CALIFORNIA ATTORNEY'S FEES

Fee Clause Interpretation, Section 1717: Second District Reverses Fee Awards Totaling $680,104.12 As A Matter Of Law

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            San Jose Nihonmachi, LLC v. Miraido Corp., Case No. B323093 (2d Dist., Div. 1 Jan. 4, 2023) (unpublished) shows how the absence of fee entitlement can lead to a reversal of substantial fee awards: in this case fee awards totaling $680,104.12, awards in favor of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.4^th 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.4^th 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.4^th 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. 

Section 1717: $74,930.80 Fee Award And $18,339.56 Costs Award Against Prevailing Party Neighbors In Equitable Servitude Dispute Affirmed On Appeal

Equitable Servitude in an Amended Declaration if a Contract Under Civil Code Section 1717.

         In DeBevoise v. Robinson, Case Nos. D078207/D078679 (4^th Dist., Div. 1 Dec. 29, 2022) (unpublished), neighbors got involved in an equitable easement dispute, with plaintiffs/cross-defendants getting equitable easement relief and also obtaining a prevailing party contractual fees award under an Amended Declaration running with the land to the tune of $74,930.80 in attorney’s fees and $18,339.56 in costs.  (This was a drastic reduction from the requested $433,814 in fees and $33,837.73 in costs after the trial judge commented that this was one of the worst fee applications he had been presented with.)  The non-prevailing parties appealed, arguing there was no fee entitlement.  But there was, according to the appellate court.  The Amended Declaration was an equitable servitude which is an enforceable contract giving rise to fee exposure, such that entitlement did lie.  (Mackinder v. OSCA Development Co., 151 Cal.App.3d 728, 738 (1984).)

Section 1717: Plaintiff’s Failure To Raise Fee Entitlement Challenge And Failure To Oppose A Fee Motion Was A Waiver On Appeal

No Vital Public Policy Argument Presented To Prevent The Waiver Conclusion.

            One of the most fundamental rules of appellate advocacy is waiver.  Generally, if an argument or objection is not presented at the trial court level, the appellate court will not review it.   The appellate court does have discretion to review a question of law, but it needs to be of vital public policy importance or necessary to a consideration based on the equities of the case.

            Appellant in Patacsil v. Perez, Case No. C095195 (3d Dist. Dec. 21, 2022) (unpublished) found his appellate fee entitlement issues to be forfeited.  The reason was simple:  appellant did not oppose the fee motion and no compelling need was shown to justify consideration of the entitlement issue on appeal.  Be careful of waiver arguments; make a careful record of challenges at the superior court level.

Section 1717: $360,965.50 Contractual Fee Award Sustained In Real Estate Case

Award Was The Defense “Full Ask.”

            After plaintiff lost a real estate case at the trial court level, the judge awarded the defense $360,965.50 in contractual attorney’s fees, the full ask of the defense in Tri-west Homes II, LP v. Ostayan, Case No. B307708 (2d Dist., Div. 2 Dec. 21, 2022) (unpublished).  The merits determination was affirmed on appeal, which also meant the fees award was affirmed.

Section 1717: $547,532.33 Contractual Fee Award Against Otis Elevator Based On Litigant’s Cross-Complaint Affirmed On Appeal In Duty To Defend Situation

It Was Irrelevant Who Paid The Fees, Law Of The Case Sustained The Award Based On Earlier Appellate Opinion, And Duty To Defend Ruling Was “On The Contract.”

            In Sierra Pacific Properties, Inc. v. Otis Elevator Co., Case Nos. A162854 et al. (1^st Dist., Div. 5 Nov. 21, 2022) (unpublished), Otis Elevator was not happy that it suffered a $547,532.33 contractual, Civil Code section 1717 based fees/costs award based on an adverse judgment on an opponent’s duty to defend cross-complaint after the appellate court earlier reversed a judgment in Otis Elevator’s favor.  Unfortunately, those are the breaks in contested litigation and appeals in the California state system.  Otis Elevator appealed, but its arguments were rejected as follows: (1) it did not matter who paid the fees for purposes of fee entitlement under the contractual fees clause (Sonoma Land Trust v. Thompson, 63 Cal.App.5^th 978, 984-985 (2021)); (2) the other side was the prevailing party under law of the case based on the earlier appellate court decision on the duty to defend reversal issue; and (3) the duty to defend was “on the contract,” an independent reason to conclude Otis Elevator’s opponent was the prevailing party.

Prevailing Party, Reasonableness Of Fees, Section 1717: $200,000 Fee Award To Prevailing Defendant Affirmed Because Tort Claims Allowed For Recovery, Post-Dismissal, Under Santisas

Settlement With Other Parties Did Not Impact Analysis Of Fee Reasonableness As To The Prevailing Defendant.

            Carp Property, LLC v. Corona, Case No. B316354 (2d Dist., Div. 6 Nov. 17, 2022) (unpublished) was a situation where plaintiff litigated a matter for two years where there was a contractual fees clause in an operative agreement, suing for over $2.1 million.  Plaintiff settled with some defendants for a total of $90,000 and then dismissed the prevailing defendant after that party rejected a “walkaway” settlement in exchange for a waiver of costs.  Prevailing defendant moved for $228,000 in Civil Code section 1717 fees, but the lower court awarded $200,000 after trimming the request for block billing and for higher-level attorneys performing lower level tasks.

            The appellate court affirmed the fee award.  Plaintiff dismissed both contract and tort claims, but the dismissed tort claims were inextricably intertwined with the contract claims and the broadly worded attorney’s fees provision allowed for tort claim recovery, an exception to the Santisas v. Goodin, 17 Cal.4^th 599, 621 (1998) “general rule” relating to dismissal of contractual claims.  It then found that the $90,000 settlement with some defendants did determine fee reasonableness as far as the work done by the other prevailing defendant here.  The trial court also trimmed about $28,000 from the fee request, such that some of plaintiff’s arguments for a reduction were credited—meaning the fee award was no abuse of discretion and did not shock the conscience. 

Section 1717: $321,338.54 Contractual Fee Award To Prevailing Party In Administrative Mandamus Proceeding

Mandamus Was “On The Contract” Under Section 1717 And Decision Was Final To Defeat Prematurity Argument.

            In The Traveler Indemnity Co. v. Lara, Case No. B306897 (2d Dist., Div. 7 Nov. 3, 2022) (published), insurance company lost an Insurance Commissioner administrative mandate proceeding concerning whether certain workers compensation agreements issued to it were unenforceable vis-à-vis the insured.  The lower court then assessed $321,338.54 in attorney’s fees against insurance company based on a contractual fees clause in the agreements for insured’s administrative proceeding work.  Insurance company’s arguments on appeal did not overturn the fee award.

            Administrative proceeding work was within the scope of the fees clause.  An administrative mandamus was “on the contract” under Civil Code section 1717 where the main issue was whether the agreement was unenforceable.  The fee award was not premature despite the existing of further litigation because the mandamus determination was a final determination in insured’s favor.

Section 1717: Defendant Nonsignatories To Settlement Agreement Defeating Contract Claims Entitled To Section 1717 Fees

After All, Defendants Did Show The Contract Was Inapplicable To Them, Such That The Hsu Decision Governed.

            One of our leading cases is Hsu v. Abbara, 9 Cal.4^th 863, 870 [Leading Case #2] holds that a party is entitled to Civil Code section 1717 attorney’s fees when the party prevails on grounds the contract is inapplicable, invalid, unenforceable, or nonexistent, if the opposing party would have entitled to fees had it prevailed.  The 2/8 DCA, in McLean v. Rosman, Case No. B308260 (2d Dist., Div. 8 Oct. 5, 2022) (unpublished), found Hsu dispositive, affirming a lower court award of fees to defendants where they showed that a settlement agreement, with a fees clause, was inapplicable to them because they never signed it and the plaintiffs had failed to perfect a lien by recording the settlement.  The panel also observed that Canal-Randolph Anaheim, Inc. v. Wilkoski, 78 Cal.App.3d 477, 486 (1978), which held that section 1717 does not apply to a person not a party to the contract, was impliedly overruled by Hsu. 

