Appellate Court Reverses Non-Prevailing Party Determination Because Client Defensed Attorney on Contract Claim In A Jury Trial

Second District Remands For Settling the Reasonable Amount of Attorney’s Fees and Costs.

            Usually, prevailing party determinations are reviewed under the abuse of discretion standard on appeal.  Not always, however.  Sometimes the contractual fees clause is clear in specifying a prevailing party and one side wins a final judgment in their favor on a contract claim.  As the next case shows, this means that the determination is a legal one, with the appellate court not having to give deference to a lower court conclusion.  In this particular situation, it might mean a swing of $400,000, the approximate amount of fees spent by Former Clients in defensing Former Attorney’s contract claim and prosecuting an inextricably intertwined fraud cross-claim.

            

            In Horn v. Hoffman, Case No. B187647 (2d Dist., Div. 8 July 22, 2008) (unpublished), Former Attorney filed a contractually-based collection action against Former Clients, who asserted an affirmative defense and a cross-claim of fraud based on the theory that Former Attorney misrepresented his level of experience and expertise in handling property line disputes and submitting fraudulent billings.  A jury found Former Attorney committed fraud, but awarded no damages to Former Clients.  The retainer agreement provided “[t]he parties agree that if collections action is taken to collect the fees or costs owed by [Former Clients] to [Former Attorney] that the prevailing party shall be entitled to reasonable attorney’s fees and court costs.”  The trial court denied Former Clients’ new trial motion on fraud damages as well as their request for fees and costs after finding neither party prevailed.

            Both sides appealed.  Former Clients won in a major turnaround.

            Initially, the jury indicated some intention to award damages to Former Clients on their fraud cross-claim.  After several clarification attempts, jurors came back with zero damages for both sides.  The appellate court found fraud had been proven and that a zero damages award was legally inadequate such that Former Clients were entitled to a retrial solely on the fraud cross-claim damages issue. 

            As germane to this post, the Court of Appeal also found the prevailing party was ripe for review given that Former Clients had defensed Former Attorney’s contract claim.  Relying on Lerner v. Ward, 13 Cal.App.4^th 155, 160-161 (1993) and Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4^th 1338, 1341-1343 (1992), the Second District, Division Eight found that the fee clause was narrowly drafted to encompass only contract claims, but that Former Client were the prevailing parties on the contract claim under Civil Code section 1717.  The same held true for other litigation costs, with the panel citing Michell v. Olick, 49 Cal.App.4^th 1194, 1198-1199 (1996).  This gave Former Clients a shot to recoup approximately $400,000 in attorney’s fees, with the appellate court overturning the non-prevailing party determination and remanding for establishment of the amount of the fees.

            Former Attorney did argue that Former Clients had to apportion fees between their defense of the contract claim and the significant sums spent on prosecution of the fraud cross-claim. Although indicating “ordinarily, we would agree,” the appellate panel went on to observe that both actions involved inextricably intertwined facts—the elements of Former Clients’ successful fraud defense were identical to the elements of the fraud cross-claim, meaning the lower court on remand might “deem it impracticable to apportion fees.”  (Slip Opn., at pp. 17-18.)

              Quite a reversal of fortune. Former Attorney went from losing a collection action with no repercussions to facing a retrial with fraud damage exposure to his Former Clients and to facing a heavy attorney’s fees determination (possibly unapportioned) in the hundreds of thousands of dollars range.