One Award Reversed Because It Only Covered An Arbitration/Ensuing Litigation Even Though No Arbitration Occurred, And Other Award Overturned Because It Was Unclear That Fiduciary Breach Claim Was Not Barred By Santisas.
San Jose Nihonmachi, LLC v. Miraido Corp., Case No. B323093 (2d Dist., Div. 1 Jan. 4, 2023) (unpublished) shows how the absence of fee entitlement can lead to a reversal of substantial fee awards: in this case fee awards totaling $680,104.12, awards in favor of two different defendant groups.
The first reversed award of $287,380.75 evaporated based on the narrowness of the fees clause, which covered only prevailing parties in “such arbitration and ensuing legal action.” Given the parties bypassed litigation and only used the court process, the absence of arbitration occurring was dispositive. (Kalai v. Gray, 109 Cal.App.4th 768, 777 (2003).)
The second overturned award of $392,723.37 involved a voluntary dismissal without prejudice by plaintiff/appellant of an action, invoking a fees clause that was not limited to just arbitration/post-arbitration activities. Plaintiff did dismiss certain contract claims before they were adjudicated, which did not give rise to fee exposure under Santisas v. Goodin, 17 Cal.4th 599, 622 (1998).) The issue on appeal concerned whether a dismissed breach of fiduciary duty claims was based on contract or in tort (because Santisas will not bar fee exposure where a tort is within the ambit of a broadly-worded fees clause). The appellate court determined that it was “unclear” whether the fiduciary duty claim was not based on contract rather than tort, with any uncertainty meaning that it was “on the contract” and barred by Santisas. (Kangarlou v. Progressive Title Ins. Co., Inc., 128 Cal.App.4th 1174, 1178-1179 (2005).) This last holding provides some discovery tips for the defense to smoke out whether plaintiff’s claims are based in contract or just tort, or both.
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