Second District, Division 2 Answers the Question Under Civil Code Section 1717.
We have seen numerous contracts that have attorney’s fees clauses that read something like this: “In any action between the parties arising out of or in relation to this Agreement, including any collection attempts should Payment not be timely made, the prevailing party in such action will be awarded his or her actual costs and expenses, including actual attorneys’ fees.” Does this really sanction an award of actual versus reasonable fees to a prevailing party?
The Second District, Division 2 answered this question in a recent unpublished decision, Kleefeld v. Marrero, Case No B224011 (2d Dist., Div. 2 May 5, 2011) (unpublished).
There, a settlement agreement had the fees clause quoted above, but the trial court only awarded collection fees for enforcing an indemnity in a reduced “reasonable” amount, namely, $18,200 to two parties rather than their requested $53,000. The parties appealed, mainly arguing that actual fees should have been awarded.
The appellate court rejected this on two bases. The first one was waiver, because this argument was not teed up with enough particularity in the lower court below. The second basis was on the merits, reasoning that the absence of an express waiver of Civil Code section 1717 (given that California law was specified as the choice of law under the agreement) meant that “reasonable” fees was the governing standard. Appellants argued that actual fees were mandated, subject only to the caveat that they could not be unconscionable in nature. The appellate court found that “actual” and “reasonable” are not conflicting notions, determining that “actually incurred fees” would rule out future or unbilled fees and that an inverse condemnation case had used the two concepts interchangeably even though reasonableness was the correct standard. (See, e.g., Andre v. City of West Sacramento, 92 Cal.App.4th 532, 536 (2001) [noting that, in inverse condemnation proceeding, plaintiff is entitled to reasonable attorney’s fees that are actually incurred].)
Finally, the appellate court found that the trial court’s explanation of the fee award was acceptable and that the award was not so small as to shock the conscience. After all, the court is not required to make specific findings as the basis of its decision. The lower court correctly discounted fees by using a “reasonableness” analysis of the requests.
BLOG UNDERVIEW–Kenneth C. Wolf vigorously represented appellants’ interests in this one, although the case shows that judges are loathe to disregard reasonableness when adjudicating fee award requests. The interesting thing about this case from a contractual interpretation viewpoint was that the indemnity language was limited to reasonable expenses, while the fees clause had actual expense language.