Fees on a Contract

Waterwood Enters. v. City of Long Beach, No. B296830 (D2d1 Dec. 18, 2020)

Plaintiff in this breach of contract case won $45k in damages. The verdict was roughly of a prior Code of Civil Procedure § 998 offer made by Plaintiff. Relying on that fact, the trial court ruled that defendant, not plaintiff, was the prevailing party. It awarded defendant $170k in attorneys’ fees based on a fee-shifting clause in the contract. 

Section 1717 of the Civil Code addresses recovery under contracts that permit prevailing parties to recover attorneys’ fees. It defines prevailing party as “the party who recovered a greater relief in the action on the contract.” That definition governs regardless of any contrary definition in the contract. There are a few potential outcomes under §1717. When plaintiff or a defendant wins a simple unqualified win—either plaintiffs’ recovery of full damages or a defense verdict—that party prevails. But in any other scenario, the trial court has discretion to decide that one party, or the other, or neither, prevailed. 

Here the trial court made three mistakes. First, it ruled that defendant prevailed because the $45k plaintiff won was for part of damages that was basically uncontested by defendant. That, however, wasn’t supported by the record. The jury’s special verdict form provided an unallocated damages verdict. There was no way to know whether the damages were for the breach arguably conceded by defendant or for something else.

And in any event, the defendant’s “concession” was not a proper consideration. Section 1717(b)(2) specifically provides an avenue for a defendant to concede partial liability—it can tender the disputed amount. Short of that, a defendant is not entitled to credit for not fighting hard on a point during trial.

Finally, the trial court should not have compared the verdict to the § 998 offer. A comparison between what was won and “litigation objectives” is an appropriate consideration in deciding who prevailed. To make that assessment, the Supreme Court has said courts should look to, among other things, pleadings, trial briefs, and opening statements. But settlement offers should not play into that calculus.

It was thus error to determine that defendant prevailed. There was only one contract claim, and plaintiff was the only party that obtained relief. So on remand, the trial court should apply the proper standard to determine whether plaintiff was the prevailing party, or whether nobody was.

Reversed.