CALIFORNIA ATTORNEY'S FEES

Assignment, Fee Clause Interpretation: Escrow Company Incorrectly Denied Prevailing Party Attorney’s Fees In Real Estate Against Buyer’s Assignee, But No Fee Award Was Proper Against Assignor

Remand Was In Order For Fee Determination Against Buyer’s Assignee Vis-a-Viz The Escrow Company.

            In Sushi KJ Corp. v. Hana Escrow Co., Inc., Case No. B325421 (2d Dist., Div. 2 Aug. 24, 2023) (unpublished), a buyer—an assignee of the buyer’s predecessor in interest--sued an escrow company for negligent misrepresentations arising out of a seller’s alleged tax liability misrepresentation.  Buyer lost a demurrer to the escrow company, which was affirmed on appeal.  There was an indemnity fees clause, but it was broader such that it was the equivalent of a fees clause in the escrow instructions.  Escrow moved for $20,080 in attorney’s fees under the contract clause against buyer and buyer’s assignor (buyer’s predecessor).  The lower court denied the fee requests against both, reasoning that it was on a negligent misrepresentation which was not “on the contract” under Civil Code section 1717.

            The appellate court affirmed in part and reversed in part.  The reversal occurred as to the buyer (the assignee) because the fee clause was broad enough, on a contractual interpretation basis, to include recovery on a negligent misrepresentation claim (the escrow clause applied to “any and all … attorney fees incurred by the escrow holder in connection with … defending litigation ….”).  But the fee denial was affirmed against buyer’s assignor, given the fees clause only applied to a “party” and assignor was no longer that upon assigning rights to the assignee.  Independently, because assignor was no longer a party to the contract, any negligent misrepresentation claim was not “on the contract” under section 1717.  So, the matter was remanded to let escrow renew a fee motion against buyer, the assignee, in the real estate litigation upon which assignee did not prevail.

Assignment: Third District Affirms Refusal To Award Attorney’s Fees Given Inadequate Proof That A Lease With A Fees Clause Was Assigned

This One Counsels Transactional Lawyers To Make Sure Express Assignments Are Inked.

            In Orozco v. Conrad, Case No. C086667 (3d Dist. July 14, 2020) (unpublished), plaintiff obtained a compensatory and punitive damages verdict from a jury, with the trial court reducing damages for multiple reasons.  The lower court then denied both parties’ fee requests and plaintiff’s cost request.  On appeal, the Third District affirmed.  The problem with the fees request was the lack of a contractual relationship between the two sides, because the lease was never expressly assigned.  The discussion of this issue shows that the parties may have intended this to be the case, but there was not enough proof to show it absent an express assignment.  With respect to the costs issue, the lower court did not abuse its discretion in concluding that trial technology costs were not necessary or were excessive given the nature of the case.

Assignment, POOF!, Section 1717: Plaintiff’s $169,534.60 Fees Award Goes POOF! On Appeal

Although The Dispute Concerned Contractual Rights, The Contractual Attorney Fees Provision Relied Upon In Issuing Award Did Not Apply Because There Was No Breach Of Contract.

            In McAlister Investments, Inc. v. Thomas, Case No. G056330 (4^th Dist., Div. 3 Sept. 30, 2019) (unpublished), neighboring land owners got into a dispute pertaining to a 99-year lease entered into in 1951 between prior owners of the two properties.  This lease allowed defendants, who operate a citrus orchard, to access a parcel of plaintiff’s property to drill for and develop water for irrigation purposes. 

            When plaintiff tried to sell its property in 2014, the buyer wanted an amendment to the 99-year lease precluding defendants from building structures on the leased parcel.  Defendants refused and plaintiff’s sale fell through.

            Plaintiff then filed suit to invalidate the lease. The trial court entered judgment in favor of plaintiff – finding the lease had not been assigned to defendants and that defendants were not successors to the lease merely because they had bought the land.  Based on Civ. Code section 1717’s statutory reciprocity of attorney fee agreements, its finding that plaintiff’s declaratory relief action was based on the lease, and because plaintiff would have been liable for defendants’ attorney fees had they prevailed, the trial court awarded plaintiff $169,534.60 in fees after some reduction.

