Khan v. Shim

When a contract’ attorney fee clause is broad enough to cover tort as well as contract claims, the defendant is the prevailing party entitled to a fee award on the tort, but not the contract, claims when the plaintiff voluntarily dismisses the action before trial.  Under Civ. Code § 1717(b)(2), there is no prevailing party for attorney fee purposes if the action is voluntarily dismissed or dismissed on a settlement.  That rule applies to all attorney fees awarded on actions “on a contract” whether the attorney fee clause is one-sided or bilateral.  However, section 1717(b)(2) applies only to actions on a contract—for example, to the breach of contract and rescission claims in this case.  Section 1717(b)(2) does not apply to tort claims or other claims not on the contract.  Here, the attorney fee clause provided for fees to the prevailing party in any litigation concerning the contract’s terms, interpretation or enforcement or the rights and duties of any party in relation thereto.  The decision holds that plaintiff’s fraud claims fell within the scope of this clause because they were directly tied to allegations that certain of the contract terms were false and thus fell within the reach of the fee provision covering “any litigation . . . concerning [the contract’s] terms.”  As to the fraud claims, Civ. Code § 1717(b)(2) does not apply, so the defendant is the prevailing party entitled to fees despite the voluntary dismissal of those claims.  So the trial court must allocate defendant’s fees between the contract and tort claims, awarding defendant only the fees incurred in defending the tort claims.

California Court of Appeal, Sixth District (Rushing, P.J.); December 29, 2016; 2016 WL 7473800

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