Damages, Section 1717: In Malpractice Case For Missed Appeal, Borrowers Recovered Only A Portion Of Fees Paid To Trustee Because Trustee Was Entitled To Recovery Under § 1717 Such That The Additional Fees Were Not Chargeable Against Malpractice Defendant

Case-Within-Case Malpractice Principles Drove The Result.

            As our last post for 2021, we discuss fee recovery as damages in an interesting legal malpractice case, Thompson v. Flynn Riley Bailey & Pasek, LLP, Case No. A161238 (1^st Dist., Div. 4 Dec. 30, 2021) (unpublished).

            What happened in this one was that borrowers received some recovery against their attorneys for failing to timely appeal a merits judgment in favor of a deed of trust trustee, which resulted in the recovery of some compensatory damages and $105,320 out of $600,000 in attorney’s fees paid to the prevailing trustee in prior litigation.  However, borrowers claimed that they should be entitled to about $500,000 more in fees which they paid to the trustee in a settlement, a request denied by the trial judge.  The parties on appeal agreed that the answer to this question rested on whether trustee could have recovered Civil Code section 1717 prevailing party fees—if so, the $500,000 in fees as additional damages were not proper.

            The 1/4 DCA affirmed the denial of awarding more fees as damages.  Based on borrowers contending that loan documents were an integrated contractual transaction, there were contractual fee clauses which allowed fee recovery to the trustee if it had prevailed.  It did not matter what the merits of the theory were, because a hypothetical recovery under section 1717 is all that is needed.