Section 1717: $70,882.50 Attorney’s Fees Award Based On A Construction Subcontract Is Affirmed On Appeal

Neither Legal Entitlement Nor Fee Amount Arguments Prevailed On Appeal.

            Plaintiff subcontractor brought a third-party beneficiary action against general contractor which was resolved adversely on res judicata and statute of limitations grounds in a situation where there was a subcontract with a contractual fees clause encompassing “actual” attorney’s fees incurred.  With a few subtractions from the claimed request, the lower court awarded prevailing general contractor $70,882.50 in contractual attorney’s fees.

            That result was affirmed by the Fifth District in Ayala Boring, Inc. v. HPS Mechanical, Inc., Case No. F082276 (5^th Dist. Aug. 16, 2022) (unpublished).  Fee entitlement was present based on the complaint allegations referencing a subcontract with a fees clause, even though in a footnote the appellate panel indicated that it was unlikely that “actual” instead of “reasonable” fees could be awarded under Civil Code section 1717.  As to the amount, the award was not shocking given the detailed substantiation of hourly rates and fee work by the fee claimant.

Section 1717: Interim Award Of Contractual Fees Under Civil Code Section 1717 Are Not Allowable Unless All The Claims In An Action Are Resolved

Premature Award Of $1.1 Million In Fees By Group Of Plaintiffs Reversed.

            A group of tenant plaintiffs in Chen v. Valstock Ventures, LLC, Case No. A161885 (1^st Dist., Div. 4 July 29, 2022) (published) won about $1.1 million in an interim fee award against a defendant after winning a summary adjudication motion on their declaratory relief contract claim.  However, tenants had remaining non-contract claims to be resolved.  The 1/4 DCA reversed.  After an examination of the language and policies underlying Civil Code section 1717, the Rules of Court, and other statutes, it determined that interim section 1717 fee awards are impermissible, especially given that a summary adjudication order is not appealable and that section 1717 envisions a final judgment, dismissal, or other final disposition before fee requests can be pursued. 

Section 1717: If You Claim A Redlined Draft Agreement Is The Contract And You Lose, Fee Exposure Can Occur

4/1 DCA Affirms Fee Award Where Pleadings Made It Clear That Redlined Draft Agreement Was The Operative Contract By Losing Plaintiff.

            Plaintiff lost a demurrer without leave founded upon contractual breach, duty to negotiate in good faith, and promissory estoppel claims, a determination affirmed on appeal because the letter of intent made it clear there was no agreement until a formal contract was agreed to and signed and because there was a draft redlined agreement with multiple changes which was never accepted.  The lower court then awarded $104,545 in attorney’s fees, the full request, based on a contractual fees clause in the redlined draft and under Civil Code section 1717.

            The fee award was upheld by the 4/1 DCA in Evans v. Bosa Development California II, Inc., Case Nos. D078272/D078818 (4^th Dist., Div. 1 July 27, 2022) (unpublished).  The LOI showed there was no duty to negotiate in good faith, although the redlined draft agreement showed that this did take place.  Defendant beat the contractual breach and derivative promissory estoppel claims such that it proved the nonexistence of the contract, entitling the defense to fees under section 1717.  (Hom v. Petrou, 67 Cal.App.5^th 459, 465 (2021).

Allocation, Section 1717: $125,000 Fee Award To A Defendant Winning At The Pleading Stage Affirmed On Appeal

This Decision Has A Nice Discussion Of The Policies Underlying Civil Code Section 1717.

            There is a nice discussion of the policies underlying Civil Code section 1717 and the claims which trigger fee exposure under this statute in Engage BDR, LLC v. Amobee, Inc., Case No. B309263 (2d Dist., Div. 8 July 7, 2022) (unpublished).

            There, a Master Agreement formed the backdrop for plaintiff’s contract, usury, and declaratory relief claims, with that Agreement containing a fees clause which had no recitation that each party to the contract was represented by counsel.  The trial judge sustained demurrers and entered judgment in favor of defendant, later awarding about $125,000 in attorney’s fees and declining to apportion the fees.

            The 2/8 DCA, in an opinion authored by Justice Wiley, affirmed. 

            Initially, the panel explored how Civil Code section 1717 expands a contractual attorney’s fees clause: (1) the first way is reciprocity, with a unilateral fees clause deemed to apply to both parties; and (2) the second way is “broadened scope,” which means a narrow fees clause applies to the entire contract unless the contract specifies that counsel represented the parties; and, if not, section 1717 broadens the fees provision absent the recitation.

            It then examined whether plaintiff’s claims were “on the contract,” determining that the contract breach claims obviously were, the usury/restitution claims were (Del Mar v. Caspe, 222 Cal.App.3d 1316, 1335 (1990)), the economic duress claim relating to entry into the contract were, and the declaratory relief claims related to the contracts (City and County of San Francisco v. Union Pacific Railroad Co., 50 Cal.App.4^th 987, 999-1000 (1996)). 

            The fees clause was broadened because there was no specific recitation that the parties were represented by counsel.  Although there were some other more amorphous references, section 1717 requires that parties of roughly equal power need to make this recitation to demonstrate legal sophistication so that the fees clause is narrowed in scope.  The “broadened scope” rationale applied.

            No apportionment was required because all of plaintiff’s claims involved shared common issues.  Also, because plaintiff did not specifically identify what attorney billings were duplicative until a supplemental brief which was filed too late and not entertained, plaintiff waived its challenges to the reasonableness of the fees requested by defendant.

            BLOG OBSERVATION—Although appellate jurists are good writers, we will note that Justice Wiley has a distinctive writing style.  We would put him in company, on that front, with his contemporaries such as Justices Manella, Ashmann-Gerst, Perluss, Gilbert, Yegan, and Bedsworth.

Prevailing Party, Section 1717: Performance Bond Surety Protecting Contractor Was Not The Prevailing Party Under Civil Code Section 1717 Where City Defensed Contractor’s Contract Claims And Surety Held City’s Contractual Recovery To Just $1.00

Lopsided Results May Make One A Prevailing Party, But The Outcome Was Mixed So The Lower Court Had Discretion To Determine No Side Prevailed.

            In the Civil Code section 1717 area, a prevailing party is one which has only “good news” as far as prevailing in litigation.  Anything else, unless a result is overwhelmingly lopsided, means the lower court has discretion to determine what side prevailed or to determine no one prevailed.

            Whether the outcome was “lopsided” was the prime issue considered on appeal in City of Los Angeles Dept. of Airports v. U.S. Specialty Ins. Co., Case No. A162183 (1^st Dist., Div. 5 June 15, 2022) (published). 

            What happened is that contractor basically claimed that L.A. city was at fault in breaching a contract with contractor (although performance bond surety was protecting contractor’s interest as it had to under the performance bond).  In turn, city claimed contractor was at fault and independently sought $3.4 million in damages under its own contract claim against contractor.  At the end of the day, contractor lost its claims, and city won its contract claim to the nominal tune of $1.00.  After a prior appeal determined that a contractual provision was a real fees clause rather than an indemnity provision, both sides moved for fees.  The lower court denied both requests, determining the outcome was mixed so that no one prevailed.

            Surety appealed the fee denial, but that determination was affirmed on appeal by the 1/5 DCA.  Keeping in mind that contractor and performance bond surety were “lockstep” in the litigation, no abuse of discretion was committed by the lower court.  After all, contractor lost its claims while city vindicated that it was not at fault as well as won on its contract claim, albeit only gaining a $1 pyrrhic victory.   Even though surety did beat back the $3.4 million damages claim by city, surety did not vindicate contractor’s claims.  The results were mixed; this specific case was not “lopsided” under the circumstances to dictate a legal determination that surety prevailed for section 1717 purposes. 

            We will note that the lower court did a good job of defining surety’s litigation objectives so that the appellate court had a nice compass to use when deciding the case.  This counsels litigation practitioners to develop a good record and aid the lower court in articulating the litigation objectives when a prevailing party contest is at issue—this will provide a “road map” for jurists considering the issue at all levels of judicial scrutiny.

