Under Civil Code Section 1717, There May Be Only One Prevailing Party Entitled to Recover Attorney’s Fees on Given Contract In Given Lawsuit
The key to our next case, involving arbitration and attorney’s fees, turns on a nice point that may at first seem a technicality but is actually material and dispositive here. That point: a party may petition to enforce an arbitration agreement as an independent lawsuit if there is no pending lawsuit; otherwise, the party must file the petition in the pending lawsuit. Frog Creek Partners, LLC v. Vance Brown, Inc., Case No. A129651, p. 2, n. 4 (1st Dist. Div. 5 May 24, 2012) (Simons, Acting P.J., author) (certified for publication); Cal. Code Civ. Proc., section 1281.2.
In the first example, the petitioner who is defeated may be exposed to attorney’s fees under Civ. Code section 1717 (assuming of course the existence of an attorney’s fees provision), because the petitioner who loses a petition to compel arbitration has lost an action on a contract. One who wants to litigate must now file a lawsuit, and the prevailing party in that lawsuit will have a separate right to recover attorney’s fees. But in the second example, if someone files a petition to arbitrate in an existing lawsuit and loses, no determination of liability for attorney’s fees can be made until the lawsuit is over, because only one prevailing party is entitled to recover fees on a given contract in a given lawsuit. In the second example, the plaintiff successfully defeating the petition to arbitrate brought in the existing lawsuit, but ultimately losing the substantive contract dispute at trial is a loser, and will not be able to collect attorney’s fees. That is the rationale for the outcome in Frog Creek Partners.
The frog who tried to be as big as a bull. Library of Congress.
Jeffrey Drazan, managing director of a venture capital firm, set up Frog Creek Partners to manage the construction of his house, and hired Vance Brown, Inc. (Brown) to build the house. Frog Creek Partners sued Brown for breach of contract and other causes of action. In 2005, Brown petitioned to arbitrate in the existing lawsuit – at first, unsuccessfully, because Brown could not produce matching counterparts of the construction agreement. Brown appealed in 2006, and the Court of Appeal affirmed in Frog Creek I. (Yes, this has been going on for awhile).
Brown then renewed its petition to arbitrate based on a version of the construction agreement produced by Frog Creek Partners, and after further proceedings, leading to Frog Creek II, the Court of Appeal directed the trial court to stay proceedings and send the dispute to arbitration.
We surmise that the house in question was not ticky-tacky. The arbitration hearings lasted 50 days. In addition to awarding Brown damages of $1,905,902.90, the arbitrator awarded $2,517,687.31 in attorney’s fees, and $666,422.78 in costs. Frog Creek Partners paid the award.
That left the parties to tussle over attorney’s fees in connection with the first unsuccessful petition to arbitrate. Hopefully our explanation in paragraph 2 of our post will help you decipher how this played out.
Frog Creek Partners argued it won the first petition to compel arbitration proceeding, because it defeated the petition. Ergo, Frog Creek Partners should be entitled to fees for that proceeding. Not so, said Brown. The unsuccessful petition to compel arbitration was brought in an existing lawsuit. Frog Creek Partners may have won the battle by defeating the petition first time around, but it lost the war, given the results of the lawsuit. Since there can only be one prevailing party on a given contract in a given lawsuit, and Brown prevailed, to Brown should go the attorney’s fees.
The Court of Appeal agreed with Brown, reversing the trial court’s order on fees to the extent it had awarded Frog Creek Partners attorney’s fees of $125,000 in connection with Brown’s first unsuccessful petition to compel arbitration. The matter was also remanded to allow the trial court to award Brown reasonable fees on its first petition to compel arbitration. A party ultimately prevailing on a contract action is entitled to its fees, including fees incurred during the lawsuit in proceedings where it did not prevail.
This opinion is notable for providing a mini-treatise on the application of Civil Code section 1717 in the context of petitions to compel arbitration, and for disagreeing with other Court of Appeal decisions, notably, Mazer v. Kors, 195 Cal.App.4th 40 (2011) (supporting an award of attorney fees for prevailing on a petition to compel filed within a lawsuit) and Acosta v. Kerrigan, 150 Cal.App.4th 1124 (2007) (providing that specific contract language may justify a separate attorney’s fee award). Unhappy with the results of Frog Creek Partners? “[C]onsiderations best left for the Legislature,” says the Court of Appeal in footnote 18.
We expect to see more case law in this area, given the differences of opinion respectfully expressed by the Court of Appeal.
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