing wrong with this equitable reasoning.

Civil Code Section 1717 And Alter Ego Case: Litigant Beating Alter Ego Theory Entitled to Fee Award

Second District, Division 4 Affirms $20,000 Fees/Cost Award to Alter Ego Winner.

     In Legacy Construction and Development, Inc. v. De Francesca, Case No. B208851 (2d Dist., Div. 4 July 13, 2009) (unpublished), a defendant, following presentation of plaintiff’s declaratory relief case, obtained a ruling that he was not the alter ego of a separate corporation being sued in the case. Winning defendant was eventually awarded fees and costs of almost $20,000 under Civil Code section 1717 (based on a contract fees clause between Legacy and the separate defendant corporation).

     The Second District, Division 4 affirmed the award. Relying on Pueblo Radiology Medical Group, Inc. v. Gerlach, 163 Cal.App.4^th 826, 829 (2008) [reviewed in our June 5, 2008 post], the appellate panel found that defendant was a prevailing party notwithstanding that the plaintiff might obtain relief against other parties. The favorable alter ego finding did “end the case” against the one defendant who beat the alter ego exposure. Beyond that, the amount of the award was reasonable—winning defendant had asked for $42,130 in fees, but the trial court only awarded $19,150 (plus costs).

Civil Code Section 1717 And Mediation Clause: Real Estate Buyer Losing Fraud Case Suffers $122,100 Adverse Fee Award

Second District, Division 6 Also Interprets Mediation Requirement in CAR Form Contract.

     Buyers sometimes get confused over their obligations under CAR real estate form contracts, especially the ones involving an award of attorney’s fees (which clauses have been held to reach fraud/nondisclosure claims). One of the most frequent causes of confusion is the mediation requirement. Buyer’s failure to satisfy her end of the mediation requirement, coupled with a loss of her suit based on the statute of limitations, was deadly as far as fee exposure was concerned.

     In Carradine v. Cowell, Case No. B210910 (2d Dist., Div. 6 July 13, 2009) (unpublished), residential real estate sellers prevailed after a court trial, with the judge determining that buyer’s fraud/nondisclosure suit was time barred. The trial court awarded sellers all of their attorney’s fees of $121,100 under a CAR fees clause with a mediation requirement. The award was affirmed by the Second District, Division 6, in a 3-0 opinion authored by Acting Presiding Justice Yegan.

     Buyer argued that sellers were ineligible for fee recovery under the CAR fees clause because they refused to mediate. However, buyer misread the clause—it required her to pursue mediation before resorting to court action, something she did not do. Buyer thereby waived enforcement of this provision. Beyond that, the award was hardly an abuse of discretion; after all, sellers incurred fees because buyer waited too long to file her lawsuit—“There is nothing arbitrary, capricious or irrational about requiring appellant to pay the full cost of her intransigence.”

Prevailing Party: Unsuccessful Injunctive Action Was Discrete Legal Proceeding Allowing For Award Of Civil Code Section 1717 Fees

First District, Division 4 Follow Acosta-Otay Line of Cases.

     There has been quite a splash of jurisprudence lately on the question of when a prevailing party can be adjudged in mixed legal-arbitration proceedings. The next case is the latest addition to the case law on this subject.

     In Turner v. Schultz, Case Nos. A121642, A121707 (1^st Dist., Div. 4 July 13, 2009) (certified for publication), the First District, Division 4—in a “close” case on the issue—decided that a trial court correctly awarded $82,280.78 in attorney’s fees to defendants that successfully beat plaintiff’s declaratory and injunctive relief efforts in court to forestall arbitration of a dispute between the parties based on a contractual fees clause covering legal actions. Plaintiff’s legal action was designed to stay arbitration, unlike other disparate legal proceedings to compel arbitration. However, the Court of Appeal followed Acosta v. Kerrigan, 150 Cal.App.4^th 1124, 1131-1132 (2007) and Otay River Constructors v. San Diego Expressway, 158 Cal.App.4^th 796, 996-998 (2008) over other cases, finding that there was a discrete legal proceeding where fees were warranted—“an independent complaint for declaratory and injunctive relief.”

