Civil Code section 1717, which authorizes an award of attorney fees to the prevailing party in a contract action, was intended to establish uniform treatment of fee recovery in actions on contracts containing attorney fee provisions and to eliminate distinctions between fee awards based on contract or statute. Thus, restrictive language in a contractual attorney fee provision will not always be given effect as equitable and public policy considerations under section 1717 prevail over technical rules of statutory construction.
Language in a contractual fee provision which attempts to alter the definition of “prevailing party” or which defeats the mutuality of an attorney fee provision will not be given effect. Language, however, which merely creates a condition precedent to an award of fees, such as a condition that the party seeking fees must seek to mediate the dispute before filing suit or arbitration, is enforceable if mutual and not in conflict with the public policy objectives of section 1717.
In the unpublished case of Abbey v. Fortune Drive Associates the court held that a provision in the arbitration agreement that permitted an award of fees only if the arbitrator determines that the non-prevailing party “acted arbitrarily, vexatiously, not in good faith and/or unreasonably’” was enforceable.
The court determined the provision, limiting attorney fees to parties who have encountered unreasonable conduct by the non-prevailing party, does not offend any policy objectives of section 1717: 1) It did not alter the definition of a prevailing party; 2) The limitation did not change the nature of the determination under section 1717 — it merely limited fee recovery to a specific fact finding so that a prevailing party will not necessarily recover attorney fees. Since section 1717 contains no requirement that a prevailing party must recover attorney fees, the restriction was deemed enforceable.
Michael Daymude consults with clients and accepts cases involving contractual disputes, including disputes involving contractual fee provisions. For other types of cases accepted, please scroll the Home and My Practice pages. If you are seeking a legal consultation or representation, call Michael at 818.971.9409.