Fee Clause Interpretation/Section 1717: Contract Illegality Doomed Fee Recovery Under Purchase Agreement, But Attorney’s Fees Denial Reversed Under Option Agreement Fees Clause

 

A 2-1 Decision, With Majority Holding Novation Defense Fell Within Fee Clause Ambit, And With Dissent Arguing No Fees Entitled Under Option Fees Clause So Trial Court Properly Denied Fees.

     At its core, Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, Case No. A138306 (1^st Dist., Div. 2 Nov. 20, 2014) (published) is a fee clause interpretation case, which produced a 2-1 split opinion in favor of allowing a fee claimant to pursue recovery of fees under an option agreement fees clause based on raising and successfully litigating a novation defense.

     This one involved fees clauses under both a purchase agreement and an option agreement. Both the majority and dissenting justices found fee recovery was properly denied to a fee claimant because the parties were in pari delicto and the purchase agreement was illegal given failure to comply with law requiring a properly recorded subdivision map relating to parcels being sold.

     However, they parted company on whether the option agreement fees clause allowed recovery to fee claimant for having prevailed on a novation defense. The majority reasoned that the novation defense qualified for recovery because it was a “legal action or … other proceeding … brought” within the meaning of the option agreement, adopting the broad definition of “action” from Windsor Pacific LLC v. Samwood Co., Inc., 213 Cal.App.4^th 263, 276 (2013) [discussed in our Feb. 2, 2013 post, with Windsor Pacific agreeing with Justice Armstrong’s dissent in Gil on the issue].) In contrast, Justice Richman—the dissenting justice—simply did not believe the option fees clause was worded to allow recovery for the novation defense work because novation is not “enforcement of the agreement” in any sense of the word.