Unreported / Non-Citable
Background
Derek Jones and his former wife owned a two-unit residential property in Los Angeles County. In February 2014, Jones met with Joseph Eaton and others representing the "Plaza Group," which offered to procure a $500,000 loan secured by the property. After Jones struggled to stay current, the Plaza Group brokered a refinance. In 2016 the trustee scheduled a foreclosure sale. Jones entered into a forbearance agreement with IKON, an entity associated with the Plaza Group, to postpone the sale, and wired the required $10,000, but because Alladawi supplied a wrong routing number the June 17, 2016 sale proceeded; IKON purchased the property for $100,000 and later sold it to Industrial Strength Investments M, LLC, of which Eaton was both manager and member. In June 2018 Jones sued Eaton and other defendants, alleging a fraudulent scheme to steal his equity. In his third amended complaint, filed August 30, 2022, Jones revised his breach of written contract cause of action to allege it against "All Defendants," including Eaton, based on the forbearance agreement, which contained an attorney fee clause. The complaint's signature block was unsigned, and Jones did not serve it on Eaton as of October 2023.
Eaton filed a demurrer to the third amended complaint and then a motion to dismiss under the five-year rule. The trial court granted the motion to dismiss, vacated the demurrer hearing, and entered judgment in Eaton's favor; that judgment was affirmed in a prior appeal. Eaton then moved for attorney fees under Civil Code section 1717, seeking $237,845 for October 2020 through April 2024. The trial court granted the motion in part, awarding $99,071.65 in fees plus $2,032.75 in costs for October 2023 through April 2024. The court found Jones first alleged Eaton was liable for breach of the forbearance agreement in the third amended complaint, and because billing records did not show precisely when counsel received it, the court assumed counsel began legal tasks related to it in October 2023.
The Court’s Holding
The Court of Appeal affirmed. It held that Eaton was entitled to attorney fees under section 1717 even though he was not a signatory to the forbearance agreement. Because Jones's third amended complaint alleged the breach of written contract claim against all defendants and included general allegations that defendants were agents, partners, joint venturers, or alter egos of one another, Jones could have recovered fees from Eaton had he prevailed. Under section 1717's reciprocity principle, that exposure entitled Eaton to fees when he instead prevailed. The court distinguished Super 7 Motel Associates v. Wang, where the plaintiff sought rescission and remaining claims sounded in fraud, whereas here Jones sued for breach of contract under theories extending to Eaton.
The court also held that Eaton was the prevailing party as a matter of law. Because the action was dismissed under the five-year rule, producing an unqualified victory for Eaton on the only contract claim, the trial court had no discretion to deny prevailing party status. Finally, the court rejected Jones's challenges to the amount, concluding that Jones failed to provide an adequate appellate record or identify specific billing errors, and therefore did not demonstrate an abuse of discretion in calculating the fees, in impliedly determining they need not be apportioned, or in selecting October 2023 as the starting point.
Key Takeaways
- A nonsignatory defendant may recover attorney fees under Civil Code section 1717 when the plaintiff's operative complaint alleges a contract claim against that defendant under theories that would have supported fee recovery had the plaintiff prevailed.
- A defendant who obtains dismissal of the only contract claim under the five-year rule is the prevailing party under section 1717 as a matter of law.
- General allegations of agency, partnership, joint venture, or alter ego can extend contractual fee exposure to defendants who are not signatories to the contract.
- An appellant challenging a fee award must provide an adequate record and identify specific objections; general claims of excessiveness or failure to apportion are insufficient.
- Trial courts have broad discretion to determine the starting point for fee awards when billing records do not precisely establish when compensable work began.
Why It Matters
The decision reinforces the reciprocal nature of attorney fee rights under Civil Code section 1717, confirming that nonsignatory defendants may recover fees when plaintiffs plead contract claims against them under broader liability theories. It underscores that the operative complaint defines fee exposure and that a dismissal under the five-year rule makes the defendant the prevailing party as a matter of law.
The ruling has practical implications for multi-defendant contract litigation. Plaintiffs who add nonsignatory defendants to contract claims via vicarious liability theories create reciprocal fee exposure under section 1717. The decision also highlights the burden on appellants to present a sufficient record when challenging fee awards, as general arguments cannot overcome the presumption of reasonableness.