Cal Supreme Court Drops Decision Re: Attorney’s Fees Clauses

The California Supreme Court recently issued its opinion in Mountain Air Enterprises v. Sundowner Towers, addressing a simple but important question regarding attorneys’ fees provisions in commercial contracts: If a contract provides for an attorneys’ fees award to a prevailing party in an “action or proceeding” to enforce or interpret the contract, can a defendant obtain fees if it uses the contract solely as part of an “affirmative defense” to the plaintiff’s claim?

First off, so we have our legal terms defined, an “affirmative defense” is a fact or set of facts other than those alleged by the plaintiff or prosecutor which, if proven by the defendant, defeats or mitigates the legal consequences of the defendant’s otherwise unlawful conduct. In civil lawsuits, affirmative defenses include the statute of limitations, the statute of frauds, waiver, and other affirmative defenses such as those listed in Rule 8 (c) of the Federal Rules of Civil Procedure.  Got it?

The National Law Review says the holding of Mountain Air is critical to the structure and language of attorneys’ fees clauses in California. How so? Well, If a party uses a contract solely in defense — for example, using a contractual release as a defense to a tort claim — California law does not permit an attorneys’ fees award to the defendant if the clause only covers an “action or proceeding to enforce” the contract, or any similar language. So, in order to ensure that a contractual attorneys’ fees provision will cover this situation, the clause must show explicit intent to include affirmative defenses based on the parties’ rights in the contract.

You know all of those words in your business contracts? Well, they count and they could add up to some big numbers if you don’t have the right ones in the right places. And that’s where “Mr. Affirmative Defense,” Dean Sperling comes in, helping to get your contracts straight and all of your legal matters resolved with YOUR best interests in mind.

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