            In an opinion authored by Justice Ikola, the 4/3 DCA reversed – finding the dispute between the parties involved contractual rights – not a breach of any covenant or agreement in the lease.  Therefore, the attorney fees provision contained in the lease – which entitled the prevailing party to fees “[i]n the event of the breach of any covenant and or agreement herein contained . . . presented to any Court . . .” – was never triggered.   And with that, plaintiff’s fee award went POOF!

Assignment, Prevailing Party, Reasonableness of Fees: No Abuse Of Discretion In Awarding Prevailing Defendant $92,155 After Reasonableness Reduction.

It Was Not Necessary For Court To Apportion Fees Between Contract-Based Causes Of Action, Claims Dismissed Before Trial, Defense of Defendant Corporation, and Defense of Corporation’s CEO Because Plaintiff’s Causes Of Action All Stemmed From A Common Factual Core, And All Claims Against CEO Were Also Alleged Against Entity.

        In Grant v. AssistMed, Inc., Case No. B289996 (2d Dist., Div. 1 March 1, 2019) (unpublished), Plaintiff filed his original complaint against former employer and its CEO alleging 5 causes of action related to his employment agreement. The trial court sustained Defendants’ joint demurrer, and Plaintiff filed a first amended complaint alleging 5 causes of action with some changes to the causes of action from the original complaint. Defendants again filed a joint demurrer which was sustained. Finally, Plaintiff filed his second amended complaint alleging 2 causes of action – breach of contract and fraud in the inducement. The trial court partially sustained Defendants’ joint demurrer to this second amended complaint – leaving Plaintiff with only the breach of contract cause of action.

        The case proceeded to bench trial against only the Corporation as the CEO died and was dismissed as a party shortly before trial. At trial, the court granted Corporation’s Code Civ. Proc. section 631.8 request for Motion for Judgment (based on evidence – or lack thereof – presented by Plaintiff). A month later, Plaintiff requested the trial court take judicial notice of the fact that Corporation had ceased business operations several months earlier, and made “an Assignment for the Benefit of Creditors to BOT Financial.” Corporation acknowledged this fact, and neither party provided any other documents related to the assignment.

        In a postjudgment motion, Corporation requested attorney fees incurred in defending against the three different iterations of Plaintiff’s complaint – basing the request on a prevailing party attorney fees provision in the employment agreement. Plaintiff argued that Corporation did not have standing to seek attorney fees in light of the Assignment, and should not recover fees incurred defending non-contract claims or fees incurred defending CEO. The trial court disagreed – noting that Plaintiff had waived arguments regarding the Assignment by waiting several months after learning of it to raise it with the court – and awarded Corporation $92,155 in attorney fees after a reasonableness reduction. Plaintiff appealed.

        The 2/1 DCA concluded that the trial court did not err in concluding Corporation had standing to collect an attorney fee award as the record was unclear as to what assets were included in the Assignment. It further concluded that Plaintiff had the opportunity to bring the assignee into the case below, but made no effort to do so after learning of the Assignment. Finally, citing Bell v. Vista Unified School Dist. (2000) 82 Cal.App.4^th 672, the 2/1 DCA concluded that all causes of action alleged by Plaintiff shared a “primary economic focus” such that the litigation did not involve “separate and distinct claims, one entitled to statutory fees and the other not.” The appellate court also concluded that the trial court did not err in determining apportionment was not required for the fees attributable to defending Corporation as opposed to its CEO as the claims at issue were made against both Defendants, and were so factually interrelated that it would have been impossible to separate the activities.

Assignment, Interpleader: Law Firm Loses Its First Priority Position For Failing To Perfect Security Interest In Assignment, And Gets The Privilege Of Paying Interpleader Plaintiff’s Attorney’s Fees To Boot

Code of Civil Procedure Section 697.590 governed this one.

