Weekly Law Resume - October 4, 2012: Attorney Fees – Court Must Make Determination of Amount as to Prevailing Party

by Low, Ball & Lynch
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[author: James F. Regan]


Zintel Holdings, LLC v. Lilo McLean, et. al.
Court of Appeal, Second District September 18, 2012

When determining whether to award attorneys’ fees pursuant to Civil Code Section 1717, trial courts have broad discretion to determine who is a prevailing party or if there is a prevailing party. This case considered whether there had been an abuse of discretion where two defendants had unity of interest (to a point), but where only one filed a cross-complaint for additional damages outside the scope of the complaint.”

Zintel Holdings, LLC (“Zintel”) sued Lilo McLean (“McLean”) and her son, Mark Huth (Huth), to invalidate or equitably reform their allegedly fraudulent residential apartment lease. McLean and Huth were 50 year tenants in a Beverly Hills apartment building owned by Zintel. In 2010, Zintel served them with a 60-day notice to quit. The notices were later withdrawn but Zintel then sued, alleging the lease violated the statute of frauds, was executed without the Owner’s authorization and had been fraudulently backdated. McLean cross-complained, alleging causes of action for breach of the covenant of quiet enjoyment, elder abuse and intentional and negligent infliction of emotional distress. The lease contained an attorney fee provision, in the event an action was brought involving the lease.

Each party filed a motion for summary judgment and the court granted each side’s motions. McLean and Huth requested an award to them of costs and recovery of their reasonable attorney fees. The Court entered judgment and awarded costs of approximately $2,500 to McLean and Huth pursuant to Code of Civil Procedure section 1032 (section 1032), but concluded there was no prevailing party under Code of Civil Procedure section 1717 (section 1717) and declined to award them attorney fees. McLean and Huth appealed from the judgment only with respect to the denial of attorney fees.

The Court affirmed as to McLean, but reversed as to Huth. Both Zintel’s complaint, and McLean’s cross-complaint involved claims expressly based on the lease agreement. There was no absolute or complete winner between those two litigants. Accordingly, the court was obligated to determine whether there was a prevailing party under section 1717: “[I]n deciding whether there is a ‘party prevailing on the contract,’ the trial court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by ‘a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.’” (Hsu v. Abbara (1995), 9 Cal.4th 863, 876.) Where neither party achieves a complete victory, the trial court has discretion to determine “which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.” (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.) If the court concludes that the defendant’s cross-action against the plaintiff was essentially defensive in nature, it may properly find the defendant to be the party prevailing on the contract”.) McLean’s cross-complaint sought monetary damages unrelated to the complaint, expanded discovery and led to substantial briefing. Given the nature of the cross-complaint and the affirmative relief it sought and the mixed results obtained by McLean in the litigation, the Court found that the trial court did not abuse its discretion in determining McLean was not a prevailing party.

The Court agreed with Hugh’s contention that his complete defeat of Zintel’s complaint entitled him to a prevailing party designation. It found the trial court had no discretion to determine he was not the prevailing party and deny his request for attorney fees based on “the unity of interest” between him and his mother. Hugh was the prevailing party under section 1032. Because the award of costs to Huth under section 1032 was mandatory, the trial court had no discretion to deny his request for attorney fees under the terms of the parties’ lease agreement. Unlike McLean, Huth was necessarily the prevailing party under section 1717, subdivision (b)(1): “[W]hen the results of the litigation on the contract claims are not mixed—that is, when the decision on the litigated contract claims is purely good news for one party and bad news for the other …a trial court has no discretion to deny attorney fees to the successful litigant.” (Hsu, supra, 9 Cal.4th at pp. 875-876.). The Court found that the trial court had broad discretion to apportion fees, and that Huth may recover only reasonable attorney fees incurred in his defense of the action by Zintel.

The Court affirmed as to McLean, but reversed as to Huth and remanded for a determination of the reasonable attorney fees to which Huth is entitled.

COMMENT

The Court ruling ensures that even when there may be a unity of interest among parties, where a contract allows for attorney fees, a court must exercise its discretion and award attorney fees to a prevailing party.
 

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