Fee Clause Interpretation, Section 1717: Where Cross-Complaint Did Not Involve Any Enforcement Or Promise Breaches Of A Purchase Agreement With A Fees Clause, Attorney’s Fees Lacked Any Entitlement Basis

Section 1717 Did Not Change The Analysis, Because The Scope Of The Fee Clause Can Only Relate To Contractual Claims—Meaning CCP § 1021 Must First Be Overcome.

            Otay Land Co., LLC v. U.E. Limited LLC, Case No. D077274 (4^th Dist., Div. 1 Oct. 20, 2021) (unpublished) reminds us that Civil Code section 1717 reciprocity principles do not kick in unless the fees clause, by its terms, covers the claims which are at issue in the case.  If not, CCP § 1021 is not overcome, and section 1717 makes no difference.

            In this case, plaintiff/cross-defendant prevailed on its positive claims and on the claims of defendant/cross-complainant such that plaintiff/cross-defendant was the prevailing party.  Cross-complainant had prayed for attorney’s fees in its prayer, with the trial judge denying an earlier motion to strike because a 1998 purchase agreement was at least proffered as a basis for fee entitlement.  The purchase agreement had a contractual fees clause which read this way: “If any legal action . . . is brought for the enforcement of this Agreement, or because of a breach, default, or misrepresentation in connection with this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees.”  After its win, plaintiff/cross-defendant moved for fees under the purchase agreement, a request denied by the trial court.

            The 4/1 DCA affirmed the fee denial.  Nothing in the two cases fell within the scope of the fee clause, with misrepresentation allegations only relating to an adverse possession claim rather than having causal connection with the 1998 purchase agreement containing the fees clause.  Plaintiff/cross-defendant argued that Civil Code section 1717 altered the result, but the appellate court reminded everyone that its reciprocity principle only applies if the fee clause could be interpreted broadly enough to encompass the claims at issue in the cases—meaning Code of Civil Procedure section 1021 (leaving the parties to strike their own bargain on fee recovery) having to be surmounted before section 1717 is considered.  Finally, plaintiff/cross-defendant claimed that the other side was estopped from denying fee entitlement based on the prayer in the cross-complaint and earlier motion to strike victory; however, this was rejected because a mere assertion of the right to fees does not operate as an estoppel where there is no true fee entitlement under the contractual clause.  (R.W.L. Enterprises v. Old Castle, Inc., 17 Cal.App.5^th 1019, 1035-1036 (2017).)