Appellate Court Reversed Trial Court Fee Denial, Finding Unity of Interest Rule Only Applied to Costs, Not Fee Awards.
Hill v. Affirmed Housing Group, Case No. H035541 (6th Dist. Mar. 12, 2012) (unpublished) is a situation where trustees of a trust sued an LLC and its managing member on the theory that LLC’s construction of a multi-unit residential development blocked the view of a billboard owned and operated by trustees so as to violate a written easement agreement. (Notice how a lot of real property disputes involve views?) Trustees won against LLC but was defensed by the managing member because it could not be liable under contract or tort as a member alone under Corporations Code section 17101. However, the trial court–while allowing managing member its routine costs–refused to award fees to managing member as the prevailing party despite the existence of a fee clause in the easement agreement.
This determination was reversed on appeal. After all, said the Court of Appeal, managing member was a clear winner such that it prevailed. Alternatively, trustees tried to sustain the trial court ruling on fees by arguing the applicability of the “unity of interest” principle. (This principle holds that for an award of routine costs, defendants presenting a unified defense–although separate parties–are subject to trial court discretion for purposes of determining if costs should or should not be allowed.) The flaw in this argument is that nothing suggested that this principle applied to a Civil Code section 1717 fee award. “Prior versions of section 1717, conversely [unlike routine costs statutes], did not confer discretion on the trial court, in cases involving multiple defendants, to allow or disallow an award of attorney fees to a prevailing defendant who had a unity of interest with a (presumably nonprevailing) codefendant. Given this lack of statutory antecedent, it is not surprising that our research has disclosed no published California authority extending the unity of interest principle to claims for contractual attorney fees under section 1717. We see no reason to extend that principle here, either.” (Slip Opn., p. 9.)
BLOG UNDERVIEW–Corporations Code section 17101(b) does allow for liability under an alter ego theory. Had trustees pursued and lost on that theory, managing member would have been entitled to section 1717 fees under the reasoning of Reynolds Metals Co. v. Alperson, 24 Cal.3d 124 (1979) [one of our Leading Cases].