Can a defendant recover attorneys’ fees under an attorney fee provision in a contract if the plaintiff voluntarily dismisses the lawsuit without a settlement? The Fourth Appellate District Court of Appeal answered no in a recent case, Mitchell Land and Improvement Co. v Ristorante Ferrantelli 2007 DJDAR 18950 (12/27/07). The ruling was made even though the attorney fee provision defined the prevailing party as the party who “substantially … defeats the relief sought … by the abandonment by the other [p]arty … of its claims …”

The case involved the new owner of a strip center, who made no secret of the fact that he wanted a restaurant tenant to vacate. The restaurant had occupied the premises since 1985 and with options, could stay until 2022. The tenant had made some improvements to the outdoor seating area (a tent and fire pit). The landlord complained to the city that the restaurant lacked the necessary permit. The city inspected the improvements and advised the restaurant to apply for the permit after the fact. The landlord refused to consent to the permit application and instead gave the restaurant a 30-day notice to “cure the breach or quit the premises”.

The restaurant removed the non-complying improvements. However the landlord filed an unlawful detainer action. When the tenant moved for a summary judgment, the landlord voluntarily dismissed the case without prejudice. The tenant sought attorney fees under the lease, which were around $123,000.

The Court based is denial of the attorney fees awarded by the trial court on Civil Code Section 1717(b)(2), which reads as follows:

“Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section.”

Interpreting this language, the Court, citing Santisas v Goodin (1998 17 Cal 4th 599), stated:

“When a plaintiff files a complaint containing causes of action within the scope of Section 1717 … and the plaintiff thereafter voluntarily dismisses the action, Section 1717 bars the defendant from recovering attorney fees incurred in defending those causes of action, even though the contract of its own terms … authorizes recovery of those fees.”

The decision is consistent with a literal reading of Section 1717(b)(2) and prior case law. However it reduces the risk to a well funded plaintiff who pursues a weak claim to intimidate or coerce a defendant into foregoing or modifying its contract rights.

Jerry Bloch