Court talk

By Clifford Fried

In many court battles, the real fight is over attorneys’ fees rather than the underlying dispute. In landlord-tenant litigation, the issue of fees is frequently relevant. There have been cases where the tenant prevails in a nonpayment of rent eviction case and goes on to recover tens of thousands of dollars in legal fees.

Santisas v. Goodin
Most commercial and many residential leases contain a provision that says the prevailing party in any litigation will be entitled to recover their fees. And most rent ordinances also give the prevailing party the right to seek fees against the losing party. Recent court decisions have clarified the right to recover fees. Some of these decisions will have an impact on cases that landlords file in court.

In 1998, the California Supreme Court decided (in Santisas v. Goodin) that where an action is voluntarily dismissed before trial, a party may be entitled to recover fees under a tort theory, but not on a contract theory. Civil Code Sec. 1717(b)(2) bars a recovery of attorneys’ fees where an action on a contract is dismissed before trial. But where a tort action is dismissed before trial, the other party is entitled to recover fees under Code of Civ. Proc. Sec. 1033.5(a)(10). For landlords, the question became, what is an unlawful detainer lawsuit? A contract action? A tort action? Something else?

Three years earlier, the Court of Appeal ruled in Honey Baked Hams v. Dickens that a tenant is entitled to fees after a landlord voluntarily dismisses an unlawful detainer action and where the lease states that “the losing party shall pay the successful party . . . attorneys’ fees . . . whether or not such action is prosecuted to judgment.” The rationale for the decision was that parties to a contract have broad rights, under Code of Civ. Proc. Sec. 1021, to make agreements allocating attorneys’ fees. Fees based upon a contract may be recovered under Code of Civ. Proc. Sec. 1033.5(a)(10),(c)(5) and Sec. 1717 isn’t a bar to recovery of fees. It is unclear if Santisas overruled Honey Baked Hams on this particular point.

There are questions outstanding as to when and if a tenant will be entitled to fees when a landlord voluntarily dismisses an unlawful detainer action. Sometimes a case must be dismissed because the landlord discovers some adverse evidence, which could spell doom at trial. Some examples are an error in title (wrong plaintiff defense), rent accepted after notice expired (waiver defense) or a defect in the eviction notice. While starting over simply means lost time and rent, paying fees to a tenant after a dismissal can be humiliating and expensive.

Todd Drybread v.
Chipain Chiropractic Corp.
A landlord brought an unlawful detainer action against his subtenant, who failed to vacate after his sublease expired. Prior to trial, the landlord voluntarily dismissed the action and the subtenant moved the court for an award of fees pursuant to a clause in the sublease providing that the prevailing party shall be entitled to attorneys’ fees in “any action or other proceeding arising out of this Sublease . . .”.

The landlord argued that, under Civil Code Sec. 1717, in any action on a contract where the action is voluntarily dismissed, there shall be no prevailing party or fees award. In denying fees to the tenant, the trial court concluded that the lawsuit sounded more in contract than in tort.

The Court of Appeal reversed and awarded fees to the tenant. It said that Sec. 1717 was inapplicable and that the tenant was entitled to fees under Sec. 1032(a)(4), which provides that a prevailing party includes a defendant in whose favor a dismissal is entered. The Court of Appeal said that in this particular case, the unlawful detainer action sounded in tort.

Civil Code Sec. 1717 doesn’t bar recovery of attorneys’ fees for noncontract claims voluntarily dismissed by the landlord as long as the fees clause is broad enough to encompass such contract claims. In Drybread, the court said the fees clause was broad enough to encompass noncontract claims, such as the unlawful detainer action that was brought. The court then said the tenant was entitled to fees unless such fees were being requested on a contract action that would be barred under Sec. 1717. So was this unlawful detainer action an action on a contract or a noncontract claim?

The court said that there are two kinds of unlawful detainer actions: those based upon a breach of the lease (arguably a contracts claim), or a tenant holding over after the lease expires (arguably a tort claim for unlawful possession).

