Trial Court Cannot Consider The Financial Impact Of An Award of Contractual Attorneys Fees.

Can a trial court consider the financial impact of the attorney fees award in determining reasonable attorney fees under contract per Civil Code Section 1717? California’s First District Court of Appeals says it cannot. Adassa Walker v. Ticor Title Company of California – Court of Appeal Case No: A126710. In Walker, the trial court had considered the financial impact of the award on the plaintiffs in determining the amount of reasonable fees awarded to the prevailing defendants under contract per Civil Code Section 1717. The Court of Appeals held that the trial court had abused its discretion in doing so. The Walker court acknowledged that an award of contractual attorneys fees per Section 1717 may be subject to equitable considerations, but held that “a losing party’s financial condition should not be considered in setting the amount of such an award”. The court noted that unlike statutory fee awards, contractual fees are “voluntarily incurred”.

“The possibility of an award of contractual attorney fees exists because the parties chose to enter into an agreement containing an appropriate provision. The award is a business risk assigned as a matter of mutual agreement by the parties. As a result, contractual attorney fees cannot fairly be characterized as a punishment. Nor can the possibility of an award of contractual attorney fees constitute an improper denial of access to the courts, since the risk of such an award has been undertaken in return for the benefits of the contract”.

The court noted that under Section 1717 courts are instructed to consider such factors as the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure, and other circumstances in the case. But, the losing party’s financial condition may not properly be considered and, presumably, evidence of such financial condition would be irrelevant and inadmissible as to the issue of contractual “prevailing party” attorney fees.

Lesson to be learned – if you agree to pay attorneys fees if you lose, crying poor will not work when you do!