Reciprocity Required Under Section 1717, Given Unfairness of Other Result.
In Trejo v. Arriaga, Case No. D064410 (4th Dist., Div. 1 Jan. 21, 2015) (unpublished), plaintiff 50/50 shareholder in a closely-held corporation lost an amended shareholder derivative lawsuit against defendant 50/50 shareholder. Defendant nonsuited plaintiff based on a failure to prove damages. Defendant then sought to recover fees under a lease agreement with a fees clause, garnering $55,608 in attorney’s fees under Civil Code section 1717.
The appellate court affirmed. Plaintiff contested that he could be individually liable for fees in a derivative action, but California decisions have allowed such recovery under the “substantial benefit doctrine” based on principles of equity. (Brusso v. Running Springs Country Club, Inc., 228 Cal.App.3d 92, 99-100, 111 (1991).) Given that plaintiff initiated the derivative lawsuit with presumed knowledge of the risk that he might be liable under the lease provisions if he lost, the reviewing court found it would be inequitable to prevent defendant for being able to recover attorney’s fees.