Fee Clause Interpretation: Narrow LP Agreement Fee Clause Did Not Allow For Tort Recovery Against Unsuccessful Investor Plaintiff

$657,000 Fee Award For Defense In Investment Dispute Went Away Based On Interpretation Of Fees Clause. 

            As we have posted many time under our category “Fee Clause Interpretation,” a fees clause in many an agreement may require an appellate court to reverse a significant fee recovery where the clause in narrow in scope.

            Stella v. Asset Management Consultants, Inc., Case No. B276686 (2d Dist., Div. 7 Jan. 8, 2018) (unpublished) is just such a situation. 

            There, plaintiff lost a fraud investment dispute against defendants, who sought to recover fees under a limited partnership agreement fees clause relating to “any action or proceeding between the parties seeking enforcement of any of the terms and provisions of this Agreement ….”  After ultimately prevailing on the tort-based claims, the trial judge awarded the defense $657,000 in attorney’s fees based on the LP Agreement fees clause.

            That determination was reversed as a matter of law.  The main problem was that this clause only authorized fees in connection with contract claims, not the tort claims which were at issue.  Although recognizing that prosecuting an affirmative defense cannot give rise to fee recovery (see Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5^th 744 (2017) [our Leading Case No. 22]), the defense tried to make a creative argument that certain earlier procedural steps—such as prior motions to enforce the dispute resolution provision of the LP Agreement and a successful statute-of-limitations demurrer—were “enforcement” steps for purposes of the fees clause.  The appellate court did not embrace this argument.  “Action or proceeding” for fee clause purposes, generally, refers to the litigation as a whole rather than just finite steps along the way.  Fee determination reversed as a legal matter.