Attorney Fee Recovery by Contract and in Partition Actions

by Wendel, Rosen, Black & Dean LLP
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In California, parties to litigation normally pay their own attorney fees unless a contract or statute says otherwise.

Parties often include attorney fee provisions in their contracts, but the specific wording of these provisions can greatly impact how they will be applied by a court.

One under-recognized statute authorizing attorney fees is Code of Civil Procedure section 874.040, which (in conjunction with section 874.010) allows for the apportionment of costs, including attorney fees incurred for the “common benefit” in an action to partition real estate.

A case recently published by California’s Second Appellate District — Orien v. Lutz — provides lessons on both counts.

Facts: settlement agreement preserves rights to partition and provides for attorney fees for “enforcing” agreement

The owners of real property were involved in a prior dispute, which was resolved in a settlement agreement.

In the settlement agreement, the parties agreed that they may later agree to sell the property they co-owned, and reserved the parties’ right to seek partition if they could not agree on a sale.

The settlement agreement also included a “standard” (but narrow) attorney fee clause, allowing fee recovery if any party incurred fees “enforcing or preventing the breach of” the settlement agreement.

One of the parties to the settlement agreement later sued — successfully — for partition of the property.

Trial court’s ruling: the attorney fee provision from the settlement agreement applies

After the partition action was adjudicated, the trial court ordered the defendants to pay the plaintiff’s attorney fees pursuant to the settlement agreement’s attorney fee provision.

The trial court held that the settlement agreement “provided a right to partition by sale” and plaintiff’s partition action sought to enforce that contractual right, thus entitling plaintiff to attorney fees by contract under Civil Code section 1717.

Court of Appeal’s ruling: the attorney fee provision from the settlement agreement was phrased too narrowly to apply, but fees might be compensable under the partition statutes

The Court of Appeal reversed the trial court’s order.

As to the contractual basis for fees under the settlement agreement, the court disagreed that the settlement agreement “provided the right” to partition the property.  That right, instead, was conferred by statute.  The settlement agreement merely stated that the parties were not waiving their statutory rights to partition if they were unable to agree on a sale of the property as allowed by the settlement.

More importantly, the court held that the attorney fee provision in the settlement agreement was worded too narrowly to support the award.  Some broad attorney fee provisions apply to any lawsuits “arising out of” or “relating to” a contract.  Other provisions, such as the one in question, are worded more narrowly and apply only to actions “to enforce” or “prevent the breach of” the terms of an agreement.

Because the partition action had an independent statutory basis, and was not an action to “enforce the terms of” the settlement, the fee award was not justifiable under the settlement agreement.

The court did, however, hold that attorney fees incurred for the “common benefit” could be awarded by the trial court on remand pursuant to the partition cost recovery statute, Code of Civil Procedure section 874.040.

While leaving the ultimate award to the trial court, the Court of Appeal held that: (1) a successful partition action — even if contested in litigation by defendants who resisted any sale — can still be sufficiently for the “common benefit” to support an attorney fee award; and (2) even fees incurred by a defendant who resists partition may be for the “common benefit” and thus recoverable.  The trial court has broad discretion to make these determinations.

Lessons

The scope of an attorney fee clause in any contract will determine how broadly it applies.  Before you sign a contract using a “boilerplate” attorney fee clause (of either the narrow or broad variety), give serious thought to the types of disputes likely to arise for which attorney fee recovery would be a benefit or a hazard.

Under the partition statutes, the trial court has broad discretion to award attorney fees that were incurred for the “common benefit.”

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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