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Focus Column
Litigation
By Daniel Lee Jacobson
Civil Code Section 1717 requires any
contractual attorney fees clause that provides for
attorney fees to be awarded to a specific party to be
figuratively, but with full legal force, "rewritten" so
that the prevailing party will be awarded attorney fees
- whomever that prevailing party may be.
Civil Code Section 1717(a) says: "In any action
on a contract, where the contract specifically provides
that attorney's fees ... which are incurred to enforce
that contract, shall be awarded either to one of the
parties or to the prevailing party, then the party who
is determined to be the party prevailing on the
contract, whether he or she is the party specified in
the contract or not, shall be entitled to reasonable
attorney's fees."
The "party prevailing on the contract" is
generally "the party who recovered a greater relief in
the action on the contract." Civil Code Section
1717(b)(2). But in order to "recover[] a greater relief
in the action on the contract," the substance of the
contract does not have to be litigated. Hsu v. Abbara,
9 Cal.4th 863 (1995); Wong v. Thrifty, 97
Cal.App.4th 261 (2002).
The California Supreme Court explained, "When a
defendant obtains a simple, unqualified victory by
defeating the ... contract claim in the action,
[S]ection 1717 entitles the successful defendant to
recover reasonable attorney fees incurred in defense of
that claim if the contract contained a provision for
attorney fees. The trial court has no discretion to deny
attorney fees to the defendant in this situation by
finding that there was no party prevailing on the
contract." Hsu.
The "situation" in Hsu was that the court
found that no contract had been formed. So, of course,
the substance of the contract was not litigated; there
was no contract. "[W]e hold that in deciding whether
there is a 'party prevailing on the contract,' the trial
court is to compare the relief awarded on the contract
claim or claims with the parties' demands on those same
claims and their litigation objectives as disclosed by
the pleadings, trial briefs, opening statements and
similar sources. The prevailing party determination is
to be made only upon final resolution of the contract
claims and only by 'a comparison of the extent to
which each party ha[s] succeeded and failed to succeed
in its contentions.' [citation.]" Hsu.
Because there was no contract in Hsu, a
"final resolution of the contract claims" cannot require
litigation of the substance of the contract. The
"prevailing party" analysis is focused on what the
parties sought in the contract action, as compared with
what the parties got in the contract action.
In Wong, there was no litigation of the
substance of a contract, or even of whether there was a
contract; in fact, there was no litigation of anything
regarding the contractual claim. In Wong a
monetary judgment was entered pursuant to the acceptance
of Code of Civil Procedure Section 998 offer to
compromise. That offer proposed a monetary compromise to
settle the case. It was silent as to fees and costs.
Under Code of Civil Procedure Section 998, a
party may make a written offer to compromise. If within
a certain period of time the party to whom the offer is
made accepts the offer, then that party may file a
written acceptance with the court. Upon the receipt off
such an acceptance, the court enters judgment as a
simple ministerial act.
The Wong court explained: "Wong is
entitled to reasonable attorney fees because the
conditions of [S]ection 1717 have been met: There was an
action on the contract; the contract provided that fees
incurred to enforce the contract be awarded to one of
the parties ... and Wong - who recovered greater relief
in the action - clearly was the party who prevailed on
the contract."
A voluntary dismissal of the contract action
greatly affects the applicability of Civil Code Section
1717. "Where 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." Civil Code Section 1717(2).
Certainly a voluntary dismissal before trial
precludes the award of attorney fees under Civil Code
Section 1717; International Industries v. Olen,
21 Cal.3d 218 (1978); but at least one Court of Appeal
has found that even a voluntary dismissal during trial
precludes such recovery. D&J Inc. v. Ferro, 176
Cal.App.3d 1191 (1986).
