A recent CEBblog article, “How to Get Reciprocal Contractual Attorney Fees,” by Julie Brook, reports on reciprocal attorney fee shifting provisions under California’s § 1717. This article was posted with permission. The article reads:
It’s like magic: California’s CC §1717 transforms a unilateral attorney fee provision in a contract into a reciprocal one! When the contract provides for attorney fees to either a particular party or the prevailing party, the prevailing party “on the contract” is entitled to recover reasonable attorney fees regardless of whether that party was the party specified in the contract. But taking advantage of this statute depends on meeting the following five requirements.
- There must be an attorney fees provision. Section §1717 can convert a one-way attorney fee clause into a mutual and reciprocal clause, but it can’t create an attorney fee provision out of thin air. The contract at issue must include at attorney fee provision for the statute to have any effect.
- Only the prevailing party gets fees. A party’s right of recovery depends on whether that party is determined by the court to be the prevailing party. There’s no prize just for participating.
- The action must be “on the contract.” When it comes to CC §1717, courts have construed “on a contract” broadly to apply to any action that involves a contract. But it doesn’t apply to tort claims such as fraud if the lawsuit doesn’t also seek to enforce or avoid enforcement of the contract. And it also doesn’t apply to promissory estoppel claims, because they’re based on equitable principles.
- The fees recovered must be “reasonable.” One of the purposes of CC §1717(a) is to assure uniform treatment of attorney fee recoveries in actions on contracts with attorney fee clauses and to eliminate disparities based on whether the recovery was authorized by contract or by statute. PLCM Group, Inc. v Drexler (2000) 22 C4th 1084. So §1717(a) limits the amount of fees recoverable to “reasonable” fees as “fixed by the court,” even if the contract clause doesn’t limit recovery to reasonable levels.
- Attorney fee clause applies to the whole contract. If a contract has an attorney fee clause, that provision will be construed to apply 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. CC §1717(a).
For more on recovery of attorney fees by contract, check out CEB’s California Law of Contracts, chap 9. And when deciding whether to include an attorney fee provision in a contract, turn to CEB’s Drafting Business Contracts: Principles, Techniques and Forms §§15.18-15.20.
Other CEBblog™ posts you may find useful:
- Review This Before Drafting a Contract
- Contract Drafting 101
- In the Divorce Wars, Who Pays the Attorney Fees?
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