220 Cal. App. 4th 418
Cal. Ct. App.2013Background
- Eden Township Healthcare District (District) is a public health district; Eden Medical Center (EMC) is a nonprofit formed to operate District hospitals and is governed in part by District board members. Sutter Health is EMC’s general member.
- The parties executed a series of agreements (notably the 2008 Agreements, including a 2008 MOU and 2008 Lease) governing construction of a replacement hospital and an option/purchase of San Leandro Hospital (SLH). The 2008 MOU contains a prevailing‑party attorney‑fee clause.
- The District sued (by cross‑complaint) seeking declaratory and injunctive relief that the 2008 Agreements were void under Government Code §1090 (public official conflicts), after construction and Sutter’s exercise of the SLH option produced disputes.
- EMC and Sutter moved for summary judgment; the trial court ruled for EMC and Sutter, holding the 2008 Agreements were not void under §1090. This court affirmed in Eden I.
- EMC sought attorney fees under Civil Code §1717 based on the 2008 MOU fee clause; the trial court denied the fee motion, ruling the action was not “on a contract.” EMC appealed.
Issues
| Issue | District's Argument | EMC'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 | The action was not an action “for breach of this Agreement” and thus not an action on a contract subject to the MOU fee clause | An action to avoid enforcement or declare a contract void is an action “on a contract” because it arises from and seeks to define/enforce rights under the agreement and the MOU contains a fee clause | Reversed: such an action is an “action on a contract” under §1717; the District’s declaratory action put the MOU fee provision in play and EMC is entitled to fees |
| Whether the 2008 MOU’s fee clause authorizes fees to EMC where the District (not EMC) filed the declaratory suit | The fee clause applies only to actions commenced for breach; EMC did not commence a breach action and was not the plaintiff in Sutter’s breach suit | A prevailing defendant who defends against a contract‑invalidity claim is entitled to fees under §1717 when the contract contains a fee clause; fees may be awarded whether asserted offensively or defensively | Held for EMC: fee clause covers fees incurred defending against the District’s action to void the contract; mutuality of remedy supports an award |
Key Cases Cited
- Santisas v. Goodin, 17 Cal.4th 599 (section 1717 permits recovery when party prevails in action on contract even if they established the contract was invalid)
- Shadoan v. World Sav. & Loan Assn., 219 Cal.App.3d 97 (challenge to contract term is an action “on a contract” where issue could have been raised as defense to enforcement)
- Turner v. Schultz, 175 Cal.App.4th 974 (fees under §1717 may be awarded for actions to enforce or avoid enforcement of a contract)
- Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc., 211 Cal.App.4th 230 (defines two‑part test for when a cause is ‘‘on a contract’’: involves the agreement and the agreement contains a fee clause)
- Kachlon v. Markowitz, 168 Cal.App.4th 316 (focus is on basis of the cause of action, not the remedy, in determining whether action is on a contract)