Nonsignatory Defendants Denied Attorney’s Fees Award Where They Would Not Have Been Entitled to Recovery Had They Won

Fifth District, in an Unpublished Opinion, Rejects Reasoning From Both Abdallah and International Billing Services in Affirming Lower Court Fee Denial. 

            In our four months of blogging, we have covered both published and unpublished California appellate decisions.  We have found that the unpublished decisions are still valuable for their analysis, although not citable except in narrow circumstances that are generally not at play.  (See Cal. Rules of Court, rule 8.1115, as reiterated in our Blog Disclaimer.)  The reason that unpublished decisions are valuable is that they analyze prior appellate decisions, either following, disagreeing, or criticizing those previous opinions penned by their appellate colleagues in different Districts.  We now discuss an older unpublished decision, Aluisi v. Kolkka, Case No. F034243 (5^th Dist. Oct. 5, 2001) (unpublished), where the Fifth District disagreed with portions of the analysis made in the prior opinions of Abdallah v. United Savings Bank, 43 Cal.App.4^th 1101 (1996) and International Billing Services, Inc. v. Emigh, 84 Cal.App.4^th 1175 (2000).

            Aluisi involved a nonsignatory wife who, along with her husband and father-in-law, sued sellers under a busted real estate purchase transaction where wife was not a signatory to a purchase contract with a fees clause benefiting a prevailing party.  Defendant sellers successfully demurred out wife on the grounds she was neither a party nor a third-party beneficiary of the contract.  Defendants than moved for $31,465.35 in attorney’s fees as the prevailing party under the fees clause, a request denied by the trial judge.  Defendants appealed and did not win on appeal.

            Justice Wiseman, affirming on behalf of a 3-0 panel, initially confronted a familiar issue—whether wife would have been entitled to attorney’s fees as a third-party beneficiary under the contract had she prevailed.  Sessions Payroll Mgt. Inc. v. Noble Constr. Co., 84 Cal.App.4^th 671, 674-675 (2000) was found to be on point is disposing of the issue, because nothing in the contract demonstrated that the signatories (husband and father-in-law) intended to include wife within the attorney’s fees provision of the real estate purchase agreement.  Beyond that, there was extraneous corroboration for this conclusion:  the escrow instructions showed that the property was to be vested as husband’s sole property along with his father-in-law as co-owner.  Justice Wiseman found that the defense citation to Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 383-384 (1994) to be inapt, because a plaintiff sublessee did have a sufficient nexus based upon a third-party beneficiary granting provision in the master lease.  No similar provision was found in the purchase agreement between the parties involved in Aluisi.

            The appellate court then turned its attention to Abdallah, supra, 43 Cal.App.4^th 1101, 1111, where a signatory defendant prevailed and was held entitled to attorney’s fees from the nonsignatory plaintiff.  Justice Wiseman, on behalf of the Fifth District panel deciding Aluisi, expressly disagreed with two conclusions reached by Abdallah:

·       Abdallah, generalizing from the specifics of Real Property Services, stated:  “A defendant that has signed a contract providing for attorney fees is generally entitled to fees if it prevails against a nonsignatory plaintiff in an action on the contract.”  (43 Cal.App.4^th at 1111.)  The Fifth District, after observing “[w]hether this statement is statistically accurate and thus may constitute a valid observation cannot be determined here,” went on to state “[i]n any event, it is not a valid rule, and Real Property Services does not suggest it is valid.”  (Slip Opn., at p. 8.)  Justice Wiseman reasoned that the result in cases involving nonsignatory plaintiffs “must still be compelled by the facts of each case” and quoted a passage from Real Property Services indicating that a signatory defendant cannot recover fees from a nonsignatory plaintiff unless the nonsignatory plaintiff was entitled to fees had plaintiff prevailed (25 Cal.App.4^th at 382).

·       Abdallah concluded that “Fred Abdallah’s status as a nonsignatory is irrelevant; the only question is whether he would have been entitled to his fees if he had prevailed.  ([Real Property Services, supra, 2 Cal.App.4^th] at p. 382.)  Since it is undisputed that Fred Abdallah would have entitled to fees if he had been a prevailing party, there is no question that he is liable for fees as a losing party.”  (43 Cal.App.4^th at 1111.)  Justice Wiseman believed that Abdallah’s status as a nonsignatory was very relevant on the fee issues, because Real Property Services so recognized and Abdallah does not explain why it was “undisputed” that Abdallah would have been entitled to fees had he prevailed.  For those reasons, the Fifth District “choose to not follow Abdallah.”  (Slip Opn., at p. 9.)

The Fifth District, in an extensive footnote, also discussed defendants’ contention

that wife was estopped from denying fee entitlement based on claiming a request for attorney’s fees in her complaint against defendants.  Defendants primarily relied on International Billing Services, Inc. v. Emigh, supra, 84 Cal.App.4^th 1175, 1186.  Justice Wiseman then implicitly rejected this aspect of Emigh, reasoning “we agree with Sessions’ well reasoned and supported conclusion that an estoppel theory contradicts the “Reynolds Metals [Co. v. Alperson, 25 Cal.3d 124, 129 (1979)] test,” which requires a party claiming attorney fees to establish that the opposing party actually would have been entitled to receive them if the opposing party had prevailed.  (Sessions, supra, 84 Cal.App.4^th at pp. 681-682; see Reynolds Metal Co. v. Alperson, supra, 25 Cal.3d at p. 129.)”  (Slip Opn., at p. 9 n. 1.) 

            On the Emigh estoppel theory, the Fifth District seems in accord with many divisions of the Second District, the Sixth District, and other Districts in not following the estoppel theory espoused in Emigh.  See our May 18, 2008 post on Blickman Turkus, LP v. MF Downtown Sunnyvale, 162 Cal.App.4^th 858 (2008) [6^th Dist.], which discusses other Districts disagreeing with Emigh; our August 7, 2008 post on Zislis v. Nam (2d Dist., Div. 5 unpublished); and our August 10, 2008 post on Hill v. Pro Value Properties, Inc. (2d Dist., Div. 8 unpublished), which surveys other Second District division perspectives on Emigh.