Arbitration, Fee Clause Interpretation, Landlord/Tenant: 1/3 DCA Affirms Trial Court’s Denial Of Attorney Fees To Prevailing Tenant

Fees Incurred For The Court Proceedings Were Part Of The Arbitration Process Called For In The Lease For Resolving Fair Market Rent Value And Not Recoverable Under The Prevailing Party Provision Which Applied To An Action Involving A Breach Of The Contract Or Determination of Rights

            In California Union Square L.P. v. Saks & Company LLC, Case No. A162043 (1^st Dist., Div., 3 October 29, 2021) (published), defendant tenant exercised its option to renew its lease following the initial 25-year term.  Because landlord and tenant were unable to agree on the fair market value of the base rent, the dispute resolution provision of the lease was triggered – which mandated arbitration.  Tenant ultimately prevailed after two arbitrations and multiple litigation proceedings in superior, federal, and appellate courts – including a petition for review with the California Supreme Court (which was denied).   Tenant then moved for roughly $1 million in attorneys’ fees – expressly noting that, pursuant to the fees provision of the lease, it was seeking fees incurred only in court proceedings, not any of the fees or costs incurred in the two arbitrations.   The trial court denied tenant’s motion following full briefing and a hearing.

            Tenant argued on appeal that the trial court erred because the parties’ lease – although providing that arbitration costs were to be divided equally between the parties – included a provision mandating “that the prevailing party in any action or proceeding to enforce the [l]ease or obtain a declaration of rights under the [l]ease recover its attorneys’ fees and costs from the losing party.”  Tenant claimed this prevailing party provision controlled the allocation of fees for the various court proceedings.  The appellate panel disagreed – finding the court proceedings were not undertaken for the purpose of enforcing or obtaining a “declaration of rights” under the lease, such as a dispute over a contractual term or obligation.  Rather, the court proceedings arose from the parties’ obligations under the provision for disputes on the fair market value of the base rent requiring arbitration.  As a result, the fees incurred for the court proceedings were a part of the process for resolving the value of the base rent and not recoverable under the prevailing party provision.