Section 1717: Defendants’ Successful Defense That Plaintiff Failed To Prove The Existence Of Two Contracts Allowed Them To Obtain Contractual Fees Under Section 1717

Section 1717 Does Not Mandate That The Alleged Contract Be Entered Into Evidence.

            Civil Code section 1717 is a fee shifting statute that renders unilateral fee clauses bilateral under its mutuality-based principles.  This statute likely has the most jurisprudence of any fee shifting statute in California published and unpublished decisions.  It applies where a party proves that a contract is inapplicable, invalid, unenforceable, or nonexistent.  (Hsu v. Abbara, 9 Cal.4^th 863, 870-871 (1995) [our Leading Case No. 2].)

            Plaintiff in JHM Ventures v. Cavalier Closeouts, Inc., Case No. B305724 (2d Dist., Div. 3 June 1, 2022) (unpublished) felt the sting of section 1717 after defendants “defensed” its claims upon a determination that plaintiff failed to prove the existence of two of the alleged contracts, although there was a written agreement with a fees clause.  Because plaintiff would have been entitled to fees had it recovered, the lower court awarded defendants $110,920 in attorney’s fees.  On appeal, the 2/3 DCA sustained the fee award.  Hsu controlled, as well as the earlier opinion in Jones v. Drain, 149 Cal.App.3d 484, 489-490 (1983).  Losing plaintiff suggested that section 1717 mandated that a copy of the alleged contract be entered into evidence, but that suggestion was rejected because it contains no such mandate and it would gut section 1717’s applicability to both written and oral contracts. 

Section 1717: On Rehearing, 2/6 DCA Decides That Void Indemnity Agreement With Fees Clause In A Public Agency Contract Does Not Allow For Fees Recovery By Other Litigants

Illegal Contract Was No Different Than Public Contract Void Due To Lack Of Authority.

            On February 6, 2022, we posted on a case for which rehearing was granted. The case is San Luis Obispo Local Agency Formation Comm’n v. Central Coast Development Co., Case No. B304144 (2d Dist., Div. 6 May 5, 2022) (published).  We can report there was no change in result.

            There, earlier proceedings had determined that an indemnity agreement in a public agency contract was not supported by consideration and the governmental agency had no statutory standing to impose the indemnity agreement at all.  In a word, it was an illegal contract.  However, the trial judge awarded substantial fees of $172,850 to the City and $428,864 to the developer under that contract.  But all of that went away on appeal.  The reason was that voidability of a contract as to a public agency meant that it could neither enforce nor be liable on the contract, including fee recovery.  The illegality of the contract was akin to an authorized public agency contract, so that no fees could be assessed against the public agency based on overriding public policies relating to unauthorized or illegal contracts.  Even more so, here, because the developer brought a meritless action against the governmental entity such that there was equity in not allowing the entity to be saddled with fees.

Prevailing Party, Section 1717: 2/4 DCA Affirms Trial Court’s Denial Of $216,610 In Section 1717 Attorneys’ Fees To Prevailing Defendant Who Entered Into A Contract With Plaintiff That Contained An Attorneys’ Fees Clause

There Was No Basis For Section 1717 Attorneys’ Fees Because Plaintiff’s Action Was Not On The Contract, And Defendant Failed To Apportion Fees For Its Successful Cross-Complaint On The Contract.

            Plaintiff retained defendant law firm to defend him in a legal malpractice lawsuit, and the parties entered into a retainer agreement which contained an attorneys’ fees clause. Plaintiff subsequently sued defendant for professional negligence, breach of contract, and breach of fiduciary duty, and defendant counter-sued for breach of contract.  Following a bench trial, judgment was entered in favor of defendant, but the trial court denied defendant’s motion for $216,610 in attorneys’ fees it sought pursuant to Civ. Code section 1717 for fees it incurred in defending against plaintiff’s claims.  Defendant appealed in Rosen v. Century Law Group, Case No. B309991 (2d Dist., Div. 4 May 16, 2022) (unpublished).

            Agreeing with the trial court’s conclusion that the “gravamen of the case was the underlying legal malpractice claim,” and citing Loube v. Loube, 64 Cal.App.4^th 421 (1998), the 2/4 DCA affirmed. The fees clause in the parties’ retainer agreement was narrowly drawn and mirrored the language of section 1717, but plaintiff’s action was not on the contract.  In fact, plaintiff’s breach of contract claim was entirely premised on the malpractice claim – alleging that the breach of contract was defendant’s failure to provide plaintiff with competent legal services.  Defendant’s contention that it was entitled to prevailing party fees on its successful cross-complaint for breach of contract also failed because defendant did not provide the trial court with evidence allowing it to apportion fees for defendant’s cross-complaint.

Prevailing Party, Reasonableness of Fees, Section 1717: Section 1717 Fees Award Of About $40,000 Affirmed For Plaintiff Who Had Fraud Claim Dismissed By Trial Court And Received Only A Portion Of Requested Damages After Bench Trial

A One-Sided Fees Provision Entitled Plaintiff To Reciprocal Prevailing Party Fees Under Section 1717, And A Trial Court’s Determination As To Reasonableness Of Fees Will Not Be Disturbed Absent A Showing That The Trial Court Is Clearly Wrong.

            In Hernandez v. Thottam, Case No. B306547 (2d Dist., Div. 4 May 10, 2022) (unpublished), plaintiff leased a unit that was without power due to a recent fire, but vacated the unit several months into the lease and sued her commercial landlord for fraud and breach of contract based on his failure to restore power to the unit.  Plaintiff was awarded $13,200 in damages following a one-day bench trial.  Additionally, the trial court concluded plaintiff was the prevailing party and awarded her about $40,000 in attorney fees– out of her request for approximately $55,000 – under Civil Code § 1717 after construing the lease against the landlord (who was an inactive attorney) as the drafting party, and concluding that the lease would have entitled landlord to attorney fees.

            Landlord appealed – claiming that the lease precluded attorney fees, that plaintiff could not be deemed a prevailing party because the trial court had denied her motion for summary judgment and had dismissed her claim for fraud, and alternatively, that the amount awarded was excessive. 

            The 2/4 DCA affirmed – finding the attorney fees award “well within the court’s discretion.”  First, the lease contained conflicting fees provisions – one stating each side was responsible for its own attorney fees, and the other requiring that plaintiff pay landlord “costs, damages, and expenses (including any and all reasonable attorney fees and expenses incurred by the [landlord]) suffered by [landlord] by reason of [plaintiff’s] defaults.”  These conflicting provisions were properly construed against the drafting party, and the one-sided fees provision provided plaintiff with a reciprocal right to fees under Civil Code § 1717.  Second, a party’s failure to obtain summary judgment is irrelevant to prevailing party status, as is a party’s success or failure on non-contract claims – with prevailing party status based on comparison of the relief awarded on the contract claims.  Finally, as to the reasonableness of the fees, each of landlord’s challenges failed because there is no requirement that each motion or opposition has to be successful to be compensable, trial courts have discretion to award fees based on declarations of counsel without the inclusion of contemporaneous invoices, and the trial court exercised its discretion to reduce the hours worked by plaintiff’s attorneys and nothing in the record suggested it made the reductions arbitrarily or without examination of the time billed.  The trial judge is in the best position to determine the reasonableness of the fees requested for services provided in his/her court, and unless an appellate court is convinced that the trial court is clearly wrong in determining the reasonableness of the claimed fees, for which the trial court has broad discretion, the trial court’s determination will not be disturbed.  (Building a Better Redondo, Inc. v. City of Redondo Beach, 203 Cal.App.4th 852, 870-873 (2012).)

Section 1717: Trial Court’s Order Awarding Prevailing Plaintiff $159,792.98 In Attorneys’ Fees And Costs Affirmed On Appeal Even Though Note Providing Basis For Fees Award Was Not Formally Admitted Into Evidence

The Trial Court Had Effectively Admitted The Note Into Evidence As The Note Had Been Marked As Evidence, The Parties Had Elicited Testimony About It At Trial, And Neither Party Disputed Its Authenticity Or Objected To Its Admissibility.

