18 Cal. App. 5th 571
Cal. Ct. App. 5th2017Background
- California-American (private water utility), Marina Coast Water District (public), and Monterey County Water Resources Agency (public) entered contracts to collaborate on a desalination project that included a prevailing-party attorney-fees clause.
- California-American sued to have the contracts declared void under Gov. Code § 1090 after learning a Monterey board member had an undisclosed conflict of interest supporting the agreements.
- Monterey conceded the contracts were void; Marina denied invalidity and cross-claimed seeking a declaration the contracts were valid and enforceable.
- The trial court and this Court (on prior appeal) concluded the contracts were void under § 1090; respondents then sought and obtained attorney-fee awards under Civ. Code § 1717 and related statutes.
- Marina appealed the post-judgment orders awarding fees, arguing § 1717 applies only to "actions on a contract," and that fees cannot be awarded where the contract is void (and doing so would violate public policy).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an action seeking to declare a contract void under Gov. Code § 1090 is an "action on a contract" for purposes of Civ. Code § 1717 | Marina: Not an action on a contract because the contracts were void ab initio, so § 1717 does not apply | CA-American/Monterey: Santisas and line of cases treat suits about a contract's existence/enforceability as actions on a contract permitting § 1717 fees | Held: Yes; such litigation is an "action on a contract" and § 1717 applies (Santisas doctrine of mutuality) |
| Whether a party who prevails by proving a contract is void may recover fees under § 1717 | Marina: Allowing fees rewards parties for escaping contractual obligations and is inconsistent when the contract was declared void | Respondents: Mutuality of remedy allows recovery so prevailing party is not left without remedy when contract-based fee clause would otherwise be unilateral | Held: Prevailing party who successfully argues invalidity/unenforceability is entitled to fees under § 1717 to preserve mutuality of remedy |
| Whether public policy or the illegality doctrine bars fee recovery where a contract was declared void under § 1090 | Marina: Contracts void under § 1090 are unenforceable and awarding fees would violate public policy | Respondents: The illegality exception applies only when the contract’s subject matter is illegal; § 1090 invalidation due to conflict does not render the subject illegal | Held: Public policy/illegality exception does not apply; § 1090 voiding for conflict of interest is not the same as illegal subject matter, so fees remain allowable |
| Whether Marina preserved the public policy/illegality argument on appeal | Marina: Asked court to consider it as a pure question of law despite not fully litigating below | Respondents: Contended the argument was forfeited | Held: Court exercised discretion to consider the argument and rejected it on merits |
Key Cases Cited
- Santisas v. Goodin, 17 Cal.4th 599 (1998) (section 1717 permits prevailing party who proves contract invalid or inapplicable to recover fees to preserve mutuality of remedy)
- Eden Township Healthcare Dist. v. Eden Medical Center, 220 Cal.App.4th 418 (2013) (suit to declare contracts void under Gov. Code § 1090 is an action on a contract for § 1717 purposes)
- Hsu v. Abbara, 9 Cal.4th 863 (1995) (discussing mutuality and application of § 1717)
- Rainier National Bank v. Bodily, 232 Cal.App.3d 83 (1991) (applying § 1717 to permit fee recovery when contract found invalid)
- North Associates v. Bell, 184 Cal.App.3d 860 (1986) (same mutuality principle under § 1717)