In civil litigation, each party to a lawsuit ordinarily pays its own attorney’s fees. However, the parties to a contract may include a provision to award attorney’s fees to the prevailing party in a contractual dispute. In a recent case, the court determined that there could be more than one prevailing party in a lawsuit and offered the caution that a contractual plaintiff should be wary of naming multiple defendants.
In Burkhalter Kessler Clement & George LLP (“BKCG”) v. Jennifer Hamilton (“Hamilton”), Court of Appeal of the State of California, Fourth Appellate District, Division Three, Case No. G054337, filed January 8, 2018, BKCG subleased office space to Eclipse Group LLP (“Eclipse”). The sublease was signed for Eclipse by its managing partner (Hamilton) and included a provision for an award of reasonable attorney’s fees to the prevailing party in the event of a lawsuit.
BKCG filed a complaint against Eclipse alleging breach of contract and named Hamilton as an alter ego defendant. Eclipse and Hamilton were represented in the matter by the same attorney (“Avyno”). BKCG prevailed over Eclipse in a summary judgment motion; however, Hamilton bested BKCG on the alter ego theory and was dismissed with prejudice. BKCG moved for, and the trial court granted, its attorney’s fees against Eclipse; however, the trial court awarded only costs to Hamilton and denied her motion for attorney’s fees. On appeal, the appellate court noted that BKCG’s success against Eclipse on the breach of contract claim did not prevent Hamilton from recovering her attorney’s fees on the alter ego claim, and that BKCG’s alter ego claim against Hamilton had to be separately examined to determine the “prevailing party” as between those two litigants. Viewing that claim in isolation, Hamilton had secured a judgment of dismissal with prejudice and was clearly the prevailing party. The appellate court reversed the trial court and remanded the case with the instruction for the trial court to award Hamilton reasonable attorney’s fees incurred by Avyno solely in her defense.
Lessons to be learned here?
1. Civil Code section 1717 provides a remedy for a non-signatory defendant (as Hamilton) on a contract claim to recover under the contract’s prevailing party attorney’s fee provision.
2. A contractual plaintiff should not frivolously name individual alter ego defendants for it may win against the primary defendant, only to be liable for the attorney’s fees of the individuals.
3. A contractual plaintiff should consider holding off on an early alter ego claim and later seek to amend a prevailing judgment to include alter ego parties (as the failure to allege alter ego does not preclude a motion to amend the judgment. Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1074).