When a contract awards attorneys’ fees to one party in a contract action, California Civil Code § 1717 intervenes by a) directing the attorney’s fees to the prevailing party, regardless of the party awarded fees in the contract, and b) requiring the court to fix the attorney’s fees as an element of the costs of suit. But does § 1717 supplant the right to a jury trial in situations where attorney’s fees are sought as damages, instead of as costs?

The contracts provided that the prevailing party of any action or proceeding in any way arising from their agreement would be entitled to an award of attorney fees and costs. Marina contended that California Civil Code section 1717 authorizes a fee award only in cases involving an “action on contract,” but that Section 1717 could not apply because the contracts at issue had been declared void.Section 1717, subdivision (a) provides that in an action on a contract that specifically provides for recovery of attorney fees, “the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.”

Structured appealed the judgment. Currency then moved for attorney’s fees and costs under California Civil Code section 1717 (permitting a prevailing party to be awarded attorney’s fees when a contract provides for such recovery) or, in the alternative, under California Code of Civil Procedure former section 128.5 (permitting recovery of reasonable expenses, including attorney’s fees, incurred by a party as a result of bad-faith actions or frivolous lawsuits). The trial court granted Currency’s motion under former section 128.5. Structured appealed this judgment as well.

Sometimes these clauses are unilateral – specifying only that one party (e.g., the lender) will be entitled to attorney’s fees. California Civil Code Section 1717(a) makes these unilateral clauses bilateral:In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.Even under Section 1717, a party must be “prevailing” to recover its attorney’s fees. What if a defendant succeeds in obtaining dismissal of a case based on a forum selection provision?

California Civil Code section 1717 entitles the prevailing party to attorneys’ fees “[i]n any action on a contract,” where the contract provides for an award of attorneys’ fees to the prevailing party, regardless of whether the prevailing party is the party specified in the contract or not. But what about an action that alleges tort causes of action against an alter ego of a contracting party but that does not include a breach of contract claim against the alter ego?

The trial court denied his request for fees “incurred” in the collection action, and the Court of Appeal affirmed in an unpublished decision dated December 17, 2010. (Nicholson v. Avina, Second Appellate District, Division One).The attorney sought fees pursuant to California Civil Code Section 1717 (a) which provides that the prevailing party in an action on a contract that provides for attorney’s fees may recover fees in an action to enforce the contract. The California Supreme Court long ago held that an attorney who litigates in pro per, and who therefore is not liable to another for attorney’s fees, may not recover fees under Section 1717.

I expect that most plaintiffs in derivative actions do not expect to pay a defendant's attorneys' fees if they lose because under the "American Rule" each side pays their own attorneys' fees, regardless of who wins. A contract may, of course, provide that the prevailing party may recover fees and California Civil Code Section 1717 makes such a provision reciprocal even when it is one-sided. However, a contractual right to recover attorneys' fees would not seem to be at issue when the derivative action is based on tort claims, such as breach of fiduciary duty.In a recent opinion, however, the Fourth District Court of Appeal held that an unsuccessful plaintiff in a derivative action was personally liable for the defendant's attorneys' fees even though the plaintiff's action was based on tort.

The contracts provided that the prevailing party of any action or proceeding in any way arising from their agreement would be entitled to an award of attorney fees and costs. Marina contended that California Civil Code section 1717 authorizes a fee award only in cases involving an “action on contract,” but that Section 1717 could not apply because the contracts at issue had been declared void. Section 1717, subdivision (a) provides that in an action on a contract that specifically provides for recovery of attorney fees, “the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.”

[co-author: Zachary Glasser, summer associate] When a contract awards attorneys’ fees to one party in a contract action, California Civil Code § 1717 intervenes by a) directing the attorney’s fees to the prevailing party, regardless of the party awarded fees in the contract, and b) requiring the court to fix the attorney’s fees as an element of the costs of suit. But does § 1717 supplant the right to a jury trial in situations where attorney’s fees are sought as damages, instead of as costs?

In California, statutory exceptions to the American Rule are limited, leaving private parties to modify the American Rule, if they so desire, through contract. For those contracting parties, the recent California Supreme Court decision in DisputeSuite.com, LLC v. Scoreinc.com, however, should temper expectations when seeking to recover attorneys’ fees under California Civil Code section1717. A long-standing criticism of the American Rule is that it encourages meritless lawsuits.