Settlement Agreement Fees Clause Was Broad, Making Blickman Inapt.
The breadth of a fees clause will often determine whether Civil Code section 1717 reciprocity principles apply. For example, very narrow clauses were found not to give rise to reciprocity in Blickman Turkus, L.P. v. MF Downtown Sunnyvalle, LLC, 162 Cal.App.4th 858 (2008) and Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4th 375, 382 (1994). However, these cases were found not to retard application of reciprocity principles where broader clauses were involving “prevailing parties,” which could encompass third-party beneficiaries to the agreement.
In Knight v. Conroy, Case No, E049034 (4th Dist., Div. 2 Nov. 16, 2010) (unpublished), Knight was awarded money and attorney’s fees under a breach of contract claim, with defendant appealing primarily the subsequent award of fees to Knight. What happened was that property owner defendant and former co-owner reached a settlement agreement under which property owner waived claims against persons performing work on the property even though these persons would be third party beneficiaries under the settlement agreement. Property owner defendant lost a California State Contractor License Board mandatory arbitration against plaintiff Knight (one of the contractors performing work and a third-party beneficiary under the settlement agreement), with the trial court awarding Knight $3,856.96 in attorney’s fees related to the arbitration and $29,700 in connection with Knight’s lawsuit where recovery was made on the contract claim. The pertinent part of the Settlement Agreement stated: “In the event of litigation involving the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees and costs.”
Defendant did not prevail on appeal, such that the fee award was sustained.
The main reason was that a third-party beneficiary, even if not a contractual signatory, can benefit from a fees clause in the right situations. (Loduca v. Polyzos, 158 Cal.App.4th 334, 344 (2009).) That was the case here, because the fees clause had broad “prevailing party” language (covering contractor Knight), distinguishing it from cases like Blickman and Real Property Services. Also, the different result in Session Payroll Mgt., Inc. v. Noble Constr. Co., 84 Cal.App.4th 671, 680-681 (2000) did not matter in Knight, because the fees clause verbiage referred only to “either” party–contractual signatories–in Session rather than having the wider “prevailing party” contained in the settlement agreement.