Declaratory Relief Count Never Dismissed Was Proper Anchor for Fee Award.
Contractual fee clauses certainly shift the risks in civil litigation. Civil Code section 1717 is a legislative embodiment of that policy, going so far as to make sure that unilateral fee clauses are construed as being mutual in nature. The next case illustrates how pursuit of declaratory relief claims, based on a contract with a fees clause, will give rise to attorney’s fees exposure.
Here are the facts in boiled down form. Plaintiffs/putative purchasers made an offer to purchase a condominium offer due to an impending section 1031 tax exchange issue. Defendants/putative sellers never accepted the offer under the offer terms. After the 1031 deadline passed, putative buyers sued putative buyers (including their real estate broker) for both tort and contract-based claims, seeking to hold defendants responsible for the lost tax benefits. Before trial, plaintiffs dismissed all their contract claims except a declaratory relief cause of action which was summary adjudicated out in defendants’ favor on the basis there was no enforceable contract. Plaintiffs lost their fraud tort-based claims after a lengthy trial. Judgment was entered in favor of defendants, who were also awarded $65,000 in attorney’s fees for prevailing on the declaratory relief claim. Plaintiffs appealed across the board, and lost. Waits v. Pacifica Villa Royale, LLC, Case No. GIC836594 (4th Dist., Div. 1 Aug. 26, 2008) (unpublished).
Plaintiffs in Waits principally argued that Civil Code section 1717 bars an award of contractual fees incurred on a claim dismissed before trial. True (with respect to contractually-based claims), but inapplicable because plaintiffs actually pursued a declaratory relief count in both lower court proceedings and on appeal. The declaratory count asked for a declaration that the Purchase Agreement was binding on both sides, with the Purchase Agreement containing a fees clause reaching "a legal action …instituted in order to enforce any of the terms or provisions [of the Purchase Agreement]." A declaratory relief action seeking to establish parties’ rights under a contract is an action to enforce the contract. (See Exxess Electronixx v. Heger Realty Corp., 64 Cal.App.4th 698, 710-711 (1998).) Because defendants were unqualified winners under summary adjudication/new trial rulings sustained on appeal with respect to the declaratory relief count, the fee award was fully justified—especially given that plaintiffs never challenged the amount of the award. Affirmance had added force, because the record showed the trial court carefully apportioned fees only to declaratory relief efforts (seemingly so, given that hundreds of thousands were likely spent on the litigation) and reduced the requested fees on various equitable factors (although not discussed in the opinion).
BLOG OBSERVATION #1—That attorney’s fees are awardable for declaratory relief actions is also made clear by reasoning in Las Palmas Associates v. Las Palmas Center Associates, 235 Cal.App.3d 1220 (1991), an older case in which Mike Hensley (one of the blog contributors) was one of the trial and appellate attorneys on behalf of the Hahn-affiliated parties.
BLOG OBSERVATION #2—Plaintiffs/putative purchasers paid $22,976 in capital gain taxes that they might have otherwise have deferred if the sale had gone ahead. Given that they lost their action, had to pay their own attorneys, and had to reimburse their opponents’ attorneys for $65,000 in fees, the result reinforces the continuing mantra of this blog: attorney’s fees are more often than not the tail that wags the litigation dog.