In Eden Township Healthcare District v. Eden Medical Center the California Court of Appeal for the First Appellate District decided a dispute giving rise to an attorney fee award pursuant to California Civil Code Section 1717.  That statute is California’s reciprocal attorney fee statute.

A local Healthcare District (the “District”) was formed as a public agency to provide health care services to the local community. Eden Medical (“Eden”) operated two hospitals in the same community, Eden Hospital (“EH”) and San Leandro Hospital (“SLH”). 

The first entity, EH, had financial difficulties and consideration was given to shutting that hospital down. The District then decided to replace EH with a new facility. 

Another nonprofit, Sutter Health (“Sutter”), initially agreed to build the new hospital. Later, Sutter scrapped that plan. Then Sutter and the District entered into negotiations and entered into a series of contracts. One of those agreements purported to allow Sutter an option to purchase the second community hospital, SLH.

The agreements between the District and Sutter also included an attorney fees clause. Sutter later decided to exercise its option to buy SLH; however, the hospital was to be modified to provide specialized health care services. The District opposed that plan and it refused to allow Sutter to exercise the option.

Sutter brought a lawsuit, seeking specific performance of the agreement from the District. The District then filed a cross-complaint for declaratory and injunctive relief seeking to invalidate the agreement with Sutter. The trial court ruled in favor of Sutter and ordered the District to perform the contract and sell SLH. Sutter’s request for attorney fees was denied.

The court of appeal reversed the decision of the trial court on the fee issue. The court of appeal noted that under Civil Code Section 1717, a contract may provide for an award of attorney fees to a prevailing party in a contract dispute. Because the nonprofit was unquestionably the “prevailing party” under Section 1717, a fee award was entirely appropriate.