In what may be a dispositive ruling on an important issue in breach of
contract cases, the California Court of Appeal, First District, concluded that the
.trial court may award attorney's fees to a party which successfully litigated a
~peJition to compel arbitration even though the matter had not been resolved on
That decision was entered in the matter of Turner v. Schultz (2009)
Westlaw 2006846 ("Turner Case"). In the Turner Case, a former shareholder
employee brought an action against the company, shareholders of the company
and another corporation alleging that shareholders had made false
representations to induce, the shareholder employee to enter into a share buyout
agreement. The employer company filed a petition to compel arbitration under
the share buyout agreement. The share buyout agreement contained two
separate, broad clauses which provided that the prevailing party in any
"proceeding" under the share buyout agreement would be entitled to attorney's
The trial court granted a defense motion to compel arbitration and
declined to intervene in the arbitration association's procedures for selecting an
arbitrator. During the pendency of the litigation, the former employee
shareholder also filed a separate suit against the company, the arbitration
association and the shareholders of the company seeking a declaration that the
defendants could not proceed with the arbitration without first obtaining a court
order and seeking an injunction to stay the arbitration proceedings. The trial
court in that action denied the shareholder employee's application for a
preliminary injunction and the shareholder employee appealed. The Court of
Appeal granted the defense motion to dismiss the first action and dismissed the
shareholder employee's appeal of the second action as moot.
The defendants then filed a motion for judgment on the pleadings in the
second action. The trial court granted the motion for judgment on the pleadings
in the second action and awarded costs and attorney's fees. The shareholder
employee then appealed that ruling on the basis that attorney's fees could not be
awarded because there had not yet been a determination on the merits.
On appeal, the Court of Appeal acknowledged that the issue presented
one of first impression although it acknowledged that there were cases which
favored the award of attorney's fees involving procedural victories, see, Acosta
v. Kerrigan (2007) 150 Cal.App.4th 1124; Otay River Constructors v. San Diego
Expressway (2008) 158 Cal.App.4th 796 and Christensen v. Dewar Developments
(1983)33 Ca1.3d778, and there were other cases which held that no fees were to
be awarded absent a decision on the merits. See, Lackhar v. Lackhar (1986)182
Cal.App.3d 641 and Green v. Mount Diablo Hospital District (1989) 207
The Court of Appeal, in looking at the shareholder buyout agreement,
focus~d on the fact that there were two separate provisions which provided for
the prevailing party to be awarded attorney's fees and costs and noted that one
of the provisions was quite broad as it established an entitlement to attorney fees:
"[i]n the event any legal action or arbitration is commenced oj any kind or character,
to enforce the provisions of this Agreement or to obtain damages for breach thereof."
(italics added.) Given the broad language of the share buyout agreement, the
Court of Appeal, while noting it was a IIclose question", upheld the trial court's
award of attorney's fees and costs.
The Turner Case is significant. It will or should have two immediate
impacts. First, in drafting prevailing party's language in an agreement which
contains an arbitration clause, the drafter should consider whether it is in the
interest of the client to limit instances of awards to the prevailing party to
proceedings where there. is a decision on the merits. Second, in seeking to
compel arbitration, or to oppose a petition to compel arbitration, the opposing
party should give serious consideration to the merits of their position. It is our
belief that awards of attorney's fees will likely be limited to instances where
there is an actual, contested hearing on the issue, but this issue will have to be
tested in the courts.
About the Authors: Edwar.d F. Morrison, Jr. is the founding partner and Brett C.
Drouet is a partner of The Morrison Law Group, a professional corporation.
Their biographies can be viewed at www.morrisonlawgroup.com.
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