            In Amirnezhad v. Ghayam, Case No. B306361 (2d Dist., Div. 8 May 4, 2022) (unpublished), defendant appealed the judgment entered against him in an action involving his restaurant partnership with plaintiff.  Included in the judgment was an order that defendant pay plaintiff $159,792.98 in attorneys’ fees and costs.  Defendant argued that the trial court had no basis for the award of attorneys’ fees because the Note giving rise to a fees award was introduced, but not admitted, at trial.  Although Defendant forfeited this argument by failing to support it with any authority, the 2/8 DCA explained that the trial court had effectively admitted the Note into evidence, and that there was no error in relying on the Note under the circumstances.  The Note had been marked as evidence and counsel for both parties elicited testimony about it – with neither party disputing the Note’s authenticity or objecting to its admissibility. (Dodson v. Greuner, 28 Cal.App.2d 418 (1938) [note that had never been formally admitted into evidence deemed admitted where the court and the parties had each treated the note as being in evidence].)

Fee Clause Interpretation, Section 1717: $157,191 Fee And $7,219.60 Costs Award Under A Contractual Fees Clause Affirmed On Appeal

Defendants’ Nonsignatory Status Did Not Change The Result Because Plaintiffs Would Have Been Entitled To Fees Had They Won.

            Based on a broad contractual fees clause in an agreement governing a dispute over the use of large electric sign in the City of Long Beach to advertise car dealerships in the area, defendants obtained a summary judgment against plaintiffs.  The lower court then awarded prevailing party fees and costs to defendants to the tune of $157,191 in fees and $7,219.60 in costs.  The appellate court rejected plaintiffs’ challenges to the fee award in H.T.L. Properties, LLC v. Speck, Case No. B302436 (2d Dist., Div. 2 Apr. 26, 2022) (unpublished).  The principal argument on appeal was that defendants were nonsignatories to the agreement, so no fees were warranted.  Appellants, you are mistaken, said the appellate panel, pointing out that plaintiffs would have been entitled to fees against the nonsignatories such that the reciprocal entitlement ran in favor of the nonsignatories under Civil Code section 1717—citing Brown Bark III, L.P. v. Haver, 219 Cal.App.4^th 809, 819 (2013). 

Costs, Prevailing Party, Section 1717, Section 998: Fifth District Deals With Various Prevailing Party Issues For Costs And Fees Award To Litigants Who Both Claimed To Have Prevailed

Plaintiff Winning Some Money Entitled To Routine Costs, But Defense Entitled To Prevailing Party Fees And Some Other Routine Costs Relating To Fee And Expert Witness Work, Some Other CCP § 998.

            Mike Murphy’s Enterprises, Inc. v. Fineline Industries, Inc., Case No. F080503 (5^th Dist. Apr. 13, 2022) (unpublished) is a good opinion to show the logical analysis of determining routine costs and fees awards where there is a mixed result and a CCP § 998 offer is involved.  Here is what the appellate court developed as the analytical framework:  (1) a court determines the prevailing party for a purpose of routine costs under CCP § 1032, with the prevailing party for 1032 purposes obtaining at least its preoffer costs; (2) if a party qualifies as a prevailing party under § 1032, the court turns to whether the prevailing party’s net monetary recovery exceeds any qualifying but rejected § 998 offer (which entails taking the amount awarded and adding preoffer interest and any properly requested costs), with costs including attorney’s fees if allowed by statute or contract); (3) in conjunction with the 998 analysis, the court must determine if the plaintiff is the prevailing party under section 1717 such that those preoffer fees may be included in the 998 net recovery analysis; (4) the court then considers the contractual provisions, the effect of section 1717 on the fees provisions, and finally the effect of the rejected 998 settlement offer such that if the net recovery is greater, the plaintiff is the prevailing party for the whole case or if the net recovery is lower, defendant will be treated as the prevailing party at all times after the settlement was made.

            In the actual case, plaintiff lost many of his contractual theories to defendant, but did win about $63,000 on his contractual claim.  Earlier in the case, defendant sent a 998 offer for $85,000 which was not accepted.  Eventually, the lower court determined defendant was the prevailing party for both fees and costs, especially under 998, awarding it about $564,300 in fees, costs, and expert witness fees—when offset against the $63,000 award to plaintiff, defendant had a favorable judgment of $501,284.95.  Plaintiff appealed.

            The Fifth District affirmed most of the trial judge’s awards, except for a routine costs award denial to plaintiff and except for taxing some of defendant’s routine costs a little.  Plaintiff was the prevailing 1032 party because it did receive positive money, such that it was entitled to its preoffer costs.  However, the trial judge was correct in determining that plaintiff properly excluded preoffer fees because he did determine that defendant was the prevailing party on the contract under section 1717, not plaintiff, in a mixed-results case—meaning that plaintiff did not have the net recovery for purposes of preoffer fees or postoffer costs.  Then, because defendant was entitled to fees and costs as prevailing party under both sections 1717 and CCP § 998, the appellate court only disagreed with the trial judge in minor respects, finding these costs were not recoverable: (1) past discovery sanctions; (2) filing costs in a separate federal action (which cannot be deemed costs awarded to a prevailing state court party); and (3) some County of Tulare production fees.  It did find that items such as CourtCall expenses and pro hac vice costs were proper.  In the end, it remanded to award plaintiff preoffer costs and to strike some defense costs items, but otherwise enter judgment pretty close to what occurred before the trial judge.

Prevailing Party, Section 1717: Despite Some Partial Appellate Issue Reversals, Plaintiff Water Authority Prevailed Under A Contractual Fees Clause So As To Be Entitled To Fees And Costs For Achieving Litigation Success On Important Water Rate Issues

Prevailing On “Water Rates Not Set Pursuant To Law” Issue Drove The Conclusion.

            Without going into a detailed discussion of the prolonged dispute between the parties, San Diego County Water Authority v. Metropolitan Water Dist. of Southern California, Case No. A162168 (1^st Dist., Div. 3 Mar. 17, 2022) (unpublished) shows that a “prevailing party” determination under Civil Code section 1717 focuses on the importance of litigation objectives rather than some collateral losses along the way.

            Briefly put, plaintiff won an initial judgment that defendant’s water rates charged under an exchange agreement, which had a contractual fees clause, were legally noncompliant and awarded a $234 million judgment to plaintiff.  The lower court then awarded about $9 million in contractual attorney’s fees to plaintiff, but only for phase one work of a two-phased trial.  In a prior appeal, the appellate court reversed some issue findings on the water rates, but it did affirm that the rates were noncompliant in certain areas.  It also determined that contractual fees should be awarded for both phases of the trial.  On remand, plaintiff obtained a $44 million judgment on the contract plus ancillary declaratory relief as to rate noncompliance.  Because the judgment benefited plaintiff, its ratepayers, and others in the defendant’s service area, the lower court determined plaintiff was the prevailing party for fees and costs.  (The amount of the fees award is not described, but the requested costs were $326,918.34—so the fee award had to be substantial.)

            The 1/3 DCA affirmed the fees and costs awards.  The water rate adjudication did fall within the exchange agreement such that contractual fee entitlement was clear.  Plaintiff did prevail based on winning some important water rate challenges benefiting both themselves and others.  Costs were properly awarded because they are expressly allowed under section 1717, such that no separate routine costs analysis under CCP § 1032 needed to be engaged in. 

Estoppel, Section 1717: After Reversal of Prior Judgment Finding No Easement, Defendant HOA Was Properly Awarded $731,682.08 In Section 1717 Fees And $111,540.01 In Costs

Judicial Estoppel Did Apply Against Plaintiffs Where They Litigated The Position That The Easement Maintenance Agreements Had Fee Clauses, And Were Awarded Fees Before Prior Reversal.

            Ranch at the Falls LLC v. Indian Springs Homeowners Assn., Inc., Case No. B311278 (2d Dist., Div. 8 Feb. 10, 2022) (unpublished) demonstrates how a change of fortune through a reversed judgment and application of judicial estoppel can certainly alter the results in a case.

