Mountain Air Enters., LLC v. Sundowner Towers, LLC
220 Cal. Rptr. 3d 650
| Cal. | 2017Background
- In 2005 Sundowner agreed to sell the South Tower to Scarpa and to later repurchase it (the repurchase agreement); Scarpa assigned rights to Mountain Air. Madjlessi and Larsen guaranteed Sundowner's obligations.
- In April 2006 Mountain Air and Madjlessi/Larsen executed an option agreement giving Madjlessi and Larsen the exclusive (but not obligatory) right to repurchase the South Tower; the option included an integration clause and an attorney-fees provision.
- Mountain Air sued to enforce the repurchase agreement (specific performance and breach claims). Defendants pleaded, among other defenses, that the option agreement was a novation superseding the repurchase agreement, and that the repurchase agreement was illegal.
- The trial court found the repurchase agreement illegal and that the option agreement was a novation, entered judgment for defendants, and denied defendants' fee motion (finding fees unavailable under the illegal repurchase agreement and under the option agreement because defendants had not “brought” an action to enforce it).
- The Court of Appeal reversed as to fees and held defendants could recover fees under the option agreement, relying in part on Windsor Pacific. The California Supreme Court granted review.
- The Supreme Court held (1) asserting an affirmative defense is not itself an "action" or "proceeding" that is "brought" under the option's fee clause, but (2) Mountain Air's suit on the repurchase agreement was nevertheless "brought . . . because of an alleged dispute . . . in connection with" the option agreement, so the option agreement's fee clause applied and defendants were entitled to fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether asserting the option agreement as an affirmative defense constitutes an "action" or "proceeding" "brought" to enforce the option agreement (triggering its fee clause) | Mountain Air: assertion of a defense is a procedural step, not an action "brought" to enforce the option; fee clause does not cover defenses | Defendants: an "action" includes the whole lawsuit and therefore raising an affirmative defense is effectively bringing an action to enforce the option (Windsor Pacific) | Court: No — an affirmative defense is part of an action but is not itself an "action" or a separately "brought" proceeding for purposes of the fee clause |
| Whether Mountain Air's suit to enforce the repurchase agreement was "brought . . . because of an alleged dispute . . . in connection with" the option agreement (thus triggering the option's fee clause) | Mountain Air: its suit was to enforce the repurchase agreement; it was not "brought because of" any alleged dispute concerning the option agreement | Defendants: the lawsuit necessarily implicated the option (integration/novation) so the suit was brought because of an alleged dispute connected to the option agreement | Court: Yes — enforcing the repurchase agreement necessarily implicated the dispute over the option agreement's effect; the suit was "because of an alleged dispute . . . in connection with" the option, so the option's fee clause applies |
| Whether attorney fees are available under the repurchase agreement given its illegality | Mountain Air: (implicit) repurchase agreement contains a fee clause but the agreement is the basis of the suit | Defendants: sought fees under both agreements | Court: Fees unavailable under the repurchase agreement because it was found illegal and defendants cannot recover under that illegal contract |
| Whether contracts executed in the same transaction can be construed together for fee provision purposes despite noncontemporaneous execution or a trial court finding of novation | Mountain Air: construing together undermines novation finding; plaintiff didn't reference option in complaint | Defendants: related agreements concerning same subject can be construed together under Civ. Code § 1642 to determine fee applicability | Court: Contracts concerning the same subject may be construed together for determining applicability of a fee clause without merging them; here construing the option agreement together with the repurchase agreement was appropriate to decide whether the option's fee clause applied |
Key Cases Cited
- Santisas v. Goodin, 17 Cal.4th 599 (1998) (rules for construing contractual attorney-fee provisions and interplay with Civ. Code § 1717)
- Windsor Pacific LLC v. Samwood Co., Inc., 213 Cal.App.4th 263 (2013) (held that raising an affirmative defense can be treated as bringing an action for fee clause purposes; Court disapproved to extent inconsistent)
- Exxess Electronixx v. Heger Realty Corp., 64 Cal.App.4th 698 (1998) (held that raising a defense is not the same as bringing an action; contrasted with Windsor Pacific)
- Gil v. Mansano, 121 Cal.App.4th 739 (2004) (similar view to Exxess that a defense is not an action)
- Frog Creek Partners, LLC v. Vance Brown, Inc., 206 Cal.App.4th 515 (2012) (treats "action" as the whole lawsuit and rejects treating discrete procedural steps as independent "actions" for fee awards)
- DisputeSuite.com, LLC v. Scoreinc.com, 2 Cal.5th 968 (2017) (attorney fees under Civ. Code § 1717 are available to the party who prevailed on the contract overall, not to one who prevailed only on an interim procedural step)