The landlord sought possession in the unlawful detainer action because of the expiration of a fixed-term lease. Neither the landlord’s eviction notice nor unlawful detainer complaint alleged a breach of the sublease. The court said that based upon the facts of this case, this is a noncontract claim for unlawful detainer.

But the court left the door open for opposite outcomes where an unlawful detainer action is based upon a tenant breach of a lease provision. It is very important for landlords and their attorneys, before dismissing an unlawful detainer action, to determine whether the action is based upon a breach of the lease or a noncontract claim. In some cases, landlords might be better off going to trial—or settling.

Mitchell Land & Improvement Co. v.
Ristorante Ferrantelli, Inc.
Landlord Mitchell Land & Improvement Co. brought an unlawful detainer action against its restaurant tenant Ristorante Ferrantelli because its tenant used the premises for an unlawful purpose. The landlord claimed that its tenant erected an outdoor tent and fire pit in a patio dining area without proper permits.

Ristorante Ferrantelli filed a motion for summary judgment before trial. On the day the landlord’s opposition to the motion was due, the landlord dismissed the case. Ferrantelli then filed a motion asking to be declared the prevailing party and for $99,561.25 in attorneys’ fees. The lease provided that in any action involving the premises, whether founded in tort, contract or equity, the prevailing party would be entitled to attorneys’ fees whether or not the action was pursued to judgment.

The landlord opposed the fees motion, contending that an award was prohibited by Sec. 1717(b)(2). The trial court disagreed and concluded that Sec. 1717 did not apply because an unlawful detainer action is not an action on a contract; it said that an unlawful detainer action is based upon a statute and awarded the tenant $123,279.50.

The Court of Appeal reversed. It held that Sec. 1717(b)(2) overrides or nullifies conflicting contractual provisions, such as provisions expressly allowing recovery of attorneys’ fees in the event of voluntary dismissal or defining “prevailing party” as including parties in whose favor a dismissal has been entered. As explained in Santisas, when a plaintiff files a complaint containing causes of action sounding in contract and based upon a contract containing a fee provision, and the plaintiff thereafter voluntarily dismisses, Sec. 1717 bars the defendant from recovering fees incurred in defending those causes of action.

Recognizing the recent decision in Drybread, the Court of Appeal said that if the unlawful detainer action is premised on a breach of the lease, like any other action on a contract, it is subject to the bar of Sec. 1717(b)(2). The court also said that while an unlawful detainer is a statutory remedy, it can still sound in contract. A declaratory relief action is also a purely statutory proceeding, yet if it is based upon a request for a determination of rights under a contract such as a lease, the action is on a contract and Sec. 1717(b)(2) applies.

The court concluded that because this unlawful detainer action was premised upon Ferrantelli’s alleged breach of covenants of its lease, the action is one on a contract and Sec. 1717(b)(2) bars an award of fees to the tenant. The tenant’s award of $123,279.60 was stricken.

Of course, if this case involved a residential eviction in a just cause jurisdiction such as San Francisco, Berkeley or Oakland, a tenant denied fees after the dismissal of an unlawful detainer action would be entitled to sue for attempted wrongful eviction. In such actions, fees could be sought as an element of damages.

Many unlawful detainer actions in just cause for eviction jurisdictions are hotly contested. Stakes are high. Minor errors in eviction notices or service of notices can be fatal for the landlord. A tenant losing an eviction can mean the loss of a valuable asset: a low cost, rent controlled apartment. Attorneys’ fees on both sides can be substantial.

If the landlord discovers an error in the notice or service of the notice, during the pendency of an unlawful detainer action, any decision to dismiss and start over should be made carefully. If there is little chance of convincing the court that there is no error, and the eviction is based upon a breach of a covenant, the case should be dismissed. But where the eviction is based upon something else, such as a termination of tenancy, be very careful before filing a dismissal—it could prove to be a very expensive decision.

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The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. The information within this article is general in nature. Consult an attorney for any specific problem. Clifford E. Fried is a partner with Wiegel & Fried, LLP, 415-552-8230. Copyright © 2008, Wiegel & Fried, LLP. All rights reserved.