Recovering Attorney Fees in San Diego Contract Disputes: Even a Dollar is Enough Says Court

If there is litigation over a breach of contract, many well-crafted San Diego business contracts have fee shifting provisions whereby one party or the other can ask the court to award attorneys’ fees. These are generally called “prevailing party” clauses — that is, the “prevailing party (the party that “wins”) is entitled to fees. Attorneys’ fees and court costs are expensive and, to truly obtain the benefit of the bargain struck in the contract, a plaintiff must recover attorneys’ fees and litigation expenses. A fee shifting clause might read be something as simple as: “In the event of litigation or other proceeding to enforce this Agreement, in addition to all other damages, the prevailing party shall be entitled to receive its attorneys’ fees, litigation expenses, and costs.” To ensure that you are fully protected in your business contracts, it is essential to seek the advice and counsel of an experienced San Diego corporate attorney.

Sometimes the question arises with respect to which party prevailed. A recent opinion was issued by the Second District California Court of Appeals dealing with this issue. In that case, the “prevailing party” was awarded one dollar ($1) in damages and was still deemed the “prevailing party.” See Regency Midland Construction, Inc. v. Legendary Structures, Inc., Case No. B292602 (Cal. App. 2nd Dist. November 7, 2019).  In that case, the contract at issue did not provide a definition of “prevailing party.” As such, the court was required to make its own determination of which party won.

The case involved the construction of an apartment building. The general contractor, Regency Midland Construction, Inc. (“RMC”), hired a subcontractor, Legendary Structures, Inc., for the concrete work. Per normal custom in the construction industry, the contract allowed RMC to retain 10% of each payment to Legendary as a guarantee of performance. About a million dollars was paid to Legendary for its work, but Legendary ceased working on the project. Regency was forced to hire a new concrete subcontractor to finish the project. Regency retained possession of the retention money (about $125,000). When the concrete work was completed, Legendary asked for the retention monies to be paid to it since the concrete work had been completed. Regency said “no.” Regency took the position that since some other concrete contractor finished the work, Legendary was not entitled to more payments. Regency kept the retention monies.

Legendary eventually sued RMC to recover the monies. In response, RMC counter-sued Legendary for breach of contract. At trial, Legendary lost on the question of the retention money and was awarded nothing. RMC won on the issue of breach of contract, but since there was little or no injury to RMC flowing from the breach of contract by Legendary, RMC was awarded only $1 in damages.

Thereafter, RMC claimed that it was the “prevailing party” and asked the trial court to award attorneys’ fees and litigation expenses. The trial court agreed and awarded fees and expenses to RMC. On appeal, the Court of Appeals agreed. The court began by noting that, if the contract allows it, a prevailing party is entitled to recover attorney fees and expenses. Next, the court stated the rule that, absent a definition provided by the contract, trial courts use practical and common sense to determine who is the prevailing party. The court noted that many factors can be evaluated, but the practical question is the extent to which each party has realized its litigation objectives.

With respect to RMC, as a practical matter, it prevailed. It defeated the claims made by Legendary and also secured a victory on its breach of contract claim. That the damages were only $1 did not defeat the fact that RMC won. Further, the court rejected Legendary’s argument that RMC asked for much more than $1 and therefore could not be a “prevailing party.” Sometimes the disparity between the requested damages and the damages awarded can be the basis for deciding that a party did not prevail. But this was not such a case.

Contact San Diego Corporate Law

For more information, call Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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