Court Can Award 1717 Fees With Enforceable Limitations–Such As, Did Adverse Party Acted Arbitrarily, Vexatiously, In Bad Faith Or Unreasonably–You Bethca!
We like Abbey v. Fortune Drive Associates, LLC, Case No. A135062 (1st Dist., Div. 1 July 29, 2013) (unpublished) for a lot, if not a couple of, reasons: (1) it talks about “prevailing party” for Civil Code section 1717 fees purposes in an arbitration context, and maybe more importantly, (2) it speaks to whether a contractual gloss to prevailing party status–whether the adverse party acted “arbitrarily, vexatiously, not in good faith and/or unreasonably”–were limitations which would preclude fee recovery under section 1717.
The answers are for you readers to discover!
On the first issue, the appellate court essentially sided with Frog Creek Partners, LLC v. Vance Brown, Inc., 206 Cal.App.4th 515 (2012), which held that there can only be “one prevailing party”–which means that a declaratory judgment staying an arbitration until conclusion of the first lawsuit does not mean the winner in the declaratory relief claim should get attorney’s fees.
On the second issue, the focal concern was on whether a fees clause allowing fee recovery only if “the arbitrator determines that such party acted arbitrarily, , not in good faith and/or unreasonably” was a valid restriction under section 1717. The appellate court agreed that this language constituted an enforceable limitation on any fees award. (Leamon v. Krajkiewcz, 107 Cal.App.4th 424, 432-433, 436 (2003); compared to Wong v. Thrifty Corp., 97 Cal.App.4th 261, 263-265 (2002).) “Limiting attorney fees to parties who have encountered unreasonable conduct does not offend any of these policy objectives [under section 1717]. It does not alter the definition of a prevailing party. The party who has prevailed in the litigation, and thus is eligible for an award of attorney fees, must be determined according to section 1717. The limitation does not change the nature of this determination; it means only that the prevailing party, as so determined, will not necessarily recover attorney fees. As Leamon implicitly recognized, section 1717 contains no requirement that a prevailing party must recover attorney fees under a contractual attorney fees provision.” (Slip Opn., p. 14.) So, the contractual limitation on fees must be enforced, requiring a reversal and reconsideration on both grounds!