Be Careful When Alleging Your Client's Right to Attorneys' Fees Because It May Come Back to Haunt You

Posted on November 12, 2010 by Gary A. Bresee

When a contract contains a one-sided prevailing party attorneys' fees provision, California Civil Code section 1717 makes that provision reciprocal.  So if you allege your client is entitled to attorneys' fees due to the prevailing party contract clause -- even if it specifically states only your client is entitled to fees -- if the other party prevails it may be entitled to its fees instead.  

A recent example can be found in Mepco Services, Inc. v. Saddleback Valley Unified School District (2010) 10 C.D.O.S. 13918, where the Fourth Appellate District affirmed an award of $366,916.63 in attorneys' fees.  A contractor agreed to perform work for a school district, but the construction contract did not contain an attorneys' fees provision to the prevailing party in any dispute.  The contract did, however, require the contractor to obtain a performance bond.  The performance bond contained a one-way attorneys' fees provision, entitling only the school district to its attorneys' fees in the event of a claim for enforcement of the bond.

When a dispute arose between the contractor and the district, the district named the bonding company and alleged both the bonding company and the contractor had breached the terms of the performance bond.  More importantly, the district alleged its entitlement to attorneys' fees under the bond.

When the jury found in favor of the contractor, the trial court ordered the district to pay the contractor $366,916.63, representing its reasonable attorneys fees.  The appellate court affirmed.  Consequently, the school district was obligated to pay the contractor's fees, even though the construction contract between those two parties did not contain an attorneys' fees provision. 

Moreover, the school district was responsible for the contractor's fees even though the performance bond entitled only the district to its fees.  The court reasoned that if the district had prevailed on its bond claim, the contractor and bonding company would have been jointly and severally liable for the district's fees.  Since Civil Code section 1717 makes a one-way attorneys' fees provision reciprocal by statute, then it stands to reason that the district, as the losing party, should be obligated to cover the contractor's fees.

So parties to litigation should always use caution, both when deciding whether to mention certain specific contracts, but especially when alleging their entitlement to fees under any contract mentioned. 

Anti-SLAPP Statute Does Not Authorize an Award of Attorney Fees Against Plaintiff's Counsel

Posted on November 4, 2010 by David J. McMahon

In Moore v. Kaufman, 2010 DJDAR 16212 (2010), the California Court of Appeal for the second district decided an important issue concerning the interpretation of Code of Civil Procedure Section 425.16, the anti‑SLAPP statute. The case had a complex procedural history.

Frances Diaz (Diaz) represented Sheila Moore (Moore) in an action against Barry Kaufman. Kaufman filed an anti‑SLAPP motion to strike the complaint under Code of Civil Procedure Section 425.16, and sought an award of attorney fees against Moore and Diaz.

The trial court granted the motion, and awarded attorney fees against both Moore and her attorney Diaz, jointly and severally. 

After a series of complex procedural maneuvers, the trial court issued an order awarding fees and costs in the sum of $41,223.75. Moore appealed, but Diaz did not. The court’s order did not specify whether the award was against Moore, Diaz, or both and to complicate the record, thereafter numerous procedural errors were committed both by the litigants and the court.

Thereafter Diaz brought an ex parte application for an order correcting the judgment to reflect that fees were awarded only against Moore. The court denied the application and awarded Kaufman attorney fees against Diaz. Kaufman then moved to enforce the judgment and noticed an order of examination. Diaz refused to answer questions at the judgment debtor examination, resulting in an order to show cause (“OSC”) by the court directing her to explain why she should not be held in contempt of court. Diaz filed an anti‑SLAPP motion to strike the OSC. The court denied the motion and found her in contempt. Diaz then filed a writ petition, arguing that the underlying judgment and the order of contempt were void and not enforceable.

The court of appeal granted the petition. 

The court of appeal stated that pursuant to Section 425.16, an award of attorney fees to a prevailing party is not discretionary. However, Section 425.16 has no provisions allowing for award of fees against the losing attorney, such as Diaz. The court stated that because Diaz was a nonparty, no fees should have been awarded against her, and the judgment against her was void. The court concluded that a void order cannot be the basis for a valid contempt judgment. Thus the order requiring her to answer questions at her judgment debtor examination was void too.

Party Must Be an Intended Beneficiary of the Contract to Invoke the Reciprocity Provision of Civil Code Section 1717

Posted on November 3, 2010 by David J. McMahon

In Hyduke’s Valley Motors v. Lobel Financial Corp., 2010 DJDAR 16183 (2010), the court of appeal for the fourth district reiterated a fundamental prerequisite for a party seeking attorney fees under the reciprocity provision of Civil Code 1717. 

Under CC § 1717 in any action or a contract which provides for a fee award to one party, Section 1717 makes the clause reciprocal as a matter of law. However, in order to be eligible, the litigant must be a party to the contract or an intended beneficiary of the agreement.

Hyduke’s Valley Motors (Hyduke’s) appealed from a post‑judgment order denying its motion for attorney fees against Lobel Financial Corp. (Lobel).

Hyduke’s was the prevailing party in an action to recover against Lobel and Country Finance Services for the purchase price of vehicles it sold to a used car dealer. The dealer filed an insolvency petition prior to paying for the purchase price of the vehicles. Hyduke’s filed a motion seeking attorney fees against Lobel and CFS, relying on an attorney fees clause contained in a conditional sales contract between the auto dealer and the finance companies. Hyduke argued that it was entitled to attorney fees as an intended beneficiary of the conditional sales contract. The trial court denied the motion.

The court of appeal affirmed the decision of the lower court noting that each party to litigation must bear its own attorney fees, unless otherwise provided by statute or contract. The court concluded that Hyduke’s suit against the finance companies, was for the recovery of the purchase price of the automobiles and was not an action arising out of the conditional sales contract. The court specifically found that Hyduke was not an intended beneficiary of the conditional sales contract. There was no evidence in the record to support that conclusion.