            In this one, plaintiffs had won a judgment in an easement dispute and were awarded $199,459 in attorney’s fees based on fee clauses in easement maintenance agreements.  Plaintiffs clearly litigated and took the position that fee exposure was present under the fee clauses and Civil Code section 1717.  Then, a huge change in fortune occurred when the appellate court in an earlier opinion reversed the judgment after finding plaintiffs had no enforceable easement over certain private streets in Indian Springs.  That meant plaintiffs’ fee award went POOF!  The lower court then applied judicial estoppel against plaintiffs, awarding defendant $731,682.08 in attorney’s fees and $111,540.01 in costs.  Plaintiffs, clearly dismayed, appealed.

            The 2/8 DCA, in an opinion authored by Acting Presiding Justice Grimes, affirmed.  The judicial estoppel doctrine was properly applied against plaintiffs based on their prior fee position when their fortunes were much different.  Plaintiffs then argued that the fee award would result in their financial ruin, a discretionary factor which may be considered even though there is a split in appellate thinking on the issue.  (Compare Garcia v. Santana, 174 Cal.App.4^th 464, 477 (2009) [may be considered discretionarily] with Walker v. Ticor Title Co. of Cal., 204 Cal.App.4^th 363, 372 (2012) [inappropriate to consider losing party’s financial status as an equitable factor in assessing contractual attorney’s fees].)  However, under Garcia, this is still a discretionary call by the lower court, which found that the financial evidence did not present a clear enough picture that the award would be ruinous.  Finally, plaintiffs complained about excessive hours, but the trial judge had reduced defendant’s fee request by 25% in addressing this concern previously.

Prevailing Party, Section 1717: Attorneys’ Fees Award To Prevailing Plaintiff Upheld On Appeal Despite Invalidation Of Contract Between The Parties Due To Defendants’ Fraud.

Plaintiff’s Action Was “On The Contract” For Purposes Of Civ. Code § 1717, And Fees Provision In Parties’ Contract Was So Broad That It Allowed Award Of Fees To Prevailing Party Whether Action Was Based In Tort Or In Contract.

            In Song v. Creative Global Investment, Case Nos. B299422/B301697/B304884 (2d Dist., Div. 2 February 4, 2022) (unpublished), a breach of contract dispute between co-investors in two Coffee Bean and Tea Leaf franchises proceeded to a de novo bench trial after the trial court ordered the arbitration award vacated based on clarification/completeness issues.  The bench trial resulted in a $900,000 damages award to plaintiff, plus $3 million in punitive damages.  Additionally, the trial court determined plaintiff was the prevailing party and awarded him $86,583 in attorneys’ fees based on the attorney fees provision in the parties’ operating agreements.

            As to the fee award, Defendants argued on appeal that it was improper because the trial court’s findings of defendants’ fraud rendered the operating agreements invalid and therefore incapable of being breached. According to defendants, plaintiff could not be the prevailing party since the operating agreements could not be breached.  The 2/2 DCA rejected this argument – finding the fees award was supported.  First, the panel concluded plaintiff’s action was “on the contract” for purposes of Civ. Code § 1717.  Second, the panel found that the fees provision in the parties’ operating agreements was so broadly worded that it allowed for the award of attorney fees to the prevailing party in “any dispute” between the parties that resulted in arbitration or litigation – whether that arbitration or litigation was based in tort or in contract. (See Gil v. Mansano, 121 Cal.App.4th 739, 743 (2004).)

Section 1717: Void Indemnity Provision Potentially Allowing Fee Recovery Against Public Agency Did Not Allow Fee Entitlement

Substantial Fees Against Public Agency Went Away For Now.

            San Luis Obispo Local Agency Formation Com’m v. Central Coast Development Co., Case No. B304144 (2d Dist., Div. 6 Jan. 3, 2022) (published) establishes that where an indemnity provision in a public agency contract, even though potentially allowing for fee recovery, is void; there is no recovery of fees against the public agency. 

            What happened here is that earlier proceedings had determined that the indemnity agreement was not supported by consideration and the governmental agency had no statutory standing to impose the indemnity agreement at all.  However, the trial judge awarded substantial fees of $172,850 to the City and $428,864 to the developer.  But all of that went away on appeal.  The reason was that voidability of a contract as to a public agency meant that it could neither enforce nor be liable on the contract, including fee recovery.  Even more so, here, because the developer brought a meritless action against the governmental entity such that there was equity in not allowing the entity to be saddled with fees.

Prevailing Party, Section 1717: Where Defendant Obtained Injunctive Relief Against Plaintiff In Nonsolicitation Restriction Litigation, Section 1717 Fees And Costs Were Justified

$596,114 In Fees And $84,125 In Costs Affirmed On Appeal.

            In Blue Mountain Enterprises, LLC v. Owen, Case Nos. A157054/A158783 (1^st Dist., Div. 1 Jan. 28, 2022) (published), plaintiff obtained a TRO, preliminary injunction, and permanent injunction in hard-fought litigation against a defendant who transferred his ownership interest in real estate/construction related business to plaintiff, but was found to have breached nonsolicitation restrictions in two agreements (one of which had a fees clause) by establishing a competing construction services company after being terminated as an employee by plaintiff.  The trial judge awarded prevailing party fees to plaintiff, under the contractual fees clause, in the amount of $596,114 as well as costs of $84,125.  The defense appeal was unsuccessful.

            Plaintiff did achieve one of its primary litigation objectives by obtaining injunctive relief against defendant, even though no monetary relief was obtained.  Defendant ran up fees after the grant of the preliminary injunction, so plaintiff had no choice but to litigate through the permanent injunction stage.  With respect to the amount of fees awarded, the trial judge looked at every single billing entry to make sure an award was justified and did make a major “haircut” from the requested fees.

            BLOG HAT TIP—Co-contributor Mike notes that the successful attorneys on appeal were Joshua R. Mandell and Haley C. Greenberg of Akerman.  Mike has had the opportunity to litigate against and work with Mr. Mandell, who is a consummate professional (along with Ms. Greenberg).  Also, the appellate court did rely on Strategix, Ltd. v. Infocrossing West, Inc., 142 Cal.App.4^th 1068 (2006), a nonsolicitation decision in which co-contributor Mike was lead counsel on appeal, in coming to its result on the merits.  Good job, Josh and Haley! 

Prevailing Party, Section 1717, Section 998: 1/4 DCA Reverses Trial Court’s Denial Of Section 998 Fees To Defendant Who Entered Handwritten Agreement To Transfer Real Property Valued At More Than His 998 Offer.

Plaintiffs Voluntarily Dismissed Action Without Terms Of Handwritten Agreement Being Met And Property Was Never Transferred.

            In Debenedetti v. Debenedetti, Case No. A162074 (1^st Dist., Div. 4 January 24, 2022) (unpublished), plaintiff brothers, who were successor co-trustees of their father’s trust, filed an action against their brother for breach of a promissory note securing a $157,000 loan the trust had made to him. Defendant made a Code of Civil Procedure § 998 offer to settle the action for $99,500 – inclusive of all fees, costs and interest – but the parties ended up signing a handwritten agreement several days later.  The handwritten agreement provided that the action would be settled with the transfer from defendant to the trust of real property valued at more than $157,000.  Transfer of the property was contingent upon a satisfactory inspection of the property to take place within 45 days, and the handwritten agreement was to be replaced with a formal written agreement incorporating the same terms within 10 days. One year later, plaintiffs responded to the trial court’s order to show cause, re dismissal of the action, with a request for voluntary dismissal without prejudice – which the trial court granted. 

            Afterward, plaintiffs and defendant filed competing costs memorandums and motions to tax.  Additionally, defendant sought attorney fees as the prevailing party under section 998 as plaintiffs had recovered nothing because no formal written agreement was ever signed, the inspection never happened, and the property was never transferred. Additionally, defendant sought reimbursement of fees under Civil Code § 1717 based on the attorney-fee provision of the underlying promissory note.  However, based on the handwritten agreement, the trial court awarded no costs and denied defendant’s motion for fees. 