        MDQ, LLC v. Gilbert, Kelly, Crowley & Jennett LLP, Case No. B283025 (2d Dist., Div. 8 February 27, 2019) (published) provides a valuable lesson in the importance of perfecting assigned security interests through the filing of a financing statement pursuant to Division 9 of the Commercial Code.

        Floyd Mutrux was one of the authors of a Tony-award winning Broadway musical, “Million Dollar Quartet.” Four limited liability companies (LLCs) held production rights or were producers of the musical. Mr. Mutrux and/or his corporation (Mutrux) was a member, manager, shareholder or owner of each of the LLCs, and held certain economic rights to be allocated profits, and receive distributions and payments from the LLCs.

        In 2012, a record company filed a lawsuit against Mutrux. A proposed statement of decision was filed by the trial court, on April 14, 2015, in favor of the record company to the tune of over $1 million. Eight days later, Mutrux and the law firm representing him in the record company litigation executed a “Notice of Assignment and Irrevocable Letter of Direction” assigning a portion of Mutrux’s economic interests in the LLCs to the law firm for the payment of legal fees until payments totaling $175,000 had been made. A few months later, on August 5, 2015, the trial court entered judgment in favor of the record company in the amount of $965,851.47. Then, on August 21, 2015, the record company received a charging order – pursuant to Corporations Code section 17705.03 – directing the LLCs “to pay any and all profits, distributions, disbursements or other payments otherwise due to [Mutrux] . . . directly to counsel for Judgment Creditor [record company], until the August 5, 2015 judgment was fully satisfied.

        You can guess what came next. The LLCs filed a complaint in interpleader alleging conflicting claims by the record company and law firm to the applicable distributions owed to Mutrux. The LLCs then deposited the distributions at issue to interpleader funds. Before trial in this matter, the trial judge released the LLCs from any and all liability to the interpleader defendants, ordered them to continue to deposit any additional distributions with the court, and ordered $11,500 payed to the LLCs from the interpleader funds for their attorney fees and costs.

        At trial, the record company argued that, pursuant to Code Civ. Proc. section 697.590, it had first priority to the distributions as the law firm had failed to perfect its security interest by filing a financing statement (UCC-1). The record company further argued that the $11,500 payment to the LLCs for attorney fees should be paid by the law firm rather than out of the interpleader funds. The trial court agreed – finding the assignment to the law firm inferior to the judgment lien recorded by the record company, and ordering the law firm to pay the LLCs attorney fees.

        The law firm appealed to no avail. The 2/8 DCA affirmed the trial court’s judgment – finding the priority of a perfected judgment lien over an unperfected security interest to be clearly established by section 697.590, and finding no abuse of discretion regarding the trial court’s order for payment of the LLCs attorney fees – to which it was entitled under Code Civ. Proc. section 386.6.

Assignment, Deed Of Trust, Fee Clause Interpretation: Defendant Lender Entitled To Fee Award Under Deed Of Trust Fees Clause For Winning Conversion Claim Against Plaintiff’s Assignee

Fees Clause Was Broad Enough To Encompass Conversion Claim And Assignees Were “On The Hook.”

            In Sanchez v. El Monte Investments, LLC, Case No. B276423 (2d Dist., Div. 5 Mar. 27, 2018) (unpublished), former property owner sued her lender for conversion of certain insurance proceeds retained by the lender after fire damage to the property following a court order that lender was entitled to the proceeds.  Former owner eventually assigned her claim to her attorneys, who lost at trial and were ordered to pay lender’s attorney’s fees of $35,525 (out of a requested $42,350) under a deed of trust fees provision.  The fees clause obligated former property owner “to appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of [lender]; and to pay all costs and expenses, including … attorney’s fees in a reasonable sum, in any action or proceeding in which [lender] may appear, and in any suit brought by [lender] to foreclose this deed.” 

            Appellant law firm appealed, but the fee award stood.  The appellate court agreed that the conversion claim fell within the ambit of the broad deed of trust clause, and that the law firm as assignee had to bear the burdens as well as the benefits of the assignment (inclusive of the adverse fee award).

