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By: Scott Graham The Recorder
Copyright 1995, American Lawyer Media.

The California Supreme Court on Thursday made it easier for victorious parties in contract disputes to collect attorneys fees.

The court sharply limited trial judges' discretion to deny fees when the contract at issue specifies that a "prevailing party" is entitled to fees.

Justice Joyce Kennard wrote for a unanimous court in Hsu v. Abbara, S037574, that when a defendant obtains "a simple, unqualified victory by defeating the only contract claim in the action," the trial judge "has no discretion to deny attorney fees to the defendant . . . by finding that there was no party prevailing on the contract."

Sanford Rosen, an attorney who litigates fee disputes (but was not involved in Hsu), said the ruling is not surprising given the statutory language at issue and a similar recent decision by the U.S. Supreme Court.

The statute, 1717 of California's Civil Code, comes into play often in fee litigation, the Rosen, Bien & Asaro partner said, but it's not always enforced. "One gets a sense that in some contract settings, the trial judge might go out of the way to avoid awarding fees [against] a weaker party who's lost the lawsuit," he said.

Limiting judges' discretion will put "a major club" in the hands of landlords and other strong parties, Rosen suggested. It might also discourage settlement, Rosen said, if parties figure they can get a big fee recovery by litigating a case to its conclusion.

Hsu began as a dispute between two couples over the purchase of a home in the Southern California town of Diamond Bar.

The Abbaras had listed their home for $299,000. The Hsus offered $285,000, and the Abbaras made a counteroffer of $297,000. A day later, the Hsus came up to $292,000, but the Abbaras refused to budge. Later that day, the Hsus gave in and said they would pay the $297,000, but the Abbaras declined, saying they had decided to stay in their home.

The Hsus sued. Following a court trial, a Los Angeles County Superior Court judge ruled for the Abbaras, saying that their $297,000 offer was extinguished once the Hsus had responded with their $292,000 bid. But without providing an explanation, the judge denied the Abbaras' motion for fees.

On appeal, the Hsus argued that the fee denial was a proper exercise of discretion, noting that 1717 states that a judge "may also determine that there is no party prevailing on the contract."

The Abbaras' attorney, Stephen Lewis of Long Beach, said in an interview last year that the judge simply didn't want to do the work necessary to determine a fee award, "so he punted."

Kennard wrote for the Supreme Court that the intent of 1717 is to allow parties "whose litigation success is not fairly disputable to claim attorney fees as a matter of right." The discretion to deny fees was reserved for cases with mixed results, Kennard held.

"Accordingly," she wrote, "we hold that in deciding whether there is a 'party prevailing on the contract,' the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements and similar sources."

In the Hsus' case, the result was obvious. "Because the Abbaras successfully defended the only contract claim in their litigation with the Hsus," Kennard concluded, "the Abbaras were, as a matter of law, the parties prevailing on the contract."

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