            Defendant appealed the fees denial – arguing he was entitled to fees under both section 1717 and section 998. The 1/4 DCA disagreed with defendant’s section 1717 argument – finding his claim barred under subdivision (b)(2), which states, “[w]here an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section.”  However, defendant’s section 998 argument resulted in a reversal and remand for determination of the amount and reasonableness of fees defendant incurred post-998 offer. Because plaintiffs did not accept defendant’s section 998 offer and failed to obtain a more favorable judgment – with no formal settlement agreement ever signed and the property never transferred – defendant was entitled to recovery of costs from the time of the offer.  Citing Mon Chong Loong Trading Corp. v Superior Court, 218 Cal.App.4th 87, 93-94 (2013), the panel found defendant’s entitlement to fees was triggered when plaintiffs voluntarily dismissed the action, and irrespective of prevailing party findings under section 1717 where the dismissed action is on a contract that provides for attorney fees. (Scott Co. v Blount, Inc., 20 Cal.4th 1103, 1114 (1999) [“Under section 998, the defendant’s entitlement to costs derives not from its status as a prevailing party but from the plaintiff’s failure to accept a reasonable settlement offer.”].)

Section 1717: Prevailing Borrower’s Win Was On Tort, Not Contract Claims, Such That Contractual Fees Were Not Justified

Lender Also Asked For Fees For Prevailing On Contract Claims, But That Was Forfeited By Not Timely Asking For Them Earlier.

            In Vakili v. Bank of America, N.A., Case No. C091767 (3d Dist. Jan. 20, 2022) (unpublished), a borrower and lender won and lost some claims where there were contractual attorney’s fees clauses in a note and deed of trust.  Lender obtained a directed verdict on contractual claims, but borrower won two tort claims (fraud and negligence) which resulted in a remitted award of a little over $1.7 million.  Borrower then moved for $1.9 million in contractual attorney’s fees, a request denied because the lower court determined that the fees were for tort claims which were not “on the contract” under Civil Code section 1717.

            The Third District affirmed, basically telling both sides that no fees were allowable.  The contractual clauses involved lender’s unilateral entitlement to enforce the note or lender being able to add third party expenses to the debt due under the note—none of these provisions applied to the fraud and negligence claims won by borrower.  Section 1717 does not generally apply to tort claims, especially where the enabling contractual clauses do not involve these types of broader claims.  Interestingly, lender sought fees for winning the contractual claims, but it did not timely seek fees earlier such that the request for fees was forfeited.

Prevailing Party, Section 1717: In Contentious Litigation Where A Default Judgment Was Vacated, Party Attempting To Pay Off The Amount In Dispute Was Finally The Prevailing Party

Section 1717 Tender Rules Were At Issue, Affirming Determination That The Party Attempting To Settle The Debt Was In The Right.

            Believe me, the equities in a case do matter, even one involving numerous lower court proceedings (both in California and Maryland courts) and six appeals considered by the Second District.

            This is very much demonstrated in United Grand Corp. v. Stollof, Case No. B305146 (2d Dist., Div. 8 Jan. 19, 2022) (published).  This case involved a guarantor of a lease who was the subject of a default judgment and rabid judgment enforcement efforts by landlord.   (The rent payment delinquency was not that big.).  Guarantor attempted on multiple occasions to pay off the alleged amount in dispute, only to be rebuffed by landlord—including deposit of a judgment amount in a Maryland court.  Landlord refused to accept the tenders.  Given how litigation can be unpredictable, guarantor was able to obtain a vacating of the default judgment, again making attempts to satisfy the amount in dispute before guarantor even filed an answer, although alleging a tender defense.  Eventually, the trial court entered an order by which a judgment was confirmed against guarantor, but also finding guarantor had properly tendered moneys and landlord had acted in bad faith in not accepting the tenders.  Guarantor was deemed to be the prevailing party and was awarded $165,870 in attorney’s fees under a contractual guaranty clause.

            The 2/8 DCA affirmed.  It was persuaded that David S. Karton, A Law Corp. v. Dougherty, 231 Cal.App.4^th 600 (2014) was the governing Civil Code section 1717 “tender” decision on what happens when a party pays a default judgment only to have that judgment later set aside.  The equities were important here—guarantor tried to resolve this, landlord did not, and guarantor certainly prevailed given that the vacating of the default judgment left landlord with nothing. 

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.

Prevailing Party, Section 1717: Where Result Was Mixed, Trial Court Did Not Err In Determining That Prevailing Party Borrowers Prevailed More Than Lender

$107,605.20 Fee Award Was The Borrowers’ Gain; Some Tort Claims, If Related To Enforcement Of A Note, Are Recoverable Under Civil Code Section 1717.

            In Bays v. Ashcraft, Case No. D079056 (4^th Dist., Div. 1 Nov. 18, 2021) (unpublished), borrowers and lender got into a tussle, with there being mixed results but with the lower court concluding the loan was “clearly usurious” such that all note interest had to be forfeited.  To put the mixed result in context, lender claimed about $233,000 was owed, and the trial court concluded only $24,868.32 in principal/interest was owed by borrowers—as well as cancelling the NOD and quieting title to the property in borrowers’ favor.  Then, after finding that the litigation results were mixed, the lower court determined borrowers obtained the greater relief and awarded them, as prevailing parties, $107,605.20 in attorney’s fees under Civil Code section 1717 (predicated on promissory note and deed of trust fee clauses). 

            The 4/1 DCA affirmed the fees award.  Based on the ultimate result combined with the voiding of the NOA and quieting of title in borrowers’ favor, the lower court did not err in finding borrowers to be the prevailing parties.  However, lender claimed that there could be no fees awarded on a breach of fiduciary duty and B&P § 17200 claim.  Section 1717’s “on the contract” language is liberally construed, with the pleadings showing that these two claims did relate to the loan such that they were allowable under the statutory provision.  (Cf. Yoon v. Cam IX Trust, 60 Cal.App.5^th 388, 393 (2021), discussed in our Jan. 31, 2021 post [claims against lender for negligence and fraud arose from enforcement of the note, so they were covered under section 1717].)  The fees for the tort/section 17200 claims were correctly awarded. 

Deeds of Trust, Section 1717: Trial Court’s Award Of $508,186.49 In Attorney’s Fees To Loan Servicer Acting As Agent For Mortgage Loan Owner In Judicial Foreclosure Action Affirmed On Appeal

Mortgage Loan Owner’s Entitlement To Contractual Fees Under Note And Deed Of Trust Fee Provisions Transferred To Loan Servicer When It Was Authorized To Act As Loan Owner’s Agent In Enforcing The Deed Of Trust.

            In Nationstar Mortgage v. Abalkhad, Case No. B303946 (2d Dist., Div. 1 October 22, 2021) (unpublished), homeowner in judicial foreclosure action appealed from the judgment entered against him, which included an award of $508,186.49 in attorney fees to the loan servicer for fees it incurred in enforcing the promissory note on the mortgage loan and deed of trust securing the loan.

            As to the fees, homeowner did not challenge the amount awarded. Instead, he argued – for the first time on appeal – that loan servicer was not entitled to recover fees under the attorney fees provisions in the note and deed of trust because it was not the lender.

            The 2/1 DCA affirmed – finding there could be no dispute as to the mortgage loan owner’s entitlement to contractual fees based on the fees provisions under the Note and Deed of Trust.  Because mortgage loan owner gave authority to loan servicer to act as its agent in enforcing the deed of trust, loan servicer was acting in place of mortgage loan owner, and was entitled to recover the fees it expended as if it were the mortgage loan owner. (Channel Lumber Co., Inc. v. Porter Simon, 78 Cal.App.4th 1222, 1227 (2000).)

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).) 

Section 1717: Simply Because A Fee Retention Was A Company Obligation, Does Not Mean It Might Not Be Recoverable

California Caselaw Dictated The Result.

            Legendary Builders v. Grovewood Properties, Case Nos. B297299 et al. (2d Dist., Div. 4 Oct. 5, 2021) (unpublished), although a convoluted opinion, stresses a lesson we have posted on under Civil Code section 1717—“incurred” is a term of art and can encompass pro bono, reduced efforts, and non-business compensation efforts as long as a client potentially was on the hook for fees or engaged the attorney to do the work. 