Assignment/Fee Clause Interpretation/Section 1717: Bankruptcy Trustee’s Assignment Of Sublease Rights Invoked Fee Clauses To Prevailing Party

Landlord Did Prevail, Entitled To Fee Recovery Based On Breadth Of Fees Clause.

            Bush-Grant, LLC v. Hotel Astoria, Inc., Case No. A147456 (1^st Dist., Div. 4 Aug. 29, 2017) (unpublished) demonstrates how a tort claim can still be compensable under a broad fees clause, even if Civil Code section 1717 is inapplicable because the action is not “on the contract.”

            What occurred in this case was that an individual tenant with a long-term commercial lease subleased to tenant’s corporate affiliate and later assigned the sublease to another LLC affiliate, with individual filing for bankruptcy and with the bankruptcy court determining that the LLC’s interest in the lease was property of the bankruptcy estate needing to be relinquished to the bankruptcy trustee.  Eventually, the bankruptcy trustee entered into any agreement with landlord by which individual tenant’s sublease rights were assigned to landlord.   However, subtenant “held over” so as to prompt landlord to file a successful unlawful detainer action, obtaining contractual attorney’s fees under broad lease fees clauses.   Subtenant’s appeal of the fees award failed.

            Based on the bankruptcy trustee’s assignment of rights to landlord, landlord stepped into sublessor’s shoes so as to enforce the sublease provisions inclusive of the sublease fees clause.  Nevertheless, the appellate court had to classify the nature of the unlawful detainer, namely, was it based on contract or tort.  It concluded that the action was a tortious “hold over,” which meant fee recovery could not occur under Civil Code section 1717.

            But this nusance did not matter.   The fee clause was broad in nature, covering “any suit against Lessee … for recovery of possession of the demised premises.”  Given this broad provision, fee recovery was allowable in the unlawful detainer action under Code of Civil Procedure section 1021, which provides the parties have the right to enter into agreements for the award of fees in litigation on their own terms,  covering actions in contract, tort, or equity. 

Assignment: Can A Guarantor Of Attorney’s Fees Defend Against Fee Recovery Based On Malpractice Claim Of Obligor/Client Without Client Involvement?

 

No California Case Directly On Point, But Two Out-Of-State Cases Suggest "No."

 

    Can a guarantor of a client's fee obligation to client's attorney sue the attorney for malpractice if the client does not somehow participate or intervene? Although there is no California case on the subject to our knowledge, two out-of-state decisions suggest the answer is likely "no."

 

    The closest California authority, Borissof v. Taylor & Faust, 33 Cal.4^th 523, 530 (2004), generally holds that third parties not in contractual privity with the attorney cannot sue for malpractice unless they were intended beneficiaries of the attorney-client relationship, an exception which would likely not apply to a guarantor.

 

    The two out-of-state cases are DeAngelis v. Rose, 320 N.J. Super. 263, 727 A.2d 61 (N.J. App. Div. 1999), which did hold that a guarantor cannot sue for malpractice against client's attorney unless the client joins in the action or unless guarantor relied on attorney-client communications during the relationship, and Schroeder v. Hudgins, 142 Ariz. 395, 398-400 (Ariz. Ct. App. 1984), which by analogy held that a guarantor of an LLC could not sue LLC's former attorney based on the notion that malpractice actions are personal/not assignable in a fair number of jurisdictions.

 

    If any of our readers have a different perspective or know of a California case on point, let us know.

Assignment: Recent DCA Decision Reminds Us That Assignees Impliedly Accept Benefits/Burden Of Transaction With Fees Clause—Including Fee Exposure

 

Plus, Great Quote On Appellate Advocacy … Ostrich Beware!

   Oliver W., the famous trotting ostrich.  Circa 1903.  Library of Congress.

