Nonsignatories: Non-prevailing Individual Plaintiff Was Not Subject To Attorney’s Fees Exposure Because Nothing Indicated He Was A Contractual Third-Party Beneficiary

$430,000 In Fees Awarded Against Signatory LLC, But Not Against Losing Individual Plaintiff.

            For a non-prevailing nonsignatory party to be exposed to fees, there must be some substantial link to the underlying contract involving signatory parties—such as the nonsignatory being a third-party beneficiary of a contract.  (Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 382 (1994).)  In the absence of that relationship, an individual plaintiff losing a case may not be liable for substantial fee exposure, as happened to be the case in Kavoukjian v. Imnaishvili, Case No. B300459 (2d Dist., Div. 8 Dec. 10, 2020) (unpublished).

            Defendants won a bench trial against both signatory and nonsignatory plaintiffs involving a joint venture agreement with a contractual fees clause.  The lower court awarded $430,000 in fees against the LLC signatory plaintiff, but not the losing nonsignatory, individual plaintiff.  Defendants appealed the fee denial as against the nonsignatory plaintiff.

            The 2/8 DCA panel affirmed.  Nonsignatory plaintiff’s claims were not based on breach of contract, given that only the LLC sued on this theory.  Although nonsignatory claimed to be a third-party beneficiary in a discovery response after commencement of litigation, this statement alone did not mean he was—with the joint venture agreement not manifesting any intent by the signatories to confer a direct benefit on the nonsignatory plaintiff.  The fact that the LLC could assign its interests and options to the nonsignatory did not make the nonsignatory a third-party beneficiary.  (Don Rose Oil Co., Inc. v. Lindsley, 160 Cal.App.3d 752, 756 (1984).)  Naming nonsignatory in the notice provision of the contract also was too incidental.  (Walters v. Calderon, 25 Cal.App.3d 863, 871 (1972).)