Sunday, October 20, 2013

Prevailing Defendant in Declaratory Relief Action for Invalidity Entitled to Fees under Civil Code § 1717

Eden Township Healthcare District v. Eden Medical Center, No. A136695 (D1d1 Oct. 9, 2013)

In a complicated hospital litigation with a long backstory, the plaintiff sued the defendant for injunctive and declaratory relief, arguing that a contract between the parties was void under a Government Code provision invalidating contracts tarnished by conflicts of interest. The defendant sought and obtained summary judgment on the invalidity claim, which was affirmed on appeal. The defendant sought attorneys’ fees under Civil Code § 1717 on the grounds that the contract that the plaintiff sought to void had a provision awarding fees to a prevailing party. When the superior court denied the motion, the defendant appealed. The court held, first, that an action to invalidate a contract is an “action on a contract” such that § 1717 comes into play. As the court notes, “it is difficult to think of an action that is more likely to be characterized as an ‘action on a contract’ than one in which the party bringing the action explicitly seeks to have the subject contract declared void and invalid in its entirety.” Second, the court rejected the argument that § 1717 should not apply because the defendant in this case had never sued the plaintiff for breach of the implicated contract. A lawsuit to enforce the contract is not required to invoke the mutuality rule of § 1717. If the contract awards fees to a prevailing party, any prevailing party in a suit “on the contract” is entitled to a fee award. “[A]warding attorney fees to the party who successfully thwarts the other party’s efforts to have a contract declared void at its inception is consistent with the mutuality of remedy doctrine.” 

Reversed and remanded for a calculation of fees.

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