     Although involving interesting amended judgment and litigation successor issues, Hearn Pacific Corp. v. Second Generation Roofing, Inc., Case No. A142203 (1st Dist., Div. 2 May 2, 2016) (published) reminds everyone that that an assignment involves assumption of both benefits and burdens.  Here is the pertinent part it had to say with regard to potential assumption of a transaction with an attorney’s fees clause:  “[A]n assignee’s acceptance of the benefits of a contract containing a fee clause, by bringing suit, constitutes an implied assumption of the attorney fee obligations, unless there is evidence the parties did not intend to transfer those fee obligations.  (Erickson v. R.E.M. Concepts, Inc., 126 Cal.App.4th 1073, 1087 (2005); see also Heppler v. J.M. Peters Co., 73 Cal.App.4th 1265, 1289–1292 (1999); Civ. Code, §§ 1589, 3521.) And that is true even if, like here, there is only a partial assignment of contractual rights. (See Erickson, at pp. 1086–1087.)”  

    Now, here is the great appellate advocacy quote, which relates to how transparent one needs to be on appeal versus trying to “hide the ball.”  Enjoy this quote:  “Responsible (not to mention, effective) appellate advocacy requires confronting serious potential obstacles, not burying one’s head in the sand to them, be there potentially controlling adverse authorities or problematic portions of the record. As has been said by the federal circuit that is home to Chicago’s Lincoln Park Zoo: ‘The ostrich is a noble animal, but not a proper model for an appellate advocate.’ (Gonzalez- Servin v. Ford Motor Co. (7th Cir. 2011) 662 F.3d 931, 934 [Posner, J.].)”

Assignment/Judgment Enforcement: Lower Court’s Denial Of Judgment Debtor Assignee’s Request As Assigned Judgment Creditor To Include Fees/Costs In California Judgment Based On Sister State Judgment Was Erroneous

 

Also Error To Not Order Contribution By Co-Judgment Debtors To Fee/Costs Component Of Judgment.

    In LSREF2 APEX3, LLC v. Nomicos, Case No. G050175 (4th Dist., Div. 3 Aug. 19, 2015) (unpublished), one judgment debtor (who was jointly/severally liable and owned 10% of the property involved in the dispute) paid off a Colorado judgment which was registered as a California sister court judgment—paying off the full amount of the judgment plus interest as well as the costs and fees component which was ordered in Colorado after the Colorado “base” judgment was registered as a California sister state judgment.  Judgment creditor assigned the judgments over to the “paying” judgment debtor.  This debtor then moved to amend the California judgment to include the amount of fees/costs awarded subsequently by the Colorado court and moved to compel co-judgment debtors to compel contribution from her co-judgment debtors for all the judgment components. The lower court denied the motion to amend based on the perception that the judgment could not be amended and that the assignment extinguished the judgment.  However, the trial judge did grant the contribution motion to compel, but ordered that contribution was only due on the “base” judgment (not the fees/costs subsequent component).

    The Fourth District, Division 3, in decision penned by Presiding Justice O’Leary, reversed on both counts and remanded.

    First of all, the trial court did have jurisdiction to amend the California judgment  to include costs and fees awarded by the Colorado court.  (Aspen Internat. Capital Corp. v. Marsch, 235 Cal.App.3d 1199, 1203 (1991).)  Next, the judgment was not extinguished by its assignment to “paying” judgment debtor.  (Tucker v. Nicholson, 12 Cal.2d 427, 430 (1938); Williams v. Riehl, 127 Cal. 365, 371 (1899).)  The appellate court refused to disregard Tucker simply because it was an “old case,” with stare decisis winning out.  Last, nothing prevented “paying” judgment debtor-assignee from obtaining a contributive share order to include the costs and fees paid by the assignee, requiring a remand and new order based on the other co-judgment debtor’s proportionate interests in the property.  (Tucker, 12 Cal.2d at 433.)

Costs/Assignment: Landlord Was Entitled To $167,407.55 Fee Award Against Lease Assignees

 

Also, Mediation and Other Routine Costs Were Justified.

