Mutuality Principle Did Not Kick In Where No Basis For Fee Recovery Existed Between Assignor and Assignee.
Civil Code section 1717’s mutuality principle is well renowned and followed frequently. However, it will not even come into operation if there is no basis for the nonprevailing party to have recovered any contractual fees from the prevailing party had the nonprevailing party won. This particular principle resonated loudly in the assignment situation addressed in the next case we examine.
DeSantis v. Bilello & Costa Trading, Inc., Case No. F055817 (5th Dist. Feb. 2, 2010) (unpublished) involved a narrow contractual fees clause stating that “Seller agrees to pay all costs of enforcement or collection incurred by the holder hereof including, reasonable legal fees and costs” to enforce certain contractual obligations. Seller had a contractual relationship with an assignor assigning certain rights to an assignee. In rather convoluted litigation, assignor won a merits judgment and significant attorney’s fees of $575,324 against assignee.
Although assignee lost challenges to the merit judgment, it did win a reversal of the significant fee award to assignor.
The main problem was that nothing in the documents indicated a basis for an entitlement to fee recovery as between the assignor and assignee. Rather, the fees clause was narrowly drafted to grant fee entitlement to the assignor (or assignor’s successor) by seller (and no one else). Not close enough, said the appellate court with respect to allocation of fees as between assigning parties. “We decline to be the first court to interpret section 1717 to provide a party with rights to collect attorney fees when that party had no contractual obligation to pay attorney fees. Simply put, before the mutuality of remedy requirement can be applied to create liability, the litigant to be held liable for the prevailing party’s attorney fees must have had a contractual right to recover attorney fees from the party that prevailed, not just any party.” (Slip Opn., at pp. 20-21.)
Assignor also argued that judicial estoppel should apply because assignee received a $50,000 fees award in early stage default judgment proceedings that were eventually vacated by the lower court. No go. The Fifth District joined with other courts in rejecting the estoppel theory as a basis for imposing a fee award, citing Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4th 671, 682 (2000) and Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4th 858, 899 (2008).) [Use our SEARCH function to find past posts on Sessions and Blickman Turkus.]
Moral: Ex nihilo nihil fit (out of nothing comes nothing).
NOTHING
BONUS: Alan Watts On Nothingness.