Court Invalidates Fee Award Premised on Financial Ramifications on Non-Prevailing Party

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In Walker v. Ticor Title Co. of California, 2012 DJDAR 3467 (2012), the California Court of Appeal for the First Appellate District reversed an award of attorney fees. In granting the fee award, the trial court considered the plaintiff’s financial circumstances when determining the reasonable value of contractual fees awarded to one of the defendants who substantially prevailed at trial. The court of appeal concluded that the trial court erred in reducing the attorney fee award on the basis of the plaintiff’s limited financial resources.

Several individuals (“Plaintiffs”) sued Ticor Title Co. of California (“Ticor”) and Zak Khan (“Khan”), alleging that the defendants were involved in a fraudulent refinance scheme.  The plaintiffs alleged that Khan acted as an agent for a mortgage brokerage firm and misrepresented or concealed facts to lure the plaintiffs into mortgage transactions.

Plaintiffs alleged that Defendant Ticor, which acted as the escrow holder for the loan closings, failed in its duty to supervise by not overseeing the signature process for the transactions. The jury found in favor of Ticor. The jury did render a verdict in the Plaintiffs’ favor versus Khan.

The plaintiffs then filed a motion for judgment notwithstanding the verdict or a new trial, which the trial court denied. Ticor then filed a motion for attorney fees under a fee provision in the contracts. The trial court awarded Ticor $884,043 in fees. Both sides filed an appeal of the fee award.

The court of appeal vacated and remanded the trial court’s decision on fees. The court of appeal noted that the availability of a contractual fees award is based on the language of the applicable contract. The court of appeal noted, however, that equitable considerations are also an integral part of the analysis. The court stated, however, that although equitable considerations are a factor in considering a fee award, a losing party’s financial condition may not be considered in setting the fees awarded pursuant to contract. On that basis, the court of appeal concluded that the trial court erred in awarding fees to Ticor. The court remanded the case to the trial court for further proceedings.