     Landlord won damages, attorney’s fees, and routine costs against lease assignees in Town Square Properties v. Mansouri, Case No. B236871 (2d Dist., Div. 5 July 15, 2013) (unpublished). The fee award alone was $167,407.55 in favor of landlord, as well as routine costs for mediation fees, attorney service, and parking expenses of $3,256. Everything was affirmed on appeal.

     The $3,256 routine costs were no abuse of discretion because mediation efforts are compensable if they encourage parties to resolve lawsuits such that they a necessary part of the litigation. (Gibson v. Bobroff, 49 Cal.App.4th 1202, 1209 (1996).)

     Because a written lease necessarily included enforcement of assignment agreements (given that assignees are liable for rental obligations unless expressly released), the fees were “on the contract” under Civil Code section 1717.

Assignment: Court Of Appeal Found No Assignment Of Claims To Cross-Defendant, Simply Lien Claim, For Fee Exposure Analysis--No Go, So To Speak

Details, Details

     Tri Valley Land Development, Inc. v. Turner Ranch Family Dairy, Case No. F061515 (5th Dist. Sept. 25, 2012) (unpublished) is a situation where fee exposure turned on whether an assignment of claims was made to a certain cross-defendant. This case carefully tells attorneys to carefully review assignment/lien documents, because the appellate court ultimately found that claims (including fee recovery) were not assigned to a particular cross-defendant; rather, instead, only a lien was given on proceeds from the claims, not an assignment. In this instance, this important substantive difference did prevent one cross-defendant from obtaining fee recovery under the “non-assignment” arrangement.

Assignment/Section 1711/Probate: Settlement Agreement Did Justify Attorney’s Fees Award Of $51,236.21 Against Petitioners, But Not Against A Nonsignatory

 

Although Controlling the Litigation, Nonsignatory Had No Rights Assigned Under The Fees-Clause Bearing Settlement Agreement.

     Estate of Bennett, Case Nos. G043050 et al. (4th Dist., Div. 3 Mar. 8, 2011) (unpublished), although a probate action, actually is a Civil Code section 1717 fees clause case, with the fee award affirmed by a 3-0 opinion authored by Justice Rylaarsdam. It also demonstrates that assignment of rights must be specific; if the fees clause is in a settlement agreement, make sure the specific settlement agreement rights are assigned.

     Claimant was granted a $51,236.21 fee award against petitioners losing a motion to set aside an assignment of an interest in decedent’s estate to claimant, although claimant did not get the award extended to another party (Brea) allegedly assigned petitioners’ interest in certain probate litigation.

     The Court of Appeal affirmed. The award against petitioners was justified based on a fees clause in a settlement agreement between claimant and petitioners. Brea (the other party), which was not a party to the settlement agreement, was properly not exposed to fees--even though it may have controlled the litigation--because it was not assigned any rights under the settlement agreement (just the probate litigation, which was not good enough).

Assignment: Assignor Cannot Escape Burdens By Assigning To Closely-Held Assignee For Purposes Of Escaping Attorney’s Fee Exposure

 

Assignor Controlling Litigation Should Not Avoid Fee Exposure Via Assignment.

     Plaintiff owner and his wholly-owned corporation lost a specific performance, rescission, and declaratory relief suit to trustees of a revocable trust after trustees obtained an evidentiary preclusion order upon plaintiffs’ refusal to provide discovery on the “ready, willing, and able” purchaser issue. Then, the trial court held plaintiff owner individually liable for attorney’s fees of $816,683.80 and $41,544.67 of costs under a fees clause in the purchase agreement, notwithstanding his assignment of interests in the litigation to his corporation on the eve of trial.

     He appealed the merits and fees/costs judgments, but lost on appeal in Clement v. Alegre, Case No. A125953 (1st Dist., Div. 2 Oct. 18, 2011) (unpublished).

     Simplicity often times determines cases, as it did here. An assignment carries with it all rights of the assignor. Even though the assignor can transfer his or her rights, the assignor cannot escape the burden of his or her obligation by an assignment. Plaintiffs could cite no cases holding “that a plaintiff may evade its liability for attorney fees by assigning its rights in the litigation to its coplaintiff”--all the more so because plaintiff controlled the litigation since inception.

