Mediation Message No. 104



Karton v. Dougherty (2014) 231 Cal.App.4th 600 demonstrates that determining the prevailing party in a Code of Civil Procedure section 1717 attorney’s fee motion is not always easy. In that matter, Karton represented Dougherty in a marital dissolution action. The retainer agreement contained an attorney’s fee provision providing, in substance, that the prevailing party in the collection of fees and/or the costs shall be entitled to legal fees and costs. Karton sued Dougherty, seeking to recover $65,246.63 in unpaid fees and costs, plus interest. Later on, the trial court entered a default judgment against Dougherty for $86,676.88, including accrued prejudgment interest, attorney fees and costs. Karton collected approximately $56,000 in partial satisfaction of the judgment. Thereafter, after Karton received an award from the trial court in excess of $1.1 million to enforce the original judgment, the appellate court reversed because Dougherty had not received notice of Karton’s application for that award.

On remand, the trial court granted Dougherty’s motion to vacate the default. The matter then proceeded to arbitration in which the panel decided that Dougherty had already paid Karton an amount in excess of the amounts owed for legal services plus interest on the amounts billed. The arbitration award did not provide for any relief to either party, other than finding that the arbitration fees shall be equally divided between the parties. The trial court granted Karton’s petition to vacate the arbitration award and for trial de novo. In a court trial, the court found that Karton had recovered all of the principal and interest payments due under the retainer. Although the trial court concluded that Dougherty’s contractual debt to Karton had been fully repaid, with interest, and that Karton was therefore not entitled to damages or any other remedy on the breach of contract, it found that Karton had established the breach of contract claim because it had to sue Dougherty to recover fees owed. The judgment stated that Karton may seek by way of post-trial motion legal fees and costs reasonably and necessarily incurred by it.

On appeal, the court found that Dougherty, and not Karton, was the prevailing party and directed the trial court to enter a new and different order granting Dougherty’s motion to be determined the prevailing party under both Code of Civil Procedure sections 1717 and 1032. Section 1717 provides, in pertinent part, that “(a) 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.” Subdivision (b)(1) states “Except as provided in paragraph (2), the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. … Where the defendant alleges in his or her answer that he or she tendered to the plaintiff the full amount to which he or she was entitled, and thereupon deposits in court for the plaintiff, the amount so tendered, and the allegation is found to be true, then the defendant is deemed to be a party prevailing on the contract within the meaning of this section.”

Besides finding that Karton had not recovered any relief in the action on the contract, the court reasoned that Dougherty’s claim to be the prevailing party was stronger because he had alleged not merely that he had tendered the full amount of the contractual debt but also that Karton had actually collected the entire debt, including interest, leaving nothing for Dougherty to deposit with the court. The court also found that the Supreme Court’s analysis in Hsu v. Abbara (1995) 9 Cal.4th 863, 865-866 dictated that Dougherty is the prevailing party. Hsu held that when the trial court “renders a simple, unqualified decision in favor of the defendant on the only contract claim in the action[,] … the defendant, who is unquestionably the sole victor, is the party prevailing on the contract as a matter of law and therefore entitled to reasonable attorney fees under section 1717.” Thus, “The Hsu holding applies straightforwardly here. The trial court rendered a simple, unqualified decision in favor of Dougherty on the only contract claim in the action—the court expressly determined that Dougherty owed Karton nothing on the contract because Dougherty had fully paid his contractual debt to Karton (with interest) nearly four years before trial. Dougherty is therefore the sole victor, is the prevailing party on the contract as a matter of law, and is entitled to reasonable attorney fees under section 1717.”

As to costs, the appellate court found that Dougherty was the prevailing party under section 1032, the controlling statute. Section 1032, subd. (a)(4) provides that the “’Prevailing party’” includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant.” The appellate court found that Dougherty was the prevailing party because neither he nor Karton had obtained any relief and Karton had not obtained any relief against Dougherty.

MDM’s observations: Karton v. Dougherty’s most important lesson is that when moving to collect fees and costs under section 1717, pursuant to a contract claim, make certain that the trier of fact has found that you prevailed on the contract claim. Karton lost sight of that basic principle and forged ahead after the trial court held that it was not entitled to damages on the claim.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, November 2014

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