     Even if plaintiff won future fees after prevailing in the arbitration, the legal action was separate and he lost his effort to forestall the arbitration. “It was [plaintiff] who initiated both actions [by first seeking arbitration and then commencing a court action claiming the entire agreement was void]; he must accept the consequences of forcing defendants to fight on two fronts.” (Slip Opn., p. 12.)

Civil Code Section 1717: Bankruptcy Related Actions Were Recoverable By Successful Lender

Fourth District, Division 1 Finds No Basis To Assess Fees Against Nonsignatory Individual Principal In the Absence of an Alter Ego Finding.

     In New Century Corporation v. Positive Investments, Inc., Case No. ECU03797 (4^th Dist., Div. 1 July 8, 2009) (unpublished), lender was awarded attorney's fees of $83,329 under an attorney's fees clause of a loan agreement (out of a requested $114,339.77 in fees) against a defaulting borrower who fraudulently quitclaimed to a new entity and then filed serial bankruptcies forcing lender to take bankruptcy actions that eventually resulted in dismissal of the bankruptcy cases. (The bankruptcy judge ordered sanctions against the fraudulent transferee, transferee's principal Mr. Lo, and transferee's bankruptcy counsel.) However, the trial court refused to award fees against Mr. Lo, who was not a signatory to the loan agreement (being only the principal of the borrower signatory). Borrower appealed, and lender cross-appealed.

Civil Code Section 1717: Court Of Appeal Sustains $15,000 Fee Award For $37,000 Rental Delinquency Case

Fourth District, Division 2 Rebuffs Request for Over $40,000 in Fees.

     Plaintiff landlord sued and ultimately recovered $37,420 in delinquent rent (plus $10,295.96 in interest) from former tenants who had abandoned commercial premises being rented in the past. Landlord won a prior judicial arbitration, being awarded $13,622 in fees and costs. However, when landlord sought to recoup almost $41,000 in fees for prevailing under a rental agreement fees clause after winning the superior court trial, the trial court only awarded $695 in costs and $15,000 in fees.

     Appealing landlord did not convince the Fourth District, Division 2 that the trial judge abused its discretion in awarding fees lower than it desired.

     In Rudh v. Baez, Case No. E046287 (4^th Dist., Div. 2 July 1, 2009) (unpublished), the Court of Appeal found no basis to overturn the trial court's decision.

Civil Code Section 1717: Sixth District Affirms Trial Court Denial Of Fees To Defendant Where Plaintiff Dismissed Both Contract And Fraud Claims

 

Sixth District Applies Reasoning of Santisas.

     The next case shows how appellate courts apply a pragmatic standard in gauging whether a party prevailed in order to recover attorney's fees, even after a voluntarily dismissal of a fraud count where fees might be recoverable under an expansive Purchase Agreement clause.

     Almog v. Mueller, Case No. H032984 (6^th Dist. June 30, 2009) (unpublished) involved a situation where plaintiffs and defendant vied over contract and fraud claims based on deposit and purchase agreements to develop four adjacent lots of undeveloped real property. The dispute centered over who was responsible for lot line changes. While the litigation was pending, the lot line revisions were finalized and plaintiffs voluntarily dismissed their suit. Defendants sought to recover $3,388.05 in costs and $28,832.90 in attorney's fees as the "prevailing parties." The trial court awarded costs but refused to award fees after finding defendants did not prevail. Defendants appealed.

Surveyor, Chicot Farms, Arkansas.  1939.  Library of Congress

Homeowner Associations: Two Neighbors Duke It Out—One Neighbor Finally Prevails On Appeal, Meaning A Prior Denial of Fees Was Erroneous

Fourth District, Division 3 Remands for Fee Redetermination in “Acrid Dispute Between Neighbors.”