     BLOG UNDERVIEW--For all you California real estate practitioners, this case has a great discussion of the “ready, willing, and able purchaser” case law. Also, it demonstrates that if you put an issue at stake in a case, you better provide the other side discovery on that issue or risk preclusion (the “you cannot blow hot and cold” principle).

Section 1717: Appellate Court Remittitur Choice To Respondent On Damages Requires Reconsideration of Fee Award

Fourth District, Division 3 Remands Fee Recovery Under Unusual Procedural Circumstances.

     Here is an interesting decision with a procedural twist—with apologies to Chubby Checker (oh, boy, are we dating ourselves).

    

Chubby Checker does the Twist.

     In Nguyen v. Dang, Case Nos. G041224/G041380 (4^th Dist., Div. 3 Mar. 11, 2010) (unpublished), a signatory of a contract with a fees clause was hit with a $71,000 damages award arising out of a radio station purchase dispute and a subsequent $99,263.40 fee award as well as $14,912.06 costs award. Appellant signatory appealed, mainly banking on the theory he was a mere assignor who never really ran the radio station. Interestingly enough, on appeal, the appellate court reversed the damages as being excessive, giving the respondent a chance to agree to a remittitur of damages down to $4,110. So, how did this impact the attorney’s fees award?

Civil Code Section 1717 Fees to Assignee: Make Sure Your Assignments Cover Documents With Fee Clauses … Or Else Assignees Get No Fees!

 

Second District, Division 8 Case Illustrates Lesson, Although Finds Trial Court Erred In Not Awarding Routine Costs to Assignee.

      Because lawsuit claims and judgments are usually considered choses in action, they are generally assignable (except for some personal claims in the real estate, malpractice, and personal injury/likeness misappropriation areas). However, the next case reinforces a simple but expensive lesson: assignees of lawsuits needs to make sure that the assignment includes documents that have proper attorney’s fees clauses so that recovery is allowable under Civil Code section 1717. Otherwise, like the litigant in the next case, fee recovery will not be forthcoming.

     In The Vons Companies v. Parks, Case No. B208335 (2d Dist., Div. 8 Aug. 17, 2009) (unpublished), Vons (owner) and contractor entered into a construction contract with a fees clause, with contractor also giving owner a separate warranty for work that did not contain a fees clause. Vons sold the shopping center to Mock Ranch, assigning the separate warranty but not the construction contract to Mock. Mock later sued Vons and contractor for certain property conditions, with Vons also cross-complaining against contractor. Mock settled with Vons, with all of its claims assigned to Vons as part of the settlement. Vons eventually was awarded $35,556 in damages by a jury as against contractor. Vons then sought routine costs, which was denied by the trial court. Vons also filed a motion to recoup $1,509,364 in attorney’s fees against contractor, a request that was denied.

     Vons appealed, with the Second District, Division 8 (in a 3-0 decision authored by Judge Helen Bendix, sitting by assignment) affirming the fee denial but remanding for a determination of costs awardable to Vons.

PLAINTIFF’S ASSIGNEE—A NONSIGNATORY TO A CONTRACT—AND ASSIGNOR—A CONTRACT SIGNATORY—BOTH HIT WITH $1.4 MILLION FEE AWARD AFTER DEFENDANT PREVAILS IN ASSIGNEE’S LITIGATION

Second District Affirms Fee Award Against Both Assignor and Assignee Based on California Wholesale and the Assignor’s Surety Status.

            One of the time-honored principles in assignment law is that assignee’s voluntary acceptance of benefits normally means consent to bear the burdens from the assignment.  Civil Code sec. 1589.   However, the assignor normally still remains liable to the promisee. These tenets were fully at play in the next case, where both the assignor and assignee where assessed with an adverse $1.4 million fee award which was affirmed by the Second District, Division Four on appeal.

