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Party Awarded Attorney Fees Despite Losing Contractual Claims

Construction & Contractor Disputes and Real Estate Law by Simon Offord, Esq.

Attorney fee provisions often drive lawsuits, and become a significant battle after the trial is over.  The recent case of Maynard v. BTI Group was no exception.

Catherine Maynard entered into a listing agreement, engaging BTI Group Inc. to broker the sale of Maynard’s retail business. The agreement provided for reasonable attorney fees to the prevailing party in the event of a dispute between the parties. Specifically, the attorney fee provision stated:

“All parties to this agreement agree to mediate, in good faith, any dispute prior to initiating arbitration or litigation. The prevailing party in the event of arbitration or litigation shall be entitled to costs and reasonable attorney fees except that any party found in those proceedings to have failed to mediate in good faith shall not be so entitled.”

After the sale of Maynard’s business the buyer filed for bankruptcy and part of the purchase price went unpaid.  Maynard had asked BTI to obtain security from the buyer, however BTI failed to do so. As a result, Maynard sued BTI for breach of contract, breach of fiduciary duty, negligence, negligent misrepresentation, fraud in the inducement, fraudulent misrepresentation, and rescission.

The trial court awarded Maynard $24,000 plus interest on her negligence claim, but found in favor of BTI on the other claims, including the two contract theories. Both parties moved for attorney fees after the conclusion of trial.  Maynard sought attorney fees as the prevailing party as she was awarded damages on her negligence claim.  BTI sought attorney fees as the prevailing party on the breach of contract cause of action. The trial court ruled Maynard was the prevailing party and awarded her fees, and the appellate court agreed.

Civil Code Section 1021 provides that the method of awarding attorney fees is left to the parties’ agreement, except when attorney fees are provided for by statute. A contract provision may provide for prevailing party attorney fees even to the party who prevails on non-contractual claims.

In the instant case, unlike some attorney fee provisions that limit the right to recover attorney fees to a party who prevails only on contract claims, the court determined that this attorney fee provision entitled the prevailing party in the overall dispute to recover attorney fees. Consequently, under the listing agreement, Maynard was the prevailing party even though she recovered only on a tort theory and lost on the contract claims.

The case highlights the importance of careful language in the attorney fee provision in a contract.  The courts allow the parties to make their own agreements, and the parties must live with the specific language they have contractually agreed to.  Thus, it is imperative that when signing a contract, whether it be a listing agreement, purchase contract, or any other contract, it is important to understand how broad or limited the attorney fee provision is.

If you have questions about a contractual dispute, or any real estate related legal issues, please contact Brewer Offord & Pedersen LLP at (650) 327-2900.

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