In David S. Karton, A Law Corporation, v. Dougherty, 2014 DJDAR 15340, the California Court of Appeal for the Second Appellate District decided a case with a long, convoluted complex fact pattern under California Code of Civil Procedure Section 1717, the prevailing party statute, and Section 1032, which governs cost awards.

     The defendant retained David S. Karton, A Law Corporation, to represent him in a marital dissolution case. The attorney expended significant time and resources on the matter but the client did not pay for the services rendered. Three years later, the attorney sued the client to recover $65,247.00 in unpaid fees, costs and interest. The defendant failed to appear and the trial court entered a default judgment against the former client. The attorney then sought to enforce the judgment as well as attorney fees incurred in the divorce case. After further complex proceedings, the attorney was granted relief which actually increased the principal judgment. The former client then appealed the judgment rendered by the trial court.

     The appellate court reversed the attorney fees award on the basis that the original default judgment was void because the judgment exceeded the attorney’s original demand. On remand, the trial court granted the former client’s motion to vacate the default. The matter then proceeded to arbitration under Business and Professions Code Section 6201, the mandatory attorney fees arbitration statute. The arbitration panel concluded that the former client had already paid his debt to the law firm and, on that basis, no relief was appropriate for the attorney.

     The attorney then moved the case back to state court where the trial judge ruled that the law firm was the “prevailing party” under the definition of Civil Code Section 1717 and awarded it more than $1 million in attorney fees. The former client appealed yet again.

     The court of appeal reversed, noting that under Section 1717, in the event of litigation on a contract, the party prevailing on the contract has a right to recover attorney fees. The prevailing party is the person who received a “greater level of relief” in the action on the contract. The court noted that under Section 1717(b)(2), if a defendant fully tenders a contractual debt, deposits it with the court and proves that this was the full debt, the defendant is the prevailing party for attorney fee purposes. Because the law firm recovered no relief in the action on the contract, the defendant was the  prevailing party.