Fourth District, Division 3 Does Not Buy “Reverse Bootstrap” Theory Under Section 1717.
(Excerpted from photo in Wikipedia article on “Bootstrapping”)
One cannot ignore the reciprocity principle underlying Civil Code section 1717, which makes a unilateral contractual fee-shifting clause mutual in nature—and does so in a variety of circumstances. For example, there are numerous cases recognizing that a nonsignatory defendant to a contract can recover fees as the prevailing party if the signatory could have recovered fees. (See, e.g., Hsu v. Abbara, 9 Cal.4th 863, 870 (1995); Korech v. Hornwood, 58 Cal.App.4th 1412, 1418-1419 (1997); Manier v. Anaheim Business Center Co., 161 Cal.App.3d 503, 507 (1984); Jones v. Drain, 149 Cal.App.3d 484, 490 (1983).)
However, can a contractual signatory winning on an implied contract theory—not based on a written contract—obtain section 1717 fees because the nonsignatory defendant might be able to recover fees as the prevailing party?
No, said the Fourth District, Division 3 in Security Commercial Holdings Corp. v. Ly, Case Nos. G042338/042500 (4th Dist., Div. 3 Aug. 30, 2010) (unpublished), authored by Acting Presiding Justice O’Leary on behalf of a 3-0 panel. The appellate court found that the “none [of the authorities cited in the first paragraph of this post] considered or allowed the sort of bootstrapping [signatory plaintiff] advocates.” (Slip Opn., p. 20.) The trial court erred in awarding $48,468 in attorney’s fees in favor of signatory plaintiff and against nonsignatory defendant under these circumstances, requiring that the award be stricken from the judgment.