$178,000 Fee Award Went POOF!
De novo review of a fees clause can be trouble for any litigant, appellant or respondent, on appeal. This means the appellate courts put their contractual interpretation “hats” on to see if the construction passes muster. Sometimes it does; sometimes it doesn’t.
Doesn’t was the verdict in Amin v. Mitchell, Case No. G044636 (4th Dist., Div. 3 Dec. 28, 2011) (unpublished).
Attorney represented an LLC involved in a convoluted dispute involving the Tenet Healthcare-Integrated Healthcare sale of four Orange County hospitals through an LLC formed to replace an Integrated investor who withdrew $30 million from the overall deal. After contested capital calls and possible dilutions due to settlement of prior litigation, LLC sued the primary LLC principal and the LLC attorney on various theories. LLC attorney was sued, in essence, for breach of his separate duties as attorney for the LLC, even though the LLC operating agreement–which contained a fees clause–was interwoven throughout the claims in the entire lawsuit. Attorney won a demurrer and was awarded $178,000 in fees based on the LLC operating agreement fees clause.
Justice Aronson, for a 3-0 panel, rejected the fee award in favor of attorney.
Because there was no conflicting extrinsic evidence, the fees clause’s applicability was a de novo review issue. With that decided, the appellate court found that LLC members did not sue attorney under the Operating Agreement, but based on independent breaches arising either from the fee retainer agreement or from his separate attorney-client relationship duties–neither of which would have allowed members to recover fees. Other claims against LLC’s principal did not name attorney as a partner, coventurer, or coconspirator such that these theories did not visit fee exposure upon the LLC members. Even under Civil Code section 1717 nonsignatory cases, attorney could only seek fees for contractual claims, something he was not sued on in the operative lawsuit.
Attorney, as a final salvo, argued he was a third party beneficiary of the operating agreement fees clause. Not so, said Justice Aronson and his colleagues. Nothing in the fees clause demonstrated this proposition, and other provisions of the operating agreement indicated that there were no third party beneficiaries other than the contracting parties (which would also encompass attorney as a non-included person). [That means that the boilerplate clauses sometimes will be given significance in cases, where the interpretive need arises.]