The Morrison Law Journal
In California, attorney's fees are recoverable in a contract dispute so long as the dispute arises from the contract and the contract calls for attorney's fees to be awarded to the prevailing party. See, Civil Code § 1717. However, much debate has occurred over the years as to whether a party to a contract with an attorney's fee clause, which has substantially succeeded in obtaining its objectives - but not all of its objectives - is entitled to attorney's fees as a prevailing party. The California Supreme Court in Hsu v. Abbara (1995) 9 Cal.4th 863 ruled that - based upon the language of Civil Code § 1717 - the Trial Court may determine there is no party prevailing on the contract if, in its opinion, the results of the litigation are mixed. In making such a determination, the Trial Court is to compare the relief awarded on the contract claim or claims with the parties' demands on those claims and the parties' litigation objectives based upon the pleadings and evidence in the litigation.
This past month, the California Court of Appeal, Second District, in the matter Marina Pacific Homeowners Association v. Southern California Financial Corporation (2018) Westlaw 70311 ("Marina Pacific"), confirmed that the discretion invested in the Trial Court is sufficiently broad such that a party which succeeds in reducing its contractual liability, but not voiding it, and which faces a judgment which will result in significant liability, may not owe attorneys' fees based on a finding that no "party prevailed on the contract" for purposes of Civil Code § 1717.
In the Marina Pacific case, substantial litigation occurred over assignment fees that were due to a developer of a complex in Long Beach. In that case, the original unit owners acquired an ownership interest in their individual units and a share of an undivided leasehold interest on the land in which the complex was built (with the developer apparently retaining the fee interest in the land). The fees were to be relatively nominal until October 2006, when the monthly rent would significantly increase, and there would also be an assignment fee in addition to the rent (payments of rent and assignment fees were owed through 2041).
As relevant to this article, the Plaintiff owners association bought the land underlying the development and sold pro rata shares to the individual unit owners, thus terminating rent payments. However, insofar as the assignment fees, the Plaintiff owners association was only able to buy out the rights to assignment fees from two of the three development partners, leaving one partner, who had retained a 43.75 percent interest in
the assignment fees, demanding fees. Litigation began in 2005 between the Plaintiff and the original development partner which had declined to sell his assignment rights.
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