Khan v. Shim, 12/29/2016, 6DCA
This case is one that should never have been filed. It arose from litigation following the sale of a dental practice. Buyer sued for breach of contract and tort claims like fraud; Seller filed a cross-complaint. Before trial, the Buyer dismissed her entire complaint; Seller proceeded to trial on the cross-complaint and lost. The Seller sought and obtained an award of $140k in fees based on Buyer’s dismissed complaint. The Buyer sought and obtained 90k in attorney’s fees on Seller’s failed x-complaint. The trial court ordered the Buyer to pay the difference between the two awards. Not much of a win.
Buyer appealed the award of the entire $140k to Seller – She argued that fees should not have been awarded to seller on his contract claims because of the voluntary dismissal (a potentially very good argument), and also argued the fee clause in the contract was not broad enough to cover tort claims (a bad argument). The fee provision provided: “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 6DCA reversed, agreeing with the first argument, but not the second. Section 1717 includes the rule that when the plaintiff voluntarily dismisses before trial there is no prevailing party under the statute. (International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, 223 (Olen).) After Olen, section 1717(b)(2) was added to say the same thing. But this limitation applies only to contract claims. Whether a party who has voluntarily dismissed its tort claims before trial will be liable for its opponent’s attorney fees spent in defending those tort claims is determined by the scope of the attorney’s fee clause.
The court here had no trouble in finding that the recovery of fees for “any litigation,” “concerning” the purchase agreement’s terms, its interpretation or its enforcement, or any litigation concerning the rights and duties of the parties in relation to the contract was sufficiently broad. The court pointed to the fact that the warranties that were allegedly violated as part of the breach of contract claim were the same warranties (promises) that were alleged to be fraudulent.
The court remanded the Seller’s fee award for the trial court’s determination, noting that the trial court might apportion the fees between the contract and tort claims, or might find that the causes of action were too intertwined to apportion. So the Seller made a costly mistake at the trial court – in its motion for fees, the Seller should have raised the issue of apportionment with the trial judge. If the Seller had done that, the Court would have made a decision on that issue and inoculated the fee award from appeal.
So the Seller’s only real victory is that it spent more on attorney’s fees on his losing case than the Buyer spent on hers, and he can now recover some fraction of those fees back. And the larger issue is that apparently neither side was able to evaluate their case in time to determine that neither should have been filed. Early neutral evaluation techniques should be mandatory for all litigators.