First District, Division 2 Panel Has Very Divergent Perspectives on Breadth of Fee Clause.
Here is a very interesting unpublished decision about the interpretation of a CAR form fee clause in a brokerage contract. The main dispute centered upon the interpretation of the scope of this provision: “In any action, proceeding or arbitration between Seller and Broker regarding the obligation to pay compensation under this Agreement, the prevailing Seller or Broker shall be entitled to reasonable attorneys fees.” In fact, there was a consensus by the First District, Division 2 in Palter v. Jafran, Inc., Case No. A124922 (1st Dist., Div. 2 June 3, 2010) (unpublished), but only by a 2-1 vote and subject to a “feisty” (our word) dissent by Justice Haerle.
Palter involved litigation between seller and her brokers in a complicated 1031 exchange deal where proceeds went to an exchange intermediary whose subsequent bankruptcy resulted in a $1 million loss to seller. Seller sued brokers based primarily on a false/negligent recommendation theory with respect to the exchange intermediary, although no express breach of contract claim was pled. A jury exonerated brokers, apparently based on the defense that the intervening intentional or criminal conduct of the exchange intermediary was the real cause of any loss. Brokers moved to recoup $157,365 in attorney’s fees under the CAR fee clause, a request denied by the trial court.
Brokers appealed, but lost in a 2-1 decision authored by Justice Lambden on behalf of the majority.
As the majority viewed this dispute, the “regarding obligation to pay compensation [to brokers]” language was very limiting and simply did not encompass the broader aspects of the dispute upon which brokers defensed seller. The narrowness of the clause was the key focus for the majority. However, policy reasons also entered into the result (and let us all not fail to acknowledge that this can, and often times does, impact the end result in decisions). Here is footnote 5 of the decision: “The narrowness of the fee provision reflects the self-interest of the drafter, the California Real Estate Association. Most of the litigation likely to take place between a seller of property and a listing agent is brought by the seller against the agent. The only litigation a broker is likely to initiate is for its fee. Real estate professionals would have little interest in exposing themselves to not just liability for the broad array of negligence claims that could be made against them, but also the sellers’ attorney fees incurred in bringing such claims. Brokers and agents would gain from having their fees paid by the sellers they sue to recover their fee, as the fee provision would help induce a seller to pay the fee, and they would not likely commence a suit without being confident of winning. This is an obvious reason why real estate brokers would seek to narrow the application of any fee provision to such commission lawsuits; and in any event, we are constrained by [Civil Code] section 1654 to construe any uncertainty of such contract provisions against the drafter.” (Slip Opn., pp. 5-6 n.5, majority decision.)
The majority placed emphasis on the fact that it could locate no authority justifying attorney’s fees where the complaint did not include at least one cause of action based on a contract theory, finding distinguishable cases awarding fees in non-Civil Code section 1717 contexts. This is where Justice Haerle, in dissent, vigorously departed company from the majority. He found many cases where contractual attorney’s fees provisions were enforced under Code of Civil Procedure section 1021 (which says the measure and mode of compensation can be left to the parties) where judgment was based entirely or principally on tort causes of action. (See, e.g., Skyway Aviation, Inc. v. Troyer, 147 Cal.App.3d 604, 610 (1983); Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4th 1338, 1340, 1344 (1992); Lerner v. Ward, 13 Cal.App.4th 155, 160 (1993); Palmer v. Shawback, 17 Cal.App.4th 296, 299-300 (1993); Moallem v. Coldwell Banker Commercial Group, Inc., 25 Cal.App.4th 1827, 1831 (1994); Childers v. Edwards, 48 Cal.App.4th 1544, 1548-1549 (1996); Johnson v. Siegel, 84 Cal.App.4th 1087, 1101 (2000).)
Beyond this, the majority and dissent assigned different weight to the fact that the seller had actually sought to recoup wrongfully earned commissions from brokers, even in a jury instruction submitted to (and actually given by) the trial court. These circumstances, for the dissent, segued into the language of the fee clause, which was not so narrow such that it did not encompass this type of situation. The dissent summarized his conclusion this way: “But no case cited by the majority, nor any I have found, suggests that a contract clause encompassing litigation ‘regarding the obligation to pay compensation’ must be interpreted to mean litigation ‘principally regarding the obligation to pay compensation.’” (Slip Opn., p. 9, dissenting opinion.) The dissent would have reversed and remanded for a consideration of brokers’ fee request.
BLOG UNDERVIEW—The majority and dissenting opinions are both scholarly in nature. You need to read them both completely to see where you line up. (We have our opinion on the result, but will let you decide!)