Court Of Appeal Determines Neither Narrow Clauses Nor Tort Claims Triggered Fee Entitlement.
In the area of fee recovery, a claimant must show fee entitlement, which generally focuses on a precise analysis of the fee clause wording and the claims upon which fees are sought. The 2/1 DCA decided that a nonsignatory defendant did not show a basis for fee recovery after engaging in such an analytical review of the operative fee clauses and substantive lawsuit claims.
Richards v. Silva, Case No. B267486 (2d Dist., Div. 1 Oct. 20, 2016) (unpublished) was an unusual situation where a nonsignatory defendant sued under numerous theories was granted a motion to vacate a default judgment 22 years later (yes, you read this right) based on a lack of service, with the plaintiff never prosecuting the suit and allowing it to be dismissed (after all, plaintiff died sometime earlier). Prevailing nonsignatory defendant then moved to recover fees and costs, a motion denied by the trial court.
The 2/1 DCA, in a 3-0 opinion by Justice Johnson, affirmed.
Generally, a nonsignatory to a contract with a fees provision can obtain recovery where (1) the nonsignatory stood in the shoes of a party to the contract, or (2) the nonsignatory was a third party beneficiary of the contract. (Cargill, Inc. v. Souza, 201 Cal.App.4th 962, 966 (2011).) In Richards, nonsignatory was not sued for breach of the purchase agreement, but for misrepresentations concerning a promissory note and for being the alter ego of one signatory of a contract. However, the overarching problem was that plaintiff did not sue the signatory for which alter ego liability was hinged under the purchase agreement, but only for liability under the promissory note. That took the appellate court to the issue of whether fee recovery was allowable based on the fees clause in the promissory note. The defect on this ground was that plaintiff was never intended to be a third party beneficiary under the promissory note, because she was never a note holder and the note was never transferred to her. The note fees clause only applied to actual signatories to the note, containing very limiting language not applicable to non-note holder plaintiff. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4th 858, 893, 896 (2008).)
Although there was legal analysis supporting the denial of fees, we would mention that the equities obviously factored in this decision—the plaintiff died and nonsignatory defendant vacated a default judgment 22 years later, meaning he had already obtained a lot of grace already by the lower court and there was no plaintiff to continue prosecution of the long-ago resolved lawsuit.