Equity/Fee Clause Interpretation/Section 1717: Prevailing Plaintiffs In LLC Dissolution Dispute Entitled To Fee Recovery Under Broadly Worded LLC Operating Agreement Fee Clause

 

Pre-Appraisal Participation in Litigating Issues Meant Corp. Code Section 17351(b) Did Not Trump Broadly Worded Fees Clause.

     Kashian v. Simonian, Case No. F064325 (5th Dist. Aug. 28, 2013) (unpublished) was a business litigation war between two founding member sides of an LLC. Plaintiffs filed for fiduciary duty breach, declaratory relief, and LLC judicial dissolution, with defendant answering and serving a notice of their rights under Corporations Code section 17351(b) to purchase plaintiffs’ interests in order to avoid dissolution of the LLC. However, the purchase appraisal process was put on voluntary hold, not via a court stay, so the parties could litigate certain issues before a stipulated-to referee. Plaintiffs prevailed on almost all disputed issues, with the referee then awarding them--at the lower court’s insistence--attorney’s fees of $647,734.05 and costs of $44,503. Defendants appealed.

     Unfortunately for appealing defendants, the LLC operating agreement had a very broadly wording fees clause, applying to “any dispute” between the LLC and LLC or among the LLC members which resulted in litigation. Under CCP § 1021 and Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4th 1338, 1341 (1992), this was broad enough to encompass contractual, tort, and equitable claims. (See also Maynard v. BTI Group, Inc., 216 Cal.App.4th 984, 993 (2013).)

     Defendants’ main contention was that any contractual right to fees was trumped by the special appraisal purchase rights provision relating to judicial LLC corporate/LLC dissolutions (Corp. Code, § 17351(b)) because that latter section envisioned fees would only be incurred in the appraisal process and could only come out of a court-ordered bond to ensure that the purchase process was timely completed. The appellate court did not have to wrestle through the “trumping” argument because the circumstances showed that the parties stipulated to litigate matters before the appraisal/buyout process and never sought any court stay, such that there was no reason that the LLC operating agreement fees clause did not apply. These special circumstances distinguished the defense reliance on any contrary reasoning in Go v. Pacific Health Services, Inc., 179 Cal.App.4th 522 (2009).