Defendants who are sued for breach of contract often take
comfort in the fact that the contract contains a provision that
will award them attorney fees if they prevail in the action. The
more frivolous the action, the more confident a defendant may feel,
as an attorney fees award will seemingly accompany a final
judgment. But if a plaintiff voluntarily dismisses his case before
trial, a defendant may "feel" like a prevailing party,
but has absolutely no right to recover any fees. It may be only
after attorney fees have piled up that a plaintiff is persuaded of
the futility of the case and the necessity of dismissal, yet that
is exactly when attorney fees are not recoverable. In this way, a
defendant is often at the mercy of a plaintiff's last-minute
decision to dismiss a case, and has little assurance of being able
to recoup attorney fees for defending against even the most
frivolous cases. In fact, the more frivolous the case, the more
likely a voluntary dismissal before trial, and the more frustrating
an inability to recover fees will seem.
Under California law, a defendant may not recover attorney fees
pursuant to a contract claim where a plaintiff voluntarily
dismisses the complaint, regardless of the proximity to trial and
the amount of work that defendant's counsel has completed.
Whether a case is dismissed with or without prejudice, Civil Code
Section 1717 precludes an award of attorney fees in a
breach-of-contract action where the plaintiff voluntarily dismisses
the action and the request for attorney fees is based on contract
claims. Santisas v. Goodin (1998) 17 Cal.4th 599, 608.
This is because Section 1717 states that there is no prevailing
party for contract claims where a matter has been voluntarily
dismissed. It is not even possible to avoid this rule by creatively
drafting the attorney fees provision to define "prevailing
party" differently than provided in the statute. Mitchell
Land and Imp. Co. v. Ristorante Ferrantelli, Inc. (2007) 158
Cal.App.4th 479, 486.
Nonetheless, defendants are not entirely helpless in this
situation. It is rare that a breach-of-contract case is filed
without a few, if not several, of the typical accompanying tort
claims, such as fraud. In Santisas, the state Supreme Court held
that, although Section 1717 precludes the recovery of attorney fees
under a contract claim pursuant to the attorney fees provision, it
will not preclude an award of attorney fees in connection with a
complaint that contains both tort causes of action and contract
causes of action.
In other words, defendants can recover attorney fees pursuant to an
attorney fees contract provision if a plaintiff has dismissed a
complaint containing both contract claims and tort claims, where
the contract contained a broad attorney fees provision. If the
attorney fees provision in an agreement states, "the
prevailing party in any action arising from this agreement shall be
entitled to recover all reasonable fees and costs incurred in the
course of said proceeding," the defendant can recover attorney
fees incurred in connection with litigating the tort claims that
arose out of the same contract, notwithstanding a plaintiff's
voluntary dismissal.
This law has wide implications that affect both how contract claims
are litigated and how attorneys draft such provisions. For
starters, attorneys defending a complaint with contract claims need
to be careful when advising clients on the likelihood of recovering
attorney fees at the conclusion of the action. In the event that
the plaintiff has added tort causes of action, the attorney fees
provision needs to be carefully examined to determine whether the
provision is broad enough to encompass tort claims. Close attention
should be paid to determine whether plaintiff has sought attorney
fees in its prayer for relief or within the tort cause of action
itself. California courts have held that a plaintiff who seeks
attorney fees in the prayer for relief and attaches a copy of an
agreement that contains an attorney fees provision to its
complaint, is judicially estopped from contending that the
provision does not authorize an award of attorney fees.
International Billing Services v. Emigh (2000) 84
Cal.App.4th 1175.
In fact, the more frivolous the case, the more likely a voluntary
dismissal before trial, and the more frustrating an inability to
recover fees will seem.
On the other hand, if an attorney represents a plaintiff in
attempting to recover money due under a contract, he should think
twice before simply throwing in a fraud cause of action or other
tort claims that are long shots. Adding such claims can open
clients up to liability where a defendant can successfully defeat
those claims, even if the defendant obtains victory prior to trial
through a demurrer or motion for summary adjudication. Further, if
a plaintiff leaves tort causes of action out, the plaintiff
essentially holds all of the cards - he can walk away from the
breach of contract claim without any fear of an adverse attorney
fees award notwithstanding the contract language itself.
Finally, this law should be considered when drafting attorney fees
provisions. Depending on the nature of the parties'
arrangement, an attorney may choose to draft a narrow attorney fees
provision to provide his client with the security of being able to
file a complaint including tort claims, reserving the option to
dismiss those claims at any time without the fear of an attorney
fees award. Alternatively, the attorney may suggest that the client
consider a broad attorney fees provision so that he can recover
fees if tort claims are brought and the claim is eventually
voluntarily dismissed. Whatever the situation, attorneys should
always take a fresh look at Section 1717 when dealing with
contracts that contain attorney fees provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
