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‘Legal Expense’ Includes Atty Fees, Calif. Court Holds

By Erin Coe

 

Law360, San Diego (November 16, 2012, 5:18 PM ET) — A California appeals court on Wednesday held that a company that promises to pay the “legal or collection expense” incurred in connection with a contract has agreed to pay a prevailing party’s legal fees, reversing the denial of attorneys’ fees to a business that won a dispute over a construction project.

 

In an unpublished opinion, the Second District Court of Appeal sided with Donald F. Dickerson Associates Inc. that its contract was specific enough to require Shinyoung 3670 LLC to owe it attorneys’ fees, concluding that the reasonable meaning of the language in the contract would have been understood by the parties at the time of contracting as providing for those fees.

The dispute dates back to September 2009, when Donald F. Dickerson Associates sued Shinyoung for unpaid fees relating to a construction project. The plaintiff sought about $133,000 in unpaid fees as well as interest, costs and attorneys’ fees based on the parties’ agreement.

The contract provided that in the event of “legal or collection expense in connection with this agreement, [defendant] agrees to pay such expenses.”

While the trial court awarded the plaintiff the $133,000 sought in unpaid fees and interest and costs, it denied the motion for the recovery of attorneys’ fees.

It found that the contract provision did not satisfy the requirements of Civil Code section 1717, subdivision (a), because it did not specifically provide for the recovery of attorneys’ fees and pointed out that “legal expense[s]” could embody something other than attorneys’ fees associated with a suit, prompting the plaintiff to appeal.

On Wednesday, the appeals court noted that while California law requires a party to a suit to pay its own attorneys’ fees, regardless of whether it prevailed in the action, an exception to this rule exists when a contract specifically authorizes the prevailing party to recover legal fees.

It concluded that it could not imagine what the phrase “legal … expense[s]” would include if not attorneys’ fees. It also said it was unconvinced by the defendant’s argument that the phrase could be limited to litigation costs.

“Litigation costs are recoverable by a prevailing party as a matter of right,” according to the opinion. “Thus, a contractual provision allowing solely for the recovery of costs would be unnecessary, rendering this paragraph ineffectual and superfluous.”

It disagreed with the trial court that the contract was too vague, noting that there was no legislative form language required by Civil Code section 1717 as long as the agreement authorized an award of fees incurred to enforce the contract, and the language of the contract-at-issue did so.

The appeals court remanded the matter to the trial court to determine the amount of attorneys’ fees to which the plaintiff was entitled.

John Tamborelli, a Tamborelli Law Group attorney representing Donald F. Dickerson Associates, said he was thrilled the appeals court determined that there was “no magical language” for a fees provision. He said he will be seeking about $50,000 in attorneys’ fees at the trial court.

Michael Youngsup Yi, a Kim Park Choi & Yi attorney who is representing Shinyoung, declined to comment on the ruling Friday.

Justices Judith Ashmann-Gerst, Roger Boren and Victoria Chavez sat on the panel for the appeal.

Donald F. Dickerson Associates is represented by John Tamborelli of Tamborelli Law Group.

Shinyoung is represented by Michael Youngsup Yi of Kim Park Choi & Yi.

The case is Donald F. Dickerson Associates Inc. v. Shinyoung 3670 LLC, case number B232074, in the Court of Appeal of the State of California, Second Appellate District, Division Two.

–Editing by Rebecca Flanagan.

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