Tort Claims Were Not Covered, Others Were, and Some Needed to be Revisited.
The Sixth District, in a scholarly unpublished 3-0 opinion authored by Acting Presiding Justice Bamattre-Manoukian, has a very thoughtful discussion of the breadth of a fees clause in a promissory note when plaintiffs prevailed on professional negligence and vendor’s lien claims, lost on their contractual breach, declaratory relief, judicial foreclosure and fraud claims, and defeated defendants’ cross-claims for contractual breach and partial rescission (although losing on the declaratory relief and judicial foreclosure cross-claims). The promissory fees clause stated: “Should suit be commenced to collect this note or any portion thereof, such sum as the Court may deem reasonable shall be added hereto as attorney fees.” The lower court found plaintiffs to be the prevailing parties based on the parts of the complaint/cross-complaint they won, awarding them $278,323 in fees (the total amount requested).
Defendants appealed the fee award in Bayto v. Doyle, Case Nos. H033773/H034076 (6th Dist. June 18, 2010) (unpublished).
The fee award was reversed and remanded for a revisit to see which party, if any, prevailed on the contract within the meaning of Civil Code section 1717.
Here are the salient points made by the appellate court in Bayto:
- A prevailing party, for purposes of routine costs, may not have prevailed for purposes of recovering fees under either Code of Civil Procedure section 1021 or Civil Code section 1717 (Santisas v. Goodin, 17 Cal.4th 599, 606 (1998));
- A narrow fees clause, like the one in the promissory note not containing “arising from” or “relating to” language, usually does not cover tort claim victories (Exxess Electronixx v. Heger Realty, 64 Cal.App.4h 698, 709 (1998));
- Prevailing party status under section 1717 must be made without reference to success or failure of noncontract claims, a legal criterion ignored by the lower court in this particular case (Hsu v. Abbara, 9 Cal.4th 863, 873-874 (1995); FDIC v. Dintino, 167 Cal.App.4th 333, 357 (2008));
- Breach of fiduciary duty, which is not a contract cause of action, provides no basis for attorney’s fees under section 1717 (Exxess Electronixx v. Heger Realty, supra, 64 Cal.App.4th at 708);
- The trial court improperly conflated the prevailing party cost determination with the prevailing fee determination;
- The vendor’s lien and partial rescission claims were actions “on the contract” (Kachlon v. Markowitz, 168 Cal.App.4th 316, 347 (2008); Nevin v. Salk, 45 Cal.App.3d 331, 338 (1975); Neptune Soceity Corp. v. Longanecker, 194 Cal.App.3d 1233, 1250 (1987));
- Defendants’ contractual breach cross-claim could not provide a basis for fees because cross-complainants abandoned it, with result being the same whether the abandonment was initiated during trial as long as it is with prejudice (D & J, Inc. v. Ferro Corp., 176 Cal.App.3d 1191, 1195 (1986)); and
- On remand, the trial court was to exercise its discretion and found who “prevailed” with respect the breach of contract claim, declaratory relief cross-claim, judicial foreclosure cross-claim, and vendor’s lien claim, avoiding a simple counting of the claims won by both sides and instead evaluating the parties’ comparative litigation success (Silver Creek, LLC v. BlackRock Realty Advisors, 173 Cal.App.4th 1533, 1540 (2009)).
This case is must reading for its discussions of fee clauses interpretation and how Civil Code section 1717 operates/should be applied.