Friday, August 4, 2017

Nuthin' But a Fee Thang

Monster, LLC v. Superior Court, No. B278289 (D2d7 Jun. 21, 2017)

Plaintiff here claims that it was defrauded out of an interest in Dr. Dre’s headphone company, Beats by Dre, right before Dre sold Beats to a certain iconic computer company for $3 billion. But over the course of their relationship, Plaintiff and Beats had entered several agreements that contained both broad release language and provisions that that permitted a prevailing party to recover its fees. So in response to Plaintiff’s tort claims, Beats brought cross-claims alleging that Plaintiff was breaching the releases, thus causing Beats damages in the form of having to incur fees to defend the cases.

Beats won summary judgment based on the releases. It then sought to recover its fees through a motion brought under Civil Code § 1717. Instead of claiming a right to recover fees as a prevailing party, Beats characterized the fees as damages for its cross-claims. Beats took this tack, perhaps, because the law is uncertain about whether § 1717 permits a prevailing party fee award “when a defendant successfully asserts a contract containing an attorney’s fees provision as a defense to a tort or other noncontract claim.” Indeed, that issue is currently before the California Supreme Court. See Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, No. S223536.*

But avoiding that issue by characterizing the fees as cross-claim damages has a downside: breach of contract damages are subject to the right to jury trial. So Plaintiff argued that since that is how Beats chose to seek a fee award—as a form of damages on its cross-claims—the issue needed to be tried to a jury. But the trial court agreed with Beats, ruling that the issue could be nonetheless addressed on a § 1717 motion. Plaintiff took a writ, which the Court of Appeal grants here.

It’s pretty clear that damages on a breach of contract or tort claim are a jury issue. That’s even the case in the unusual circumstances where attorneys’ fees are recoverable as a form of damages. The most common is so-called Brandt fees, recoverable to compensate for the cost of having to enforce an insurance policy in the face of an insurer’s bad faith denial of coverage. See Brandt v. Superior Court, 37 Cal.3d 813, 819 (1985). But other cases in different contexts recognize the same principle.

The court goes on to hold that § 1717 doesn’t change that rule. Section 1717 permits a prevailing party on a contract containing a fee-shifting clause to recover fees through a motion filed after final resolution of the contract claims. But when fees form the damages in a contract case, their proof is an element of the actual claim, so the contract claim isn’t actually resolved until the trier of fact decides the damages issue at a trial (or functional equivalent). Moreover, holding that § 1717 trumps the usual jury triability of damages in a contract case would give rise to issues with the constitutional right to jury trial. So the avoidance canon merits construing the statute not to do so.

Writ granted.

*The Supreme Court decided Mountain Air eariler this week. It ducked the § 1717 question and resolved the case based on its interpretation of the contracts at issue. More on that later.

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