A recent Metropolitan News story, “Parties May Render Award of Attorney Fees Discretionary,” reports that a contract that provides that the court “may” award attorney fees to the prevailing party is outside the ambit of Civil Code §1717 and such an award is discretionary, the Fifth District Court of Appeal has held in a 2-1 decision.

Acting Presiding Justice Bert Levy wrote the majority opinion, along which Justice Jennifer R.S. Detjen.

Notwithstanding that the opinions came, as noted by dissenting Justice Kathleen Meehan, in a “a case of first impression,” they were not certified for publication.

The majority, in its opinion filed Tuesday, affirmed the decision of retired Tulare Superior Court Judge Lloyd L. Hicks, sitting on assignment, who denied attorney fees to Universal Biopharma Research Institute, Inc., the prevailing party in a dispute over a lease. Biopharma asserted that §1717 renders an award mandatory.

The lease in question provided:

“In the event of any proceedings brought by either party against the other under this lease, the prevailing party may be entitled to recover the fees of their attorneys in such action or proceedings for such amounts as may be adjudged reasonable attorney’s fees.”

Hicks reasoned that use of the word “may” rendered an award discretionary.

Agreeing, Levy said:

“The court noted that standard attorney fees contracts make an award of fees to the prevailing party mandatory by simply using the word ‘shall.’ Here, however, the contract states the prevailing party ‘may’ be entitled to fees.

“The trial court’s interpretation of the attorney fees provision is reasonable.”

Section 1717, relied upon by Biopharma—which sought fees of about $197,000—provides, in part:

“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.”

That section, Biopharma argued, prevails over the lease provision and renders the award of attorney fees mandatory.

Levy responded:

“[T]he text of section 1717 limits its reach to contracts with mandatory attorney fees provisions, i.e., where the contract specifically provides that attorney’s fees and costs shall be awarded. Thus, by its terms, section 1717 does not apply to the lease agreement at issue here.”

Cases relied upon by Biopharma proclaiming an award of fees to be mandatory did not involve contractual clauses specifying that an award would be discretionary, Levy noted.

He said the wording of §1717 “does not indicate that courts must construe discretionary contractual attorney fee provisions as mandatory” but “simply reflects the statute’s purpose of establishing mutuality of remedy and thereby preventing inequitable mandatory attorney fees awards.”

The jurist pointed to Code of Civil Procedure §1021 which provides: “Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties….”

Levy continued:

“Section 1717 assumes parties have the right to enter into agreements for the award of attorney fees, a right derived from Code of Civil Procedure section 1021….However, section 1717 has a limited application. By its terms, it covers contract actions only where the contract sued upon includes a mandatory attorney fee provision.”

He went on to dispel the implication that a party, by inserting a provision rendering the award of attorney fees discretionary, could specify that such an award could be made only in favor of that party, declaring:

“Here, the parties agreed to a bilateral discretionary attorney fee provision, not a one-sided mandatory fee provision. Thus, this attorney fees clause does not contravene either the terms or purpose of section 1717. Section 1717 does not abolish the general rule that parties have the right to enter into contracts with either no attorney fee provision or a discretionary fee provision.”

Meehan said in her dissent:

“[T]he majority has created a class of contractual attorney fees provisions that will fall outside the statute enacted to govern them. Contracting parties may circumvent Civil Code section 1717 (section 1717), and undermine the public policies upon which it is based, by making the statute’s otherwise mandatory application discretionary in strategically drafted private agreements. Section 1717 governs a narrowly tailored category of attorney fees awards where a party prevails on causes of action to enforce the contract in which a fees provision is contained. Given the statute’s narrow focus, and its comprehensive definitions and requirements, it is unlikely the Legislature intended that it would be limited, much less optional, in its application.”

The case is City of Dinuba v. Universal Biopharma Research Institute, F072497.