Split Decision on Scope of Fee Clause

Mountain Air Enters. v. Sundowner Towers, LLC, No. A138306 (D1d3 Nov. 20, 2014)

The parties in this case were signatories to an illegal real estate contract that was unlawful under the Subdivision Map Act. The court here holds that defendant cannot obtain an award of attorneys’ fees under that contract because, as a sophisticated party that was in pari delicto to the illegality, defendant was not in a position to enforce any part of the void contract.

The parties, however, were also signatories to a second contract, which the trial court determined was a novation of the original illegal contract. That contract too had a provision awarding attorneys fees to the prevailing party. The court here determines that the novation defense to the enforcement of the first contract was sufficiently within the terms of the attorney fee clause in the second contract to warrant an award of fees to the defendant. Justice Richman dissents and disagrees. He finds the fee clause in the second contract to be narrower than those in the cases relied upon by the majority—sufficiently narrow that it should not permit a fee award when the second contract mattered only to the extent that it served as a defense to the enforcement of the first contract.

Affirmed in part and reversed in part.