Civil Code §1717 Does Not Come Into Play, Hoffstadt Says
By a MetNews Staff Writer
The Court of Appeal for this district has determined that a fee-shifting provision in escrow instructions was broad enough to entitle the escrow company to an award of attorney fees after it prevailed in a tort action brought against it by the buyer.
Justice Brian M. Hoffstadt of Div. Two authored the unpublished opinion, filed Thursday.
The escrow instructions were dated Dec. 20, 2017. At the time, the buyer of a restaurant was Sang Woo Lee but the following month, he assigned his interest in the purchase agreement to Sushi KJ Corporation.
The seller had allegedly represented that no taxes were owed on the restaurant and when, a year after transfer of ownership, the State of California claimed a tax liability of $285,137.08, Sushi sued not only the seller, but also Hana Escrow Company, Inc., for fraud.
Hana filed a demurrer; Los Angeles Superior Court Judge Holly J. Fujie sustained it without leave to amend; Sushi appealed from the judgment of dismissal; while the appeal was pending, Hana filed a motion for attorney fees which Fujie denied; the judgment of dismissal was affirmed by Div. Two, in an opinion by Hoffstadt, on April 27; on Thursday, Div. Eight reversed Fujie’s denial of fees from Sushi but affirmed her denial of fees from Lee.
Included in the escrow instructions is this provision:
“The parties hereto…promise to pay on demand…any and all…attorney fees…occasioned [by] any party… incurred by the escrow holder in connection with instituting, prosecuting or defending litigation, which in good faith the escrow holder may thus incur and sustain.”
In denying Hana’s motion for attorney fees, Fujie’s said:
“Civil Code section 1717 provides: in any action on a contract, where such contract specifically provides that attorney’s fees and costs, which are incurred to enforce the provisions of such contract, shall be awarded to one of the parties, the prevailing party, whether he is the party specified in the contract or not. shall be entitled to reasonable attorney’s fees in addition to costs and necessary disbursements….The phrase ‘action on a contract’ in Civil Code section 1717 includes not only a traditional action for damages for breach of a contract containing an attorney fees clause, but also any other action that ‘involves’ a contract under which one of the parties would be entitled to recover attorney fees if it prevails in the action….An action for fraud sounds in tort and is not ‘on a contract’ for purposes of an attorney fee award, even though the underlying transaction in which the fraud occurred involved a contract containing an attorney fee clause….
“The Court finds that Moving Defendant has not set forth a basis for the recovery of attorney’s fees in connection this action.”
Hoffstadt disagreed, saying that the escrow instructions “constitute a contract,” that contract “independently authorized an award of attorney fees against Sushi, making it unnecessary to resort to Civil Code section 1717.”
He noted that the attorney-fee provision “obligates Sushi (a party) to pay any and all attorney fees incurred by Hana (the escrow holder) in defending the litigation Sushi initiated,” and wrote:
“Because ‘any and all’ is broadly phrased, this clause renders Sushi liable for attorney fees Hana incurs in defending itself against tort claims as well as contract claims.”
Lee became a plaintiff in Sushi’s action against Hana as of the second amended complaint. An award of attorney fees may not be made against him, Hoffstadt said, explaining:
“The attorney fee clause that authorizes a fee award against Sushi only applies to ‘part[ies].’ When Lee assigned ‘all rights, title, interest in and to the’ restaurant to Sushi, he ceased to be a ‘party’ to the escrow instructions, and hence no longer liable for attorney fees as a ‘party.’ ”
The matter was remanded to the trial court for a setting of fees which will include fees in connection with the appeal, given that the opinion specifies that Hana will receive “costs on appeal.”
A hearing is scheduled for Dec. 8 on Hana’s motion for attorney fees in connection with the appeal decided on April 27.
Hoffstadt’s opinion on Thursday came in Sushi KJ Corp. v. Hana Escrow Co., B325421.
Riverside attorney Glenn Andrew Williams represented Hana and Gregory S. Kim and Vincent Chan of the mid-Wilshire Law Offices of Gregory S. Kim acted for Sushi.
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