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California Appellate Panel Says Clause Allowing Attorney Fees Did Not Extend Past Arbitration

March 18, 2011 | Posted in : Expenses / Costs, Fee Agreement, Fee Award, Fee Entitlement / Recoverability, Fee Issues on Appeal, Prevailing Party Issues

In a recent Metropolitan News story “Court of Appeals for this District Tosses Post-Judgment Attorney Fee Award” reports that a California Court of Appeals has thrown out a $22,500 attorney fee award in a breach of contract suit against a San Fernando Valley area investment brokerage by a former employee.  The appellate court concluded a clause in a contact between Krikorian Investment Services Inc. and Iman Eshaghyan only provided for a recovery of attorney fees incurred in connection with an arbitration.

Eshaghyan signed an employment agreement with Krikorian which provided, in part, that any dispute arising out of the agreement would be subject to arbitration and set forth the terms governing such a proceeding.  The contact stated that “all initial costs of arbitration” would be split between the parties, and the prevailing party “shall be entitled to reimbursement of attorney’s fees, costs, and expenses incurred in connection with the arbitration.”

Eshaghyan filed suit in 2007 alleging breach of contract and other counts.  The jury found in favor of Eshaghyan and awarded him $245,280 in damages.  Eshaghyan then sought recovery of his attorney fees, contending he was entitled to an award of $155,370 pursuant to the terms of his employment contract.  Los Angeles Superior Court Judge Ronald M. Sohigian granted the motion in part, awarding $22,500 in attorney fees against Krikorian Investment, indicating which contract he found to have supported the award.

Writing for the appellate court, Justice H. Walter Croskey noted the attorney fee clause in the employment agreement appeared in a paragraph expressly dealing exclusively with arbitration.  These repeated references to arbitration, Croskey reasoned, “leave no doubt that the parties intended to provide for a recovery of attorney fees by prevailing party only in the event of an arbitration and that only fees incurred in connection with an arbitration are recoverable.”  Since no arbitration took place, no fees were incurred “in connection with an arbitration,” as required by the terms of the employment contract, and so the agreement did not authorize the fee award to Esahaghyan, Croskey explained.