California-American Water Co. v. Marina Coast Water Dist.
California-American Water Co. v. Marina Coast Water Dist.
Opinion of the Court
*574This consolidated appeal challenges trial court orders requiring appellant Marina Coast Water District (Marina) to pay attorney fees incurred by respondents California-American Water Company (California-American) and Monterey County Water Resources Agency (Monterey) after respondents successfully argued that contracts between the parties were void. Marina argues that respondents are not entitled to fees under Civil Code section 1717 ( section 1717 ) because the underlying contracts that were the basis for the fees were declared void. We reject the argument and affirm.
I.
FACTUAL AND PROCEDURAL BACKGROUND
The factual and procedural background of this case was discussed at length in our decision in California-American Water Co. v. Marina Coast Water Dist. (2016)
*575( Id . at p. 751,
After learning that a member of Monterey's board of directors had a conflict of interest because he had been paid for consulting work to advocate for the agreements on behalf of Marina, California-American filed this lawsuit to have the contracts declared void under Government Code section 1090. ( California-American I, supra, 2 Cal.App.5th at p. 753,
In this appeal, Marina challenges two post-judgment orders entered by the trial court regarding attorney fees. In the first order, the trial court ruled that California-American and Monterey were entitled to costs after the court found they were the "prevailing [parties] under both" Code of Civil Procedure section 1032 and section 1717. Marina appealed from this order in case number A146166. In the second order, the trial court granted California-American and Monterey's motions for specific attorney fees awards. Marina appealed from this order in case number A146405. We consolidated the two appeals.
II.
DISCUSSION
Marina challenges California-American and Monterey's legal entitlement to attorney fees but not the amount of fees awarded. It contends that section 1717 authorizes a fees award only in cases involving an "action on a contract."
*576According to Marina, the trial court improperly rewarded California-American and Monterey twice: "first, for escaping their contractual obligations on grounds not based upon the terms of the contracts nor any contractual breach by Marina, and second, by obtaining an award of attorney fees against Marina in reliance on one of the very same contracts that they successfully argued was void."
We review de novo the legal basis for an award of attorney fees. ( Exarhos v. Exarhos (2008)
A. The Trial Court Properly Ruled that this Case Was an "Action on a Contract" for Purposes of Awarding Attorney Fees Under Section 1717.
We begin with an overview of the applicable law. Section 1717, subdivision (a) declares that "[i]n any action on a contract , where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." (Italics added.) Marina argues that the trial court's attorney fees award contravened *114section 1717's limitation that fees be awarded only in an action on a contract "[b]ecause there were never any contract-based claims at issue" and because the only issue litigated was the "effect" of the board member's conflict of interest "on the validity of the ... contracts." According to Marina, the case was not an action on a contract because the contracts at issue were ultimately declared void ab initio under Government Code section 1090. We admit some intuitive appeal to the argument. How can an attorney fees provision in a contract govern the parties' fees obligations when the contract itself is deemed to have been void from its inception? The argument, however, is ultimately unpersuasive for the reasons explained by the Supreme Court in Santisas v. Goodin (1998)
In Santisas , the Court recounted that the "[t]he primary purpose of section 1717 is to ensure mutuality of remedy for attorney fee claims under *577contractual attorney fee provisions." ( Santisas, supra , 17 Cal.4th at p. 610,
In Eden Township Healthcare Dist. v. Eden Medical Center (2013)
Marina argues that Eden Township does not control here for two reasons. First, it contends that Eden Township , unlike this case, "was unquestionably 'on a contract' ... [because] the cross-complaint at issue arose from a complaint that alleged a breach of contract and sought specific performance."
*578Second, it points out that in Eden Township , unlike here, "the contract at issue ... was [adjudged to be] valid, not void."
