Recovery of Contractual Attorneys’ Fees for Tort and Contract Claims - Dismissing Contract Action May Mean Attorney’s Fee Liability.

by Low, Ball & Lynch
Contact

Dismissing Contract Action May Mean Attorney’s Fee Liability.

Neeshat S. Khan v. Michael Shim

Court of Appeal, Sixth Appellate District (December 29, 2016)

Civil Code § 1717(b)(2) generally bars the award of attorneys’ fees after a voluntary dismissal of a breach of contract cause of action. In this case, the Court of Appeal addresses whether attorneys’ fees can be awarded when a plaintiff alleges both tort and contract causes of action and dismisses the entire complaint before trial.

Dr. Neeshat S. Khan (“Khan”) purchased Dr. Christine Hoang’s dental practice from Michael Shim (“Shim”), who was Dr. Hoang’s widower and estate executor. The purchase agreement had an attorneys’ fee clause, which allowed the prevailing party to be awarded fees if “any litigation… is commenced between the parties to this Contract of Sale… concerning its terms, interpretation or enforcement or the rights and duties of any party in relation thereto….”

In September, 2012, Khan sued Shim individually and as estate executor for breach of contract, fraud, concealment, negligent misrepresentation, and rescission. Shim filed a cross-complaint against Khan, alleging claims for breach of contract and various torts, including fraudulent concealment.

Before the trial, Khan voluntarily dismissed her entire complaint without prejudice. The case proceeded to a bench trial only on Shim’s cross-complaint. The trial court found for Khan on all causes of action.

Shim filed a motion to compel Khan to pay his attorneys’ fees. The trial court found Shim to be the prevailing party under Code of Civil Procedure § 1032 (a)(4) which states, “‘Prevailing party’ includes… a defendant where neither plaintiff nor defendant obtains any relief” and awarded attorneys’ fees to Shim. Khan appealed.

The Court of Appeal concluded that when a plaintiff voluntarily dismisses an action involving both contract and tort claims, Civil Code § 1717(b)(2) does not preclude a defendant from recovering attorneys’ fees if the fee provision is broad enough to cover the tort claims.

Under Civil Code § 1717(b)(2), there is no prevailing party for the purposes of awarding attorneys’ fees when an action on a contract is voluntarily dismissed before trial or dismissed pursuant to a settlement of the case. This rule applies to all attorneys’ fees awarded on actions on a contract, including reciprocal fee agreements. (Santisas v. Goodin (1998) 17 Cal.4th 599, 614-616.) The Court of Appeal concluded that Shim’s recovery of attorneys’ fees for his defense against Khan’s contract claims based upon Civil Code § 1717(b)(2) was prohibited.

The Court of Appeal applied principles from Santisas and looked to the fee provision in the parties’ purchase agreement to determine whether Shim was entitled to recover fees for his defense against Khan’s tort causes of action. The fee provision stated as follows: “If at any time after the Close of Sale, any litigation or arbitration is commenced between the parties to this Contract of Sale… concerning its terms, interpretation or enforcement or the rights and duties of any party in relation thereto, the party or parties prevailing in such litigation or arbitration shall be entitled, in addition to such other relief as may be granted to them, to a reasonable sum as and for their attorney fees incurred in such litigation or arbitration…” The Court found that the fee provision was broad enough to encompass non-contract claims in particular the language regarding “any litigation” “concerning” the purchase agreement. Since Khan’s fraud and misrepresentation claims were tied to the purchase agreement, these torts were within the fee provision covering “any litigation… concerning [the contract’s] terms….”

The Court of Appeal concluded that the trial court erred when it awarded fees to Shim based on the entirety of Khan’s complaint but found that the fee provision was broad enough to allow the recovery of attorneys’ fees for the defense of the non-contract claims by Shim. The matter was remanded to the trial court to allocate the fees between the causes of action.

COMMENT

Parties need to pay particular attention when drafting fee provisions when contract and tort claims may be brought together. For cases with a fee provision, a liability analysis regarding the impact of attorneys’ fees should be assessed when determining whether to voluntarily dismiss a case.

For a copy of the complete decision, see: Khan v. Shim

 

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.

© Low, Ball & Lynch | Attorney Advertising

Written by:

Low, Ball & Lynch
Contact
more
less

Low, Ball & Lynch on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.