Monday, January 9, 2017

CC 1717's Prevailing Party Definition Doesn't Apply to Contract Shifting Tort Fees

Khan v. Shim, No. H041608 (D6 Dec. 29, 2016)

Plaintiff in this case voluntarily dismissed his complaint, which alleged both contract and tort causes of action. The parties’ contact included a fee-shifting provision permitting a prevailing party in any lawsuit concerning the “terms, interpretation or enforcement or the rights and duties of any party thereto” to recover his fees. The trial court determined that Defendant was prevailing party and awarded fees accordingly. But Court of Appeal reverses.

The issue is Civil Code § 1717(b)(2), which says that in an action on a contract where the contract awards fees to the winner, there is no prevailing party when a case is voluntarily dismissed or settled. That rule differs somewhat from the general prevailing party rule in Code of Civil Procedure § 1032(a)(4), which says that when no relief is awarded, the defendant prevails. So to the extent the case was brought under a contract theory, nobody prevailed.

But § 1717 applies only to an action “on a contract”—it doesn’t apply to tort claims. To the extent a contract permits a fee award for torts, they are still recoverable under the costs statute, which permits attorneys’ fees authorized by contract. Code Civ. Proc. § 1033.5(a)(10)(A). And for a tort claim, the prevailing party would be defined under Code of Civil Procedure § 1032(a)(4), not Civil Code § 1717. So to the extent the contract permitted recovery of tort fees and claim was grounded in tort, Defendant could potentially recover his fees.

The court goes on to find that the contract was broad enough to permit fee shifting on some tort claims. It reads the “thereto” in the phrase “terms, interpretation or enforcement or the rights and duties of any party thereto” to refer to any rights and duties of the parties and not to the further antecedent references to the rights under the contract itself. So the contract can shift fees for tort claims that arise from the rights and duties of the parties. Because the trial court didn’t make any allocation between tort and contract claims, however, it should do that on remand.

Reversed and remanded.

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