     Disputes between homeowner associations and members or neighbors in a common interest subdivision seem to result in overboilings of emotions and (ultimately) litigation resources. Many times, the final result—where both sides seek to recoup hefty attorney’s fees—results in a “wash,” with trial courts determining there was no prevailing party. Other times, the lower court gives the victor a substantial share of the spoils, much to the chagrin of the outwardly outraged opponent (who generally appeals, loses, and owes more fees). Well, here is another one—except that is involves neighbors in a common interest subdivision with CC&Rs. You know that the result could not be good when the appellate court deciding a fee award denial characterized it as a case arising out of “an acrid dispute between neighbors.”

     In Harm v. Hetman, Case No. G040454 (4^th Dist., Div. 3 June 25, 2009) (unpublished), quite a neighborhood donnybrook was involved, with litigation brought by Mr. Hetman in which he charged that neighbors, the Harms (maybe appropriately named, if you continue on, from the other side’s perspective), violated CC&RS and created a nuisance by (1) building a stucco wall obstructing Hetman’s views; (2) retaining a contractor that damaged Hetman’s brick planter wall when jackhammering construction on Harms’ property, and (3) maliciously planting 30 trees across the neighbors’ property line that would grow over 10 feet in height, so as to create the equivalent of a “spite fence.” The trial court enjoined the stucco wall construction, while the jury found Harms were not negligent with respect to the jackhammering contractor and did not maliciously plant the trees to annoy Mr. Hetman. After trial, Harms filed a motion to recover $201,150 in attorney’s fees for prevailing on the two claims, a request which was denied. Appeals ensued on the merits judgment and fee award denial.

              Pebbled Stucco Wall.  Library of Congress.

Remedies, Fee Shifting Provisions and Settlement Efforts: Appellate Court Partially Reverses Based On Lack Of Privity But Sustains Other Fees In Complex Development Agreement Case

Fourth District, Division 1 “Multitasks” in Covering a Wide Gamut of Fee Issues in Recent Unpublished Opinion.

     Here is a review of a complex and wild decision covering a myriad of remedy and fees issues in the context of City of Novato’s dispute with a developer and its successor over performance of two separate development agreements to build streets and make improvements to seven homes as well as preserve certain acreage as open space in a residential subdivision. Developer later transferred four buildable lots to Mr. Morf, even though there was no assignment or direct assumption of any development agreement with City. Litigation began in 2002 over development agreement performance, with City cross-complaining for both damages and specific performance. The jury awarded zero damages to City (finding damages were too difficult to ascertain), but the trial court granted specific performance of the development agreements in favor of City and against developer and Mr. Morf. Eventually, City was awarded net attorney’s fees of $476,713 as the prevailing party under contractual fee clauses as against developer and Morf, with both appealing the adverse determinations.

     The First District, Division 3, in a 3-0 opinion authored by Presiding Justice McGuiness, addressed a myriad of remedy and fee issues in City of Novato v. MCCE Development, LLC, Case Nos. A116957, 120137 (1^st Dist., Div. 3 June 17, 2009) (unpublished), reversing the specific performance decree against Mr. Morf and reversing the award of fees to City as against Mr. Morf. Except for these limited reversals, the judgment was affirmed, but remanded for reconsideration of the scope of equitable relief against Mr. Morf and a reconsideration of the amount of the City’s fees to be reimbursed by developer in light of the Morf reversal. So, here we go on synopsizing this 43-page opinion on fee topics.

Civil Code Section 1717: Abandonment Of Contract Claim After Court Denied Leave Means No Fees Awardable To Prevailing Party

Fourth District, Division 3 Finds No Fees Were Expended Even Though Nonsuit Grant Could Give Rise to Fee Exposure Under Different Circumstances.

     In an unusual procedural context, the Fourth District, Division 3 reversed an award of $73,026.79 in Civil Code section 1717 fees to defendants after the plaintiff neighbors lost nuisance and trespass claims and after the trial court granted a nonsuit on the CC&R breach claim based upon lack of standing (plaintiff husband no longer owned the house). Allesandro v. Tecau, Case No. G039750 (4^th Dist., Div. 3 June 15, 2009) (unpublished) is the case.