            In New York Times Company v. Click2Boost, Inc., Case No. B195419 (2d Dist., Div. 4 June 20, 2008) (unpublished), plaintiff assignee asserted both contract and tort claims against defendant, which in turn cross-claimed for breach of contract against assignor.  The trial court granted summary judgment in defendant’s favor on assignee’s complaint, issuing a substantial fee award of $1,430,754.50 (out of a sought-after $1,732,298) against both assignee and assignor.  The trial judge also observed that even if defendant won its cross-complaint in the future, he would be careful to not allow a “double dipping” as far as fee recovery in the cross-action.  Assignor appealed, with Justice Manella affirming on behalf of a 3-0 panel consisting of Presiding Justice Epstein and Justice Willhite. 

            At the outset, Justice Manella addressed the appealability issue even though the appellant failed to discuss it (although a statement of appealability is required in appellate briefs).  Because the award directed the payment of money, and appellant assignor was a guarantor of the fee award against assignee, it was a final determination on an issue collateral to the litigation between defendant and assignor.  (Slip Opn., at p. 4, fn. 7.)

            The appellate court then summarized the standards of review governing fee awards:  (1) the section 1717 prevailing party determination is examined for abuse of discretion, Sears v. Baccaglio, 60 Cal.App.4^th 1136, 1158 (1998); (2) a party’s contractual entitlement to a fee award is reviewed de novo unless there are factual disputes, Exxess Electronixx v. Heger Realty Corp., 64 Cal.App.4^th 698, 705 (1998); and (3) factual findings made in the award, expressed or implied, are examined under the substantial evidence rule, Federal Home Loan Mortg. Corp. v. La Conchita Ranch Co., 68 Cal.App.4^th 856, 860 (1998).  (Slip Opn., at p. 5, fn. 8.)  Good primer on review standards.

            With jurisdictional and review standards out of the way, Justice Manella got to the crux of the matter quickly, determining that the lower court did not err in concluding that assignee was liable for defendant’s fees under Civil Code section 1717 by virtue of assignor’s assignment of rights under a contract between assignor and defendant with a fees clause.  Relying on California Wholesale Material Supply, Inc. v. Norm Wilson & Sons, Inc., 96 Cal.App.4^th 598, 608 (2002), the appellate court found that a signatory defendant has fee entitlement where the nonsignatory plaintiff, if it had won, would have been entitled to a fee recovery under section 1717.  In essence, application of the mutuality principle underlying section 1717 was determinative.  Even though assignee had asserted a fraud claim, the Second District, Division Four sustained the trial court’s implied finding that any work on it was “inextricably intertwined” with issues arising under the covered contractual claims.  (Slip Opn., at pp. 6-7 & p. 7, fn. 9.)

            With respect to assignor’s liability for the defense fees in the assignee-defendant litigation, Justice Manella determined that the assignee’s assumption of an obligation does not necessarily discharge the assignor’s responsibilities regarding the same obligation.  A novation is required from the promisee, with the assignor remaining secondarily liable as a surety or guarantor, citing Witkin’s Summary of California Law treatise on “Contracts.”  This surety reasoning also found support in two fee recovery cases, Erickson v. R.E.M. Concepts, Inc., 126 Cal.App.4^th 1073, 1086-1087 (2005) and Cutting Packing Co. v. Packers’ Exch., 86 Cal. 574, 577 (1890).  (BLOG OBSERVATION—See, who says older cases are not instructive?)

            Defendant, as a creditor, could sue both the principal (assignee) and surety (assignor), and did not have to exhaust remedies against assignee first.  (Slip Opn., at p. 11.)  The Court of  Appeal then rejected assignor’s due process argument, finding that assignor had notice that defendant sought a fee award on a surety basis—with ample opportunity to respond to defendant’s request.  (Slip Opn., at pp. 11-12.)

            Click2Boost is a sobering lesson to assigning parties that fee awards can be issued against them jointly and severally.  Assignors are well advised to think carefully before making an assignment of a contract with a fees clause.  In California, section 1717 will render the clause reciprocal in operation such that nonsignatory plaintiffs face exposure if they would have been entitled to a fee award under the contractual clause.