Under Civil Code Section 1717, Lack of Recital Saying Contract Was Negotiated/Executed With Counsel Representation Kept The Clause From Applying Narrowly, With The Matter Remanded For Purposes Of Determining If Plaintiff Was The Prevailing Party For Fees Even Though Plaintiff Did Not Pursue Routine Costs Recovery.
In Andrade v. Western Riverside Council of Governments, Case No. D080978 (4th Dist., Div. 1 Feb. 20, 2024) (published), plaintiff filed a lawsuit against the Council and others claiming she had been fraudulently enrolled in a PACE energy program resulting in a lien and increased property tax assessments, pleading multiple contractual theories for rescission, restitution, damages, and declarations that the agreements were partially or wholly unenforceable. After an investigation through a state department confirming contractor fraud, the Council voluntarily released its lien and reimbursed plaintiff for the increased property tax assessments. Plaintiff obtained much of the relief she wanted through Council’s actions, but never obtained a declaration that the agreements were unenforceable. The operative loan agreements between plaintiff and Council had a narrow fees clause applying only to a judicial foreclosure action prosecuted by Council, something which did not occur. The lower court denied plaintiff’s attorney’s fees request, determining that the fees clauses did not apply because no judicial foreclosure action was pursued by Council. (Plaintiff ultimately did not pursue a costs recovery.)
Initially, the appellate court agreed that the action was a contract because it concerned whether the loan agreements were valid and enforceable, with plaintiff’s theory of invalidating the contracts being “on the contract” under Civil Code section 1717 and with dicta in Xuereb/Dintino decisions not altering that conclusion. Second, although acknowledging that the fees clause was narrow and applied only to judicial foreclosure actions, the 4/1 DCA panel relied on section 1717(a) to conclude that the fee provision applies to the entire contract unless the parties expressly recite that the agreement was negotiated/executed by parties represented by counsel somewhere in the contract or fees clause—that recital was not present, and the appellate court deemed that this recital was necessary to prevent the agreement from being a “lopsided arrangement that section 1717 prohibits.” Finally, given its prior conclusions, the appellate court remanded to have the lower court determine if plaintiff “prevailed” for fees under section 1717: after all, even though she won a lot, she did not prevail across-the-board such that a pragmatic inquiry was necessary on remand.
BLOG OBSERVATION—This case suggests that in fee clauses, transactional attorneys need to include the negotiation/execution recital or be at risk that a narrow fee clause will not be enforced where the fee motion issues on based on the entire contract. Huge drafting tip here.