Judgment Enforcement, Section 1717: In A Case Of First Impression, The 4/3 DCA Affirms Section 1717 Attorney Fees To Prevailing Alter Ego Defendant In An Enforcement Action For An Underlying Breach Of Contract Judgment

Prevailing Alter Ego Defendant Would Have Been Entitled To Section 1717 Fees For Defeating Plaintiffs’ Claims If Made In The Underlying Action Even Though He Was Not A Signatory On The Contract.

            In MSY Trading Inc. v. Saleen Automotive, Inc., Case No. G057093 (4^th Dist., Div. 3 June 26, 2020) (published), judgment creditor plaintiffs brought an enforcement action against three defendants seeking to hold them liable on the underlying breach of contract judgment as alter egos of the judgment debtors.  The trial court granted the motion as to only one of the defendants and denied as to the other two defendants.

            Afterward, one of the defendants moved for attorney fees – with the trial court holding that equitable considerations entitled prevailing defendant to fees pursuant to Civil Code § 1717.  Although the immediate action was for enforcement rather than breach of contract, the trial court reasoned that defendant would have become liable for the underlying judgment as well as the attorney fees if plaintiffs had succeeded in having him added as a judgment debtor.

            On appeal, plaintiffs argued that because the action was an enforcement action and not “on a contract,” there was no statutory basis for an award of fees to prevailing defendant.  The 4/3 DCA disagreed with this “facial[ly] appealing” argument and affirmed.

            In an opinion authored by Justice Ikola, the 4/3 DCA found the principles in Reynolds Metals Co. v. Alperson, 25 Cal.3d 124 (1979) persuasive.  Reynolds holds that the intent of section 1717 is to ensure mutuality in the availability of attorney fees, and that “[i]ts purposes require [Civil Code] section 1717 be interpreted to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney’s fees should he prevail in enforcing the contractual obligation against the defendant.” (Id. at p. 128.)  Observing that if plaintiffs had brought the same alter ego allegations against defendant in the underlying breach of contract action, and defendant had prevailed, he would have been entitled to attorney fees, the appellate panel found defendant’s argument on point – that the timing of the alter ego claim should not be the basis for determination of the right to fees. 

            After all, if the timing of the alter ego claim was the deciding factor in the right to fees, all alter ego claims would be made post-judgment.