Purchase Agreement Fees Clause Did Not Apply Because Plaintiff Was Not A Condo Buyer.
One of the first rules of fee entitlement is that you need a contractual or statutory basis to trump the American Rule that each sides bears its own attorney’s fees in a case. That principle sunk the winning defendants’ request for an award of Civil Code section 1717 contractual fees.
L.E.C.H., Inc. v. Klein, Case No. B207872 (2d Dist., Div. 8 June 15, 2009) (unpublished) involved a condominium homeowners association that sued defendants, two former HOA board members, on multiple theories. After a bench trial, the lower court found defendants had breached their fiduciary duty of not disclosing certain defects to either the HOA or individual homeowners. That ruling was taken up in an earlier appeal, with the Court of Appeal reversing—determining that the defendants had no fiduciary duty of disclosure to the individual buyers. Defendants then moved for contractual attorney’s fees based on a fees clause in purchase agreements between defendants (former sellers) and individual homeowners (former buyers). The lower court denied the request, and defendants appealed.
They did not obtain a reversal.
The reason? Simple: no fee entitlement basis. The purchase agreement fees clause was inapplicable because although defendants were the sellers, HOA was not the buyer. The action was not one between buyer and seller, as required by the purchase agreements, but was instead an action by an HOA against the parties who sold the individual buyers their units. HOA’s non-buyer status was determinative.
Also, the appellate panel declined to follow estoppel decisions holding that one party’s mere request for fees in a complaint’s prayer provided entitlement to fees. Instead, it followed Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4th 858, 896 (2008), which rejected application of such an estoppel theory under similar facts. (Blickman and other cases on this topic can be located in our category “Estoppel.”)