Business Litigation: Best Practices for Litigating a Civil Code Section 1717 Motion for Attorney Fees

• Publication year: 2022
• Author: By Hon. Elizabeth R. Feffer (Ret.) & Richard M. Pearl, Esq.

Business Litigation: Best Practices for Litigating a Civil Code Section 1717 Motion for Attorney Fees

By Hon. Elizabeth R. Feffer (Ret.) & Richard M. Pearl, Esq.

This article is geared towards the business litigator engaged in a lawsuit involving a contractual fee-shifting clause. In California, the general rule is that parties in litigation pay their own attorney fees. (Code Civ. Proc., § 1021; Laffitte v. Robert Half Internat. Inc. (2016) 1 Cal.5th 480, 488.) Under section 1021, however, a court may nevertheless award attorney fees if "a statute or contract allow[s] such recovery." (Jones v. People ex rel. Dept. of Transportation (1978) 22 Cal.3d 144, 154.)

Attorney fees awardable under a contract are governed by Civil Code section 1717 (section 1717), which is the focus of this article. While claims for attorney fees brought under section 1717 bear some similarities to claims based on other fee-shifting statutes or on equitable grounds, fee motions under section 1717 raise several unique issues for the business litigator, which are explored in this article. With an eye toward these unique features, this article recommends best practices for bringing and opposing motions for attorney fees under section 1717.

Preliminary Considerations

Section 1717 empowers a trial court to award "reasonable attorney's fees" to a party if (1) the action is "on a contract," (2) that contract "specifically provides that attorney's fees and costs . . . shall be awarded," and (3) the moving party is "determined to be the party prevailing on the contract." (Id. at subd. (a).) There are several unique points about section 1717 that counsel must be aware of:

1. A primary purpose of section 1717 was to protect the weaker contracting party by making all contractual fee clauses bilateral, that is, making an otherwise unilateral contractual fees provision reciprocal. (See id. at subd. (a).) However, the section also applies to bilateral clauses. (See Santisas v. Goodin (1998) 17 Cal.4th 599, 614, fn. 8 [holding that section 1717 applies to contracts containing reciprocal as well as unilateral attorney fee provisions].)

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2. Rights under section 1717 are nonwaivable. (Id., subd. (a) ["Any provision in any such contract which provides for a waiver of attorney's fees is void."].)
3. Unless both parties are represented by counsel who sign off on the contract, section 1717 rights apply to the whole contract; i.e., the fee-shifting clause can't be limited to specific contract clauses. (Id., subd. (a) ["Where a contract provides for attorney's fees, . . . that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract."].)
4. When the language is broad enough, contracts can also provide for fee-shifting on noncontract claims that are not governed by section 1717. (See Santisas, supra, 17 Cal.4th at p. 619 [holding that section 1717 did not limit ability to collect attorney fees for defending tort claims under the contract's attorney fee provision].)
5. There may be no prevailing party: While section 1717 fees are generally awarded to the party who obtains the "greater relief in the action on the contract," in appropriate circumstances, the court may determine instead that there is no prevailing party. (Id., subd. (b)(1).) Moreover, if a contract action is dismissed voluntarily or pursuant to a settlement, there is no prevailing party. (Id. at subd. (b)(2).) However, settlements pursuant to CCP section 998 (section 998) generally allow the prevailing party to recover attorney fees expended before the section 998 compromise to the extent that the compromise offer is silent on fees and costs. (See Wong v. Thrifty Corp. (2002) 97 Cal.App.4th 261, 263-264.) Moreover, even a party who loses at trial but whose section 998 settlement offer exceeds the other side's ultimately recovery may be entitled to postoffer attorney fees under section 998. (Scott Co. of Cal. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1112, 1116.)

Claiming Fees: Judgment, Memorandum of Costs, and Attorney Fee Motion

In making a claim for attorney fees, you should invoke your claim at multiple points, including before the entry of judgment in the underlying litigation, in a memorandum of costs, and in a motion for attorney fees.

Initially, you should include language in the order or judgment specifying that you are entitled to attorney fees under the contract and noting the amount you are entitled to, e.g., "attorney's fees in the amount of $__________." (If the amount is unknown, note that the amount of fees will be determined by noticed motion).

In many cases, some effort to settle all or some of the fee issue(s) would be advisable (and appreciated by the court). To avoid any timeliness issues, however, be sure to meet all applicable deadlines or secure stipulations extending them.

Assuming you can't settle, you must then submit a timely memorandum of costs under rule 3.1700(a)(1) of the California Rules of Court (generally 15 days from notice of entry of judgment). Note that although CCP section 1032, subdivision (b) provides for an award of "costs" as a matter of right to the "prevailing party" (see id., subd. (a)(4)), and section 1033.5, subdivision (a)(10)(A) states that attorney fees authorized by contract are an item of "costs," the definitions of "prevailing party" under Code of Civil Procedure (CCP) section 1032 and Civil

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Code section 1717 are different; as a result, one party may be entitled to ordinary costs (e.g., filing fees, deposition costs, etc.) because they obtained a "net monetary recovery" or a dismissal while the opposing party is entitled to its attorney fees because it obtained the greater relief on the contract claim. (See Santisas, supra, 17 Cal.4th at p. 606.)

Although contractual fees are claimed by noticed motion, you still should reference attorney fees on the memorandum of costs. (See Judicial Council Forms, forms MC-010 and MC-011, item 10). If the amount of contractual fees is fixed without the need for a court determination, the fees must be claimed on the memorandum of costs. (Cal. Rules of Court, rule 3.1702(e).) Otherwise, if a noticed motion is necessary to determine either entitlement to fees or the amount of those fees, a common practice is for the party seeking fees via noticed motion to indicate on item 10 of the cost memorandum worksheet that attorney fees are "TBD [to be determined] by noticed motion."

The next step is to file a timely motion seeking attorney fees under section 1717 and any other applicable grounds pursuant to rule 3.1702 of the California Rules of Court. The elements of that motion are described in detail below.

Elements of Attorney Fee Motion

Form of Motion. The form of the fee motion must comply with CCP section 1005 and California Rules of Court, rule 3.1113. There are several points of law you may consider raising in your (15-page) memorandum of points and authorities, including timeliness, an explanation as to why you are the prevailing party, the contractual basis for the fees, and the reasonableness of the fees.

Timeliness. The deadlines for filing fee motions are set out in California Rules of Court, rule 3.1702, which provides that prejudgment fees, including any appellate fees incurred before final judgment, must be claimed within the deadlines for filing a notice of appeal. For unlimited jurisdiction...