Homeowner Associations: Losing Condo Homeowners Associations Not Subject To Fee Exposure When Losing Action Against Past Board Member Defendants

Purchase Agreement Fees Clause Did Not Apply Because Plaintiff Was Not A Condo Buyer.

     One of the first rules of fee entitlement is that you need a contractual or statutory basis to trump the American Rule that each sides bears its own attorney’s fees in a case. That principle sunk the winning defendants’ request for an award of Civil Code section 1717 contractual fees.

     L.E.C.H., Inc. v. Klein, Case No. B207872 (2d Dist., Div. 8 June 15, 2009) (unpublished) involved a condominium homeowners association that sued defendants, two former HOA board members, on multiple theories. After a bench trial, the lower court found defendants had breached their fiduciary duty of not disclosing certain defects to either the HOA or individual homeowners. That ruling was taken up in an earlier appeal, with the Court of Appeal reversing—determining that the defendants had no fiduciary duty of disclosure to the individual buyers. Defendants then moved for contractual attorney’s fees based on a fees clause in purchase agreements between defendants (former sellers) and individual homeowners (former buyers). The lower court denied the request, and defendants appealed.

Special Fee Shifting Statute: Third District Affirms $29,674 Fee Award Against Sacramento County In A Contempt Proceeding To Enforce Injunction Abating A Nuisance

Court of Appeal Enforces Faces the Conflict Between Civil Code Section 1717 and Government Code Section 25845(c).

     Civil Code section 1717 is straightforward in allowing for mutual recovery of attorney’s fees in California by a prevailing party where a contractual clause so authorizes such a recovery. However, sometimes this provision seemingly comes into conflict with other statutes. For example, Government Code section 25845(c) limits the amount of prevailing party attorney’s fees to those incurred by the losing county in an action, administrative proceeding, or special proceeding to a abate a nuisance, but only if the attorney’s fees were authorized by a county ordinance. However, Government Code section 25845(b) also makes clear that the recovery of attorney’s fees not predicated upon a county ordinance “shall be in addition to and shall not limit any prevailing party’s right to recover costs pursuant to [Code of Civil Procedure] section 1032 and 1033.5 [with section 1033.5 including as costs attorney’s fees authorized by contract] …”

     The collision between these Civil Code and Government Code sections was confronted by the Third District, recently, in County of Sacramento v. Sandison, Case No. C058396 (3d Dist. May 29, 2009) (certified for partial publication).

Civil Code Section “Prevailing Party” . . . . Court Of Appeal Reverses Determination That Property Seller Getting $29.75 Million Properties Back Was Not The Winner For Fee Purposes Where Buyer Got Back $1.13 Million Deposit

Fourth District, Division 1 Rejects “You Won One, I Won One” Scoreboard Approach to Section 1717.

     This next case shows that appellate courts do indeed apply a pragmatic test when deciding whether a “prevailing party” determination rightfully gauged who obtained greater relief for purposes of awarding attorney’s fees under Civil Code section 1717. (For more discussion of the pragmatic test, go to our Leading Case list and locate Hsu v. Abbara, 9 Cal.4^th 863, 875-877 (1995).)

     Silver Creek, LLC v. Blackrock Realty Advisors, Inc., Case No. D052587 (4^th Dist., Div. 1 May 20, 2009) (certified for publication) involved a situation where a trial court determined no party prevailed for section 1717 fee recovery purposes even though seller obtained its objective of keeping properties worth $29.75 million but having to refund a $1.13 million purchase deposit to the unsuccessful buyer. (During court testimony, seller’s witnesses indicated that seller’s goal was to get the properties back on the market, not keep buyer’s deposit.) Because each side had won an issue, the lower court concluded there was no unqualified “winner.”

     That determination was reversed on appeal.