Nonsignatories, Section 1717: Lenders, As Third-Party Beneficiaries, Properly Awarded Attorney’s Fees Under Broad Fee Clause Encompassing Tort Claims

$150,000 Was The Fee Award Affirmed In Lenders’ Favor As Prevailing Cross-Defendants.

            Hom v. Petrou, Case No. A161770 (1^st Dist., Div. 4 Aug. 3, 2021) (published) involved a $150,000 contractual attorney’s fees award in favor of lenders obtaining a dismissal of a cross-complaint alleging primarily tort claims.  The 1/4 DCA affirmed, holding that there is no blanket rule prohibiting nonsignatories from collecting fees on tort claims—analyzing several cases to reach this holding and deciding that any ultimate conclusion rested on the particular wording of the contract at issue.  Specifically, the lease established that lenders were third-party beneficiaries, with the fees clause language not disqualifying lenders from being considered as parties to the clause and with the breadth of the language encompassing tort claims. 

Probate, Section 1717: Section 1717 Prevailing Party Attorney Fees Of $84,402 Awarded To Plaintiff Pursuant To Trust’s No-Contest Clause Reversed On Appeal

No Basis For Fees Under No-Contest Clause Because Trust And Its Terms Were Not Contested, And Plaintiff Forfeited Argument For Fees Under Prob. Code § 17211(b) By Not Raising It Below.

            In Haley v. Konatich, Case No. A160725 (1^st Dist., Div. 2 June 29, 2021) (unpublished), three siblings were the beneficiaries of their late mother’s Trust. After the sister died, her husband – as executor of sister’s estate – sued the two brothers, and a related LLC controlled by the brothers, for his late wife’s share of the distributable trust estate. After prevailing against the brother who was the trustee of the mother’s estate, husband successfully moved to recover § 1717 attorney fees under a no-contest clause of the Trust – with the trial court awarding husband $84,402 against trustee brother, both individually and in his capacity as trustee, and against the related LLC.

            The 1/2 DCA reversed. As relevant in this case, a no-contest clause “shall only be enforced against . . . [a] direct contest that is brought without probable cause.” (Prob. Code § 21311(a)(1).) Pursuant to § 21310(b), a direct contest is narrowly defined as “a contest that alleges the invalidity of a protected instrument or one or more of its terms, based on one or more of the following grounds”: forgery; lack of due execution; lack of capacity; menace, duress, fraud, or undue influence; and/or revocation of a will pursuant to § 6120, revocation of a trust pursuant to § 15401, or revocation of an instrument other than a will or trust pursuant to the procedure for revocation that is provided by statute or by the instrument. As husband acknowledged, his lawsuit was not a contest of the Trust’s terms, but an effort to enforce the Trust. Trustee brother also did not contest the Trust or its terms. Rather, this dispute was ultimately over the interpretation of the Trust as a whole – with trustee brother being found by the trial court to be in breach of his fiduciary duty as to his sister.  Because there was no contest of or attack on the Trust or its terms, there was no basis to award legal fees under the Trust’s no-contest clause.

            Additionally, the panel declined consideration of husband’s argument that he was entitled to fees under Prob. Code § 17211(b) – which allows a trial court to award fees where a beneficiary contests the trustee’s account and the trustee opposes the contest without reasonable cause and in bad faith – because husband forfeited the argument by not raising it below.

Prevailing Party, Section 1717: 4/3 DCA Affirms $2 Million Section 1717 Fee Award To Plaintiff And $4.6 Million Section 1717 Fee Award To Defendant

Two Separate Contracts Were At Issue – With Plaintiff Prevailing On The Asset Purchase Agreement And Defendant Prevailing On The Employment Contract.

            In Colaco v. Cavotec SA, Case NO. G059418 (4^th Dist., Div. 3 June 24, 2021) (unpublished), plaintiffs corporation and its sole shareholder/CEO entered into an Asset Purchase Agreement and Plan of Reorganization with defendant corporation for its purchase of plaintiff corporation’s assets.  Additionally, plaintiff shareholder became defendant’s president and member of its board of directors, with the parties entering into an Employment Contract to govern the terms of plaintiff shareholder’s employment.  Disputes arose and litigation ensued – with each side alleging the other breached the Purchase Agreement.  Defendant also alleged plaintiff shareholder breached the Employment Contract and his fiduciary duties, and had converted funds from defendant for his personal use. 

            Ultimately, the trial court entered judgment against plaintiffs – jointly and severally – for about $1.3 million in damages for breaches of the Purchase Agreement and Employment Contract, and against plaintiff shareholder for $2 million in punitive damages.  Additionally, it entered judgment against defendant for breach of the Purchase Agreement for failure to make the final $2 million Performance Earn-out payment, and $687,000 in compensatory damages.  As to the parties’ postjudgment Civ. Code § 1717 fees motions – the trial court determined defendant was the prevailing party on the Employment Contract claims and awarded it approximately $4.6 million in attorney fees after applying a .25 negative multiplier to account for fees incurred on its unsuccessful claims and lack of success in the damages defendant demanded, and found plaintiff corporation to be the prevailing party because it had been 100% successful in being awarded the $2 million it sought for defendant’s breach, whereas defendant was only 9.23% successful by being awarded only $1.3 million out of the $12 million it sought in damages for plaintiffs’ breaches.  After applying the loss limitations provision of the Purchase Agreement, the trial court awarded plaintiff corporation $2 million in prevailing party attorney fees.

            On appeal, each side argued the trial court erred the prevailing party determinations that were not in their favor.  Plaintiffs argued that the trial court should have performed a collective contract analysis because the Purchase Agreement and Employment Contract were a single transaction among the parties – thereby making plaintiffs the sole prevailing party on the contract – and that any fees awarded to defendants should have been subject to the loss limitations provision of the Purchase Agreement.  Defendants argued against the trial court’s calculations determining the prevailing party on the Purchase Agreement.

            The 4/3 DCA disagreed and, in a 3-0 opinion authored by Justice Moore, affirmed.  As to the Purchase Agreement and Employment Contract, the panel had determined in a previous appeal in this case that they were “separate agreements” and not to be treated as a single contract.  The liability cap applied to losses arising from claims brought under the Purchase Agreement – not to attorney fees arising from claims brought under the Employment Contract.  Finally, as to the Purchase Agreement, the trial court’s prevailing party determination would have been the same using defendant’s calculations because defendant’s own calculations showed plaintiffs achieved significantly more of their litigation goal than did defendant.

Sanctions, Section 1717, Special Fee Shifting Statutes: 2/7 DCA Reverses Sanctions Imposed Against Builder Defendants For Violation Of Stay Order Regarding A Development Project Of Four Homes In The Coastal Zone Of Venice.

Stay Order Was Vague And Did Not Provide Builder With Information As To How It Was Supposed To Act Or What Conduct Would Violate The Stay.

            In Rudisill v. California Coastal Commission, Case No. B299331 (2d Dist., Div. 7 June 22, 2021) (unpublished), two residents who opposed a development project consisting of four homes being constructed in the coastal zone of Venice – and which had been permitted by the City of Los Angeles and the California Coastal Commission – filed a petition for writ of mandate.  The trial court granted the petition, directed the Commission to set aside the permit, and stayed the project – a judgment reversed on appeal.  However, while the appeal was pending, builder performed certain work and obtained certificates of occupancy from the City of Los Angeles in its steps to enable residents to occupy the homes, which prompted plaintiffs to move for sanctions under Code Civ. Proc. § 177.5 for violation of the stay order.

            The trial court granted plaintiffs’ request and sanctioned builder defendants $1,500 each, and ordered City to revoke the certificates of occupancy – although City was no longer a party to the case as plaintiff had voluntarily dismissed City prior to the trial court’s judgment on the petition.  Additionally, the trial court denied plaintiffs’ motion seeking over $141,000 in attorneys’ fees under Code Civ. Proc. § 575.2 (statute governing failure to comply with local rules) and Code Civ. Proc. §1021.5 (California’s Private Attorney General Doctrine) – finding plaintiffs were not entitled under § 575.2 because builder had not violated a local rule, nor under §1021.5 because builder’s violations were “minor” and not “serious in nature” and the sanctions request did not concern an important right affecting public interest or confer a significant public benefit.  Everyone appealed.