A recent case addressed where an attorney fees
provision subject to Civil Code Section 1717 might be
found. In Baldwin Builders v. Coast Plastering,
125 Cal.App.4th 1339 (2005), the court found an attorney
fees provision within an indemnity agreement. Previous
cases such as Meininger v. Larwin-Northern California
Inc., 63 Cal.App.3d 82 (1976), had analyzed
indemnity clauses that included attorney fees as one of
various items that the indemnitor owed to the
indemnitee, and had concluded that those indemnity
clauses did not invoke Civil Code Section 1717.
In Meininger, the indemnification clause
in question required indemnity for "all actions or
causes of action, claims, demands, liabilities, loss,
damage or expense of whatsoever kind and nature,
including counsel or attorney's fees." [Emphasis
originally in the Meininger court's decision.]
Baldwin, on the other hand, dealt with an
indemnity agreement that stated the indemnity owed, and
then: "Subcontractor [the indemnitor] shall pay all
costs, including attorney's fees, incurred in enforcing
this indemnity agreement."
The Baldwin court ruled that this
sentence, found inside the indemnity agreement, was an
attorney fees clause subject to Civil Code Section 1717.
"Reasonable attorney's fees [to the prevailing
party] shall be fixed by the court, and shall be an
element of costs of suit." Civil Code Section
1717(a). "The determination of what is a reasonable fee
is a question of fact that rests within the discretion
of the trial court [citation] after it has considered a
number of factors including '[the] nature of the
litigation, its difficulty, the amount involved, the
skill required in its handling, the skill employed, the
attention given, the success or failure of the
attorney's efforts, the attorney's skill and learning,
including his age and experience in the particular type
of work demanded.'" La Mesa-Spring Valley School
District v. Otsuka, 57 Cal.2d 309 (1962).
In cases where there are contract claims mixed
with other types of claims, fees are awardable under
Civil Code Section 1717, but only for those fees that
were incurred as a result of the contractual claims.
Reynolds Metal Company v. Alperson, 25 Cal.3d 124
(1979).
In 1981, Civil Code Section 1717 was amended so
that it applies not only to contract actions involving
unilateral attorney fees clauses, but it applies to
contract actions involving attorney fees clauses that
award fees, "either to one of the parties or to the
prevailing party." Thus, procedural mandates in Civil
Code Section 1717 apply not only in cases involving
purportedly unilateral attorney fees clauses, but also
in cases involving reciprocal attorney fees clauses.
Stantisas v. Goodin, 17 Cal.4th 599 (1998),
(overruling HoneyBaked Hams Inc. v. Dickens, 37
Cal.App.4th 421 [1995], on this point).
"The court may also determine that there is no
party prevailing on the contract for purposes of this
section." Civil Code Section 1717(b)(1). But, the
discretion afforded a court by this sentence is very
limited. In Hsu, the California Supreme
Court gave examples of instances in which a court could
find that there was no "party prevailing on the
contract," and concluded such a finding was available
only in cases where there really is no winner; the news
is bad for both sides, the results are mixed.
The examples given by the Hsu court were:
• Where no relief is awarded to either side on
cross-actions based on a contract (Bankes v. Lucas,
9 Cal.App.4th 365 [1992]).
• Where a lessee sought to validate an option to renew
and to establish the rent at a certain amount, with the
court validating the option to renew but setting the
rent at a rate far greater than that requested by the
lessee (Nasser v. Superior Court, 156 Cal.App.3d
52 [1984]).
• Where a claimed easement was found to be valid, but
its scope was found to be far narrower than claimed by
its owner (Kytasty v. Godwin, 102 Cal.App.3d 762
[1980]).
The strength of Civil Code Section 1717 is
underscored by its non-waiveability. "Any provisions in
any ... contract [subject to Civil Code Section 1717]
which provides for a waiver of attorney's fees is void."
Civil Code Section 1717(a).
Daniel Lee Jacobson is an attorney at
Veatch, Carlson, Grogan & Nelson, and an adjunct
professor at Pacific West College of Law in Orange.
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