Business Law Journal

Background

In 1997, William N. Greene (“Greene”) agreed to loan Karen de la Carriere (“Carriere”) $175,000 to help her purchase a home.  As part of the agreement, Carriere executed a promissory note (“Note”) and a deed of trust (“Trust Deed”); included in the Note was a provision stating “[i]f any action is instituted on this note, the undersigned promise(s) to pay such sum as the Court may fix as attorney’s fees.”  The loan was to come due in 2008.

However, by 2012, Carriere had made only a few payments which had all gone to interest.  Carriere filed a complaint seeking to void the Note and Trust Deed, and Greene filed a cross-complaint against Carriere asserting a claim for breach of the Note.  In April 2015, Carriere’s claims were found meritless and dismissed, while Greene was awarded damages and attorney’s fees on his cross-complaint.  Both parties filed cross notices of appeal, with Greene’s opening brief arguing that the trial court erred in subtracting interest payments from the principal owed under the Note.  While this appeal was pending however, Carriere paid the full amount owed under the judgment and as attorney’s fees.  Greene executed an acknowledgement of full satisfaction of judgment, and Carriere filed it in the trial court.

When Greene later requested the dismissal of his appeal, Carriere requested dismissal of her cross-appeal and filed a motion in the trial court for attorney’s fees incurred in Greene’s appeal and for a “successful” post-trial motion.  The trial court awarded Carriere $67,238 in attorney’s fees which Greene timely appealed.

Contractual Attorney’s Fees Under Civil Code Section 1717

Civil Code section 1717 provides generally that in any action on a contract with an attorney’s fees provision, the party “prevailing on the contract” shall be entitled to reasonable attorney’s fees in addition to other costs.  Civil Code section 1717, subdivision (b)(1) also provides that “the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract.”  Accordingly, the Court of Appeal confirmed “there may only be one prevailing party entitled to attorney’s fees on a given contract in a given lawsuit.”

An “action on a contract,” as used in Civil Code section 1717, refers to “the whole of a lawsuit rather than to discrete proceedings within a lawsuit.”  This means that procedural steps taken during litigation are not an “action” within the meaning of section 1717, but simply parts of an action.  The trial and appeal, therefore, are considered part of the same action for purposes of determining contractual attorney’s fees.  Accordingly, the Court of Appeal ruled that a party would not be entitled to any award of attorney’s fees as the “prevailing party” on appeal, but only as the “prevailing party” to the entire lawsuit.

Greene was the prevailing party in the lawsuit, particularly where he was entitled to a net judgment of $150,329.21 both before and after the appeal; thus, Greene was the only party entitled to attorney’s fees.  The Court of Appeal also made clear that an award of costs in connection with an appeal does not necessarily establish any entitlement to attorney’s fees.  Even though Carriere may have “prevailed” on the appeal and on her post-trial motion, they were simply discrete proceedings within the overall lawsuit, and she could not be considered the “prevailing party” in the lawsuit.

Conclusion

 The decision in Carriere serves as a reminder of the limits on a contractual attorney’s fees clause and the potential dangers of relying too heavily on it.  Importantly, an “action” on a contract refers to the whole of a lawsuit, and an appeal or post-trial motion may not be separated out for purposes of awarding attorney’s fees.  But even if it could, the Court of Appeal in Carriere noted that where an action is voluntarily dismissed, there “shall be no prevailing party.”  To better navigate hurdles like these with confidence, please contact your counsel at Atkinson, Andelson, Loya, Ruud & Romo for a thorough analysis of the benefits such a clause provides.