Neither of these points need long detain us. On the first point, a complaint alleging that a contract is void under Government Code section 1090 involves, by definition, the issue whether the contract is valid and enforceable. And this is true regardless of whether the complaint also alleges specific contract claims or demands specific performance. In a case initiated by such a complaint, a party's entitlement to attorney fees under section 1717 turns on the fact that the litigation was about the existence and enforceability of the contract, not on the presence of particular contractual claims or a request for specific performance. (See Arthur L. Sachs, Inc. v. City of Oceanside (1984)
On the second point, Santisas was unequivocal in holding that a party can be entitled to attorney fees under section 1717 even when the contract at issue is adjudged to be inapplicable, invalid, unenforceable, or even nonexistent. ( Santisas, supra , 17 Cal.4th at p. 611,
It is true, as Marina points out, that in Eden Township , unlike here, "the contract at issue ... was [adjudged to be] valid, not void." But Eden Township made clear that the principle of mutuality applies to attorney fees obligations even when the contract is declared void: "It is worth noting, however, that if the District [the party that was unsuccessful in having the contracts declared void] had established the invalidity of the [contracts], then [it] could have invoked the mutuality of remedy doctrine to establish its entitlement to attorney fees." ( Eden Township, supra , 220 Cal.App.4th at p. 430,
*116"[T]he District was a party to the contract and it appears it would have had a right to claim its attorney fees *579under the mutuality of remedy doctrine had it prevailed on its cross-complaint [to have the contracts declared void]." ( Id. at p. 430, fn. 7,
As did the healthcare district in Eden Township , Marina here asserted a claim for attorney fees. And nobody disputes that if Marina had prevailed it would have been entitled to an award of its fees. But California-American and Monterey prevailed, and under mutuality principles they have "a right to claim [their] attorney fees." ( Eden Township, supra , 220 Cal.App.4th at p. 430,
B. The Fees Award Does Not Violate Public Policy.
According to Marina, the trial court's fees orders must be set aside because requiring a party who unsuccessfully defends a lawsuit seeking to have contracts declared void under Government Code section 1090 violates public policy since "attorney fee provisions in illegal contracts are-like the contracts themselves-unenforceable." Marina concedes that it did not preserve this argument in the trial court but asks us to consider it because it involves " 'purely a question of law.' " We exercise our discretion to consider the argument and reject it on its merits. ( In re Sheena K. , supra , 40 Cal.4th at p. 887, fn. 7,
Marina is correct that under section 1717" 'a different rule applies where a contract is held unenforceable because of illegality.' [Citations.] 'A party to a contract who successfully argues its illegality stands on different ground than a party who prevails in an action on a contract by convincing the court the contract is inapplicable, invalid, nonexistent or unenforceable for reasons other than illegality.' [Citation.] Because courts generally will not enforce an illegal contract, there is no need for a mutual right to attorney fees since neither party can enforce the agreement." ( Yuba Cypress Housing Partners, Ltd. v. Area Developers (2002)
But while the illegality exception to the rule of mutuality of remedies applies when the subject matter of the contract is illegal, it does not apply when, as here, the litigation involves the "invalidity" or "unenforceability" of an otherwise legal contract . ( Santisas, supra , 17 Cal.4th at p. 611,
III.
DISPOSITION
The trial court's orders are affirmed.
We concur:
*117Margulies, J.
Banke, J.
California-American and Monterey both argue that we need not address this argument because Marina failed to raise it below, with California-American going so far as to characterize the notion that Marina preserved it as "pure fantasy ." True, Marina focused below primarily on whether respondents were the prevailing parties for purposes of awarding attorney fees and not on whether the action was on a contract for purposes of section 1717. But Marina did cite the statute and raised the issue with enough specificity to preserve it for appellate review. Even if it had not, we would exercise our discretion to review the claim. (In re Sheena K. (2007)
In light of our conclusion affirming the fees award under section 1717, we need not resolve California-American's alternative contentions that Code of Civil Procedure sections 1032, 1033.5, and 1021.5 all provide independent bases to affirm the award.
Reference
- Full Case Name
- CALIFORNIA-AMERICAN WATER COMPANY, and v. MARINA COAST WATER DISTRICT, and Appellant Monterey County Water Resources Agency, and
- Cited By
- 13 cases
- Status
- Published