            As to the trial court’s order that City revoke the occupancy certificates, the 2/7 DCA reversed – agreeing with City that the trial court lacked jurisdiction to issue the order because City was not a party to the case and not a representative of builder.  The panel also reversed the imposed sanctions under an abuse of discretion standard.  It found that builder’s conduct was excusable, and builder had not violated the stay by applying for permits or performing other minor corrective work at the already completed project, because the scope of the stay in the trial court’s original order was vague – not providing builder with how it was supposed to act or what conduct would violate the stay.  Finally, because the appellate panel concluded plaintiffs had failed to prove builder violated the stay order, and in light of the reversal of sanctions imposed against builder defendants, denial of plaintiffs’ fees request was affirmed.

Judgment Enforcement, Section 1717, Undertaking: Denial Of § 1717 Attorney Fees To Third Party Entities Defeating Postjudgment Alter Ego Claims Reversed, But Denial Of Release Of Undertaking To Successful Member/Partner Affirmed

The Third District Followed The Reciprocity Principle Of § 1717 Set Forth In Reynolds Metals, MSY Trading, And 347 Group In Reversing The Fees Denial, But Affirmed Trial Court’s Denial Of Release Of Undertaking Based On Member/Partner’s Failure To Provide Notice.

            In Westwood Homes, Inc. v. AGCPII Villa Salerno Member, LLC, Case No. C089127 (3d Dist., June 21, 2021) (published), two third party entities were denied the $34,212 in prevailing party attorney fees they sought under Civ. Code § 1717 after defeating judgment creditors’ postjudgment attempt to add them as alter ego judgment debtors.  Additionally, a member/partner of the entities unsuccessfully moved, under Code Civ. Proc. § 720.160, to have a $10,000 undertaking posted by one of the judgment creditors released to her to partially cover the $43,450 in fees she incurred in establishing a third party claim of superior right of possession to real property on which that judgment creditor had obtained a writ of execution. Third party entities and member/partner appealed.

            Based on the reciprocity principle of § 1717, the Third District reversed and remanded as to the fees denial – finding that “[s]o far as the substance of the alter ego allegations is concerned, it is as though [third party entities] were parties to the original action, and prevailed.”  Had third party entities defeated the alter ego claims in the underlying action, they would have been prevailing parties under § 1717 and entitled to fees under the CC&R’s supporting judgment creditors’ entitlement to fees in the underlying action.  (Reynolds Metals Co. v. Alperson, 25 Cal.3d 124 (1979) [our Leading Case No. 5]; MSY Trading Inc. v. Saleen Automotive, Inc., 51 Cal.App.5^th 395 (2020) [discussed in our June 30, 2020 post]; and 347 Group, Inc. v. Philip Hawkins Architect, Inc., 58 Cal.App.5^th 209 (2020) [discussed in our December 8, 2020 post].)

            As to member/partner’s request for release of a $10,000 undertaking posted by one of the judgment creditors, the panel found no error in the trial court’s denial.  Member/partner’s noticed motion for fees, under Code Civ. Proc. § 720.160, made no mention of releasing the undertaking as a partial fee award.  Instead, member/partner orally requested release of the undertaking at the hearing on her motion – thus denying judgment creditors with a proper opportunity to address her request.  However, as the panel pointed out, member/partner’s request was denied without prejudice leaving her free to move, on a properly noticed motion, for an order releasing the undertaking.

Employment, Section 1717: Defendant Winning Independent Contractor Determination Against Real Estate Agent Under Labor Commissioner And De Novo Superior Court Action Was Entitled To $72,519.03 In Fees

Fees Were Justified Based On Broad Contractual Fees Clause.

            In Peng v. F.M. Tarbell Co., Case No. B307484 (2d Dist., Div. 2 May 27, 2021) (unpublished), a plaintiff—a licensed real estate agent—lost a fight on whether he was an employee, versus an independent contractor, both at a Labor Commissioner and a superior court de novo level.  The problem for plaintiff was that there was a broad contractual fees clause in an independent contractor agreement which encompassed “any action, proceeding, or arbitration” between plaintiff and Tarbell “arising from or related to the agreement.”  The lower court awarded Tarbell contractual fees of $72,519.03, the full ask.  (Of interest, plaintiff was disputing $20,168.01 in unpaid wages under Labor Code provisions.)  The fee award was affirmed based on the broad contractual fees clause. 

Allocation, Indemnity, Section 1717, Seriously: 4/1 DCA Affirms $6,000 Damages Award And $143,183.55 Out Of Requested $572,730.11 § 1717 Fees To Prevailing Breach Of Contract Plaintiff Who Proved $1,463,745 In Damages At Trial

Plaintiff’s Failure To Conduct Due Diligence Prior To Entering Into Commercial Lease And Failure To Mitigate Damages Once Problems Arose Left Him Upside-Down By More Than A Million Dollars When All Was Said And Done

            Sherwood v. Vogele, Case No. D076776 (4^th Dist., Div. 1 May 7, 2021) (unpublished) highlights the importance of conducting due diligence before entering into a commercial property lease (or purchase), and of working to mitigate damages when problems arise.

            Plaintiff leased a commercial building for the purpose of building and operating a coffee house with an added rooftop deck – accepting the zero lot line property “as is,” and signing a lease with a hold harmless clause indemnifying landlords in the event he caused a claim to be filed against them.  Afterward, plaintiff became aware that a neighboring property had roof eaves that overhung onto his leased property and hindered his ability to build his project.  When neighboring property owner failed to begin removing those eaves on the date specified in a written agreement with plaintiff, plaintiff instructed landlords to cut off communications with neighbor – claiming he did not believe neighbor intended to remove the eaves, that he would have to proceed as if the eaves would not be removed, and that he intended to sue neighbor for a million dollars because he would have to spend considerable more on a build-out to accommodate the encroaching eaves.  Plaintiff then received landlords’ permission for a complete tear down, rather than a remodel, of their building based on their belief plaintiff’s construction of a new building included a “workaround” to the problem.  This was not the case, however, with plaintiff obtaining permits, and going forward with the demolition, based on plans that did not take the encroaching eaves into account. 

            After filing his lawsuit against neighbor, plaintiff terminated his lease and left landlords with a vacant lot.  Neighbor cross-claimed against plaintiff and landlords for damage to his property caused by the demolition, landlords cross-claimed against plaintiff for breach of lease and indemnity, and plaintiff cross-claimed against landlords alleging fraud and breach of the covenant of quiet enjoyment.  The jury found neighbor breached its binding contract with plaintiff, negligently trespassed and maintained a private nuisance – causing plaintiff $1,463,745 in past and future economic damages.  However, judgment was entered with plaintiff being awarded only $6,000 in damages against neighbor as the jury found plaintiff could have mitigated all but $30,000 of his damages, and that plaintiff was 75% responsible for his losses, while neighbor was only 20% responsible.  Additionally, neighbor was awarded $50,000 in property damage, plus $29,027.50 in costs, against plaintiff, while landlords were awarded $620,492 in damages against plaintiff.  Finally, in a postjudgment order, plaintiff received an award of $143,183.55 in § 1717 attorney fees – only 25% of the $572,730.11 he sought based on the trial court’s allocation for plaintiff’s breach of contract cause of action.  Plaintiff appealed.

            The 4/1 DCA affirmed – finding substantial evidence concerning plaintiff’s failure to mitigate damages supported the judgment.  “One has an obligation to avoid an unwarranted enhancement of damages ‘through passive indifference or stubborn insistence upon a conceived legal right . . . .’ ” (Valle de Oro Bank v. Gamboa, 26 Cal.App.4^th 1686, 1691 (1994).)  As to the fees, the panel found no abuse of discretion in the trial court’s 75% reduction given allocation among plaintiff’s contract and tort claims was proper, and plaintiff did not assert that his claims were so intertwined to make allocation impracticable.