Key Decisions

October 2013 – A Defendant Was Entitled To Attorney’s Fees

(filed under: Key Decisions | October 20, 2013)

A Defendant Was Entitled To Attorney’s Fees

Brown Bark III, L.P. v. Haver
(Cal. Ct. of App., 4th Dist.), filed August 26, 2013, published September 13, 2013

Brown Bark III, L.P. sued Jaimie Haver and Westover Capital Corporation to recover funds Westover Financial, Inc. failed to repay on a revolving line of credit. Although Westover Capital was not a party to the contracts that created the line of credit, Brown Bark sued Westover Capital for breach of those contracts on a successor liability theory. Brown Bark also sued Haver and Westover Capital for conversion and fraud, alleging they converted the Westover Financial assets pledged as security for the line of credit and made misrepresentations to prevent and delay Brown Bark’s efforts to recover the outstanding balance from Westover Financial.

At trial, Haver and Westover Capital won on all of Brown Bark’s causes of action. They then sought their attorney’s fees under the fee provisions in the line of credit contracts. The trial court denied their fee motion.

Haver and Westover Capital appealed.

The Court of Appeal reversed in part and affirmed in part.

The court found that the trial court erred in failing to award Westover Capital its attorney’s fees on the breach of contract causes of action.

Civil Code Section 1717 makes an otherwise unilateral attorney’s fee provision reciprocal and entitles a noncontracting party to recover contractual attorney’s fees when it defeats a contract-based cause of action that would have made the noncontracting party liable for contractual attorney’s fees had it lost.

Brown Bark would have recovered its attorney’s fees if it had prevailed on its successor liability theory against Westover Capital because the line of credit contracts made its fee provisions binding on the contracting parties’ successors. Section 1717 therefore allowed Westover Capital to recover its attorney’s fees because it defeated claims for breach of the line of credit contracts that would have exposed Westover Capital to attorney’s fees liability had it lost.

Section 1717 only applies to contract causes of action. Therefore, Westover Capital was not entitled to attorney’s fees on the tort causes of action.

The appellate court affirmed the trial court’s order denying Haver’s fee motion. She was not a party to the line of credit contracts and Brown Bark did not sue her for breaching those contracts. Because Haver never faced attorney’s fees liability under the line of credit contracts, she could not invoke Section 1717 to recover her fees.