Third District Reverses Nonsignatory Segment of Award, But Affirms Signatory Component.
The next case was a mixed result for a defendant/cross-complainant, showing how Civil Code section 1717 operates when there are separate contracts—some with fee clauses and some without. The same party can avoid fees but also get stung with fees, depending on which contract has a fees clause.
In Homewood Building Supply, Inc. v. Ndulue, Case No. C062111 (3d Dist. Apr. 23, 2010) (unpublished), defendant owner was sued by a material supplier based on a credit application signed by a person who later became a construction consultant on the project for owner. The credit application had a fees clause. Defendant also cross-complained against construction consultant under a written agreement with a fees clause. No other agreements between owner and material supplier had contractual fee clauses. Although the consultant-owner contract had an arbitration clause, owner successfully opposed arbitration based on the specter of inconsistent awards. Consultant eventually prevailed on the cross-complaint in court.
The lower court stung owner two times, awarding $30,272 in attorney’s fees to material supplier and $32,187 in fees to consultant.
Owner appealed.
He got a split result on appeal.
Owner was not a party to the credit application between material supplier and consultant, with none of the other agreements between material supplier and owner showing any third party beneficiary interplay. Although material supplier argued that the lower court correctly relied on an agency theory, the problem here was that consultant was not an agent of owner at the time of entering into the credit application. No issues of reciprocity were present to bind nonsignatory owner to fee exposure vis-à-vis material supplier. The Third District used de novo review of the contracts and section 1717 in reaching this result.
However, owner lost his bid to upset the fee award to consultant. Owner argued that no fees could be awarded because the matter was not arbitrated. This argument was rejected based on judicial estoppel: owner successfully opposed arbitration and could not then argue that he was mistaken so as to defeat fee recovery. (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181.)