Fourth District, Division 1 Finds Gil v. Mansano Persuasive.
The next case demonstrates that both trial and appellate courts will interpret contractual fee clauses by their terms—if the scope is narrow, the fee recovery will be narrow and restricted in application.
In Tesh v. LeTourneau, Case No. D052873 (4th Dist., Div. 1 May 26, 2009) (unpublished), son of a declining mother challenged the transfer of mother’s assets into a court-approved trust. Son (brother) and daughter (sister), among other parties, participated in a mediation that produced a settlement agreement with a release of future claims (except about including a certain McDonald’s lease in the trust) and a narrowly drawn fees clause, to wit: “If any action or proceeding is instituted to enforce or interpret any right or obligation under this Agreement, the prevailing party shall be entitled to receive … his or her costs of such action or proceeding, including reasonable attorneys’ fees, … and all other costs incurred in enforcing or interpreting this Agreement.” Son brought an action to prevent inclusion of the McDonald’s lease in the trust and to nullify the settlement agreement. Son won issue number one and lost issue number two. The trial court awarded daughter some limited attorney’s fees to the extent it covered son’s efforts to rescind or terminate the settlement agreement, but denied fees on other issues. After an appellate court rejected son’s appeal of the adverse determinations, daughter/sister then moved for more fees after prevailing on the trust validity issues. The probate court denied the motion, finding that the settlement fees clause did not encompass “defense of Trust validity as a basis for a fee award. Instead, fees were to be awarded to the prevailing party in any action brought ‘to enforce or interpret any right or obligation under th[e] Agreement.’” Daughter/sister appealed.
The Fourth District, Division 1, in a 3-0 unpublished opinion authored by Justice Irion, affirmed.
Because no conflicting extrinsic evidence was involved, the interpretation of the contractual fees clause was a de novo exercise for the appellate court. (Gil v. Mansano, 121 Cal.App.4th 739, 743 (2004).)
Daughter tried to stretch the fees clause to cover brother’s attack on the trust validity, rather than the attack on the settlement agreement for which fees had already been awarded to her. This did not work given the narrowness of the fees provision at issue.
The trust existed well prior to the settlement agreement and brother’s attack was for lack of notice of the trust petition, a right completely independent of the settlement agreement. Brother simply was not seeking to interpret or enforce the settlement.
In reaching this conclusion, Justice Irion found the reasoning of the Second District in Gil v. Mansano, supra, 121 Cal.App.4th 739 persuasive. There, three joint venturers signed a purchase agreement and then executed a separate written release, with a fees clause in the latter document applicable to an action brought to enforce the release. One of the three venturers brought a later action for fraud, but the other venturers’ successful reliance on the release as a defense to the lawsuit did not trigger the fees provision—with the narrow fees clause only applying to an action on the release itself. (121 Cal.App.4th at 741, 745.) Just like Gil, brother challenged the trust, not the settlement agreement.
The Tesh court even acknowledged that daughter’s raising of the settlement agreement as a defense did indeed require the court to interpret and ultimately enforce the settlement agreement. However, that point was inconsequential and did not transform brother’s challenge to the trust into an action or proceeding instituted to enforce or interpret the settlement agreement.
BLOG MORAL OF THE CASE—If you want to get fee recovery in these situations, word the contractual fees clause more broadly. Otherwise, courts will narrowly construe them as a matter of contractual interpretation, giving a more restrictive definition to such key words as “instituting, interpret, enforce.”