Mediation Message No. 98

MICHAEL D. MARCUS’S MEDIATION MESSAGE NO. 98

ATTORNEY’S FEES AND THE TORT OF ANOTHER

According to the American rule, “except as provided by statute or agreement, the parties to litigation must pay their own attorney fees.” (21st Century Insurance Co. v. Superior Court (2009) 47 Cal.4th 511, 531.) An established exception to the rule is the “tort of another” or “third party tort” which allows parties their attorney’s fees if required to employ counsel to prosecute or defend an action against a third party because of a defendant’s tort. (Prentice v. North American Title Guaranty Corp. (1963) 59 Cal.2d 618, 620.)

In Prentice, plaintiffs sold land to the Hortons for a deed of trust for most of the purchase price and subordinated that interest to any loan the Hortons might obtain to construct an apartment building on the land. The Hortons obtained a loan from Neal but used the proceeds for purposes other than constructing an apartment house. Plaintiffs sued the Hortons, Neal and North American Title Guaranty (North American). The counts against North American were based on negligence. The trial court found that North American had been negligent in closing the sale and awarded plaintiffs their attorney’s fees in prosecuting Horton and Neal.

Prentice holds that plaintiffs could recover their attorney’s fees from North American because they had been required by North American’s negligence to bring a successful quiet title action against the Hortons and Neal (id. at p. 620) and the causes of action against the Hortons, Neal and North American could be “tried in the same court at the same time.” (Id. at p. 621.)

Mega RV Corporation v. HWH Corporation (2014) 225 Cal.App.4th 1318 reminds that the existence of an underlying tort by a defendant is a basic requirement for applying the tort of another. In that case, the Ertzes sued Mega RV (the retailer of an allegedly defective motor home), Country Coach (the manufacturer of the motor home) and Bank of America (which had financed the transaction), under the Song-Beverly Consumer Warranty Act. Mega RV cross-complained for partial indemnification against HWH Corporation, which had manufactured hydraulic components for the motor home. The trial court concluded HWH was not required to indemnify Mega RV and  awarded $166,000 to HWH in attorney’s fees because of the tort of another and against Mega RV, pursuant to HWH’s cross-complaint. HWH had argued it was entitled to these fees because Mega RV was negligent in servicing the Ertzes’ motor home.

After agreeing with the trial court that Mega RV was not entitled to indemnity from HWH, the  appellate court found that the tort of another did not apply and struck the award of damages to HWH, because no tort had been committed by any of the defendants against the Ertzes and the Ertzes had not sued for negligence, or any other tort. (Id. at p. 1338.) The appellate court also rejected HWH’s contention that Mega RV had negligently serviced the Ertzes’ motor home since Mega RV owed no duty of care to HWH with regard to servicing the motor home. (Id. at p. 1339-1342.) The court reasoned, “(T)he connection between HWH’s harm and Mega RV’s servicing of the motor home is extremely attenuated. There is no moral blame attached to Mega RV’s servicing repair failures, even assuming failures occurred; there was certainly no evidence of reckless or purposeful behavior, or of anything other than economic damages suffered by anyone involved in this case. Imposing a duty on retail sellers to component part manufacturers like HWH would not reduce the likelihood of future harm; retail sellers like Mega RV already have strong incentives (relationship with retail buyers, relationship with manufacturers, financial liability, reputation) to perform adequate repair and warranty services.” (Id. at p. 1342.)

MDM’s word of caution: Manning v. Sifford (1980) 111 Cal.App.3d 7, 10-12, which was criticized by both Mega RV Corporation and Sooy v. Peter (1990) 220 Cal.App.3d 1305, 1311–1312, holds that the tort of another does not require the existence of a tort. Regardless, until the California Supreme Court resolves this conflict, parties who plan to sue for their attorney’s fees, pursuant to the tort of another, should be careful to identify an existing tort committed by a defendant; otherwise, like HWH, they face losing that 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, May 2014

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