July 31, 2017

Supreme Court says affirmative defense isn’t an action or proceeding for attorney fee purposes, but a 4-3 majority awards fees anyway

In Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, the Supreme Court today holds a contract provision for attorney fees in a “legal action or any other proceeding” to enforce the contract does not permit an attorney fee award when the contract is raised as an affirmative defense rather than in a cross-complaint.  However, the court’s 4-3 opinion by Justice Ming Chin (concurred in by Chief Justice Tani Cantil-Sakauye, and Justices Kathryn Werdegar and Mariano-Florentino Cuéllar) finds a basis for an award in another part of the attorney fee provision, because the action against the defendants was “brought . . . because of an alleged dispute . . . in connection with any provision of” the contract.

Justice Leondra Kruger dissents, joined by Justices Carol Corrigan and Goodwin Liu.  She agrees with the majority that an affirmative defense is not a “legal action” or “proceeding,” but finds that interpreting the second part of the attorney fee provision to support a fee award “defies normal usage.”  The dissent says it is not succumbing to “the temptation to rewrite the parties’ contract for them.”

The court affirms the bottom line of the 2-1 decision of the First District, Division Two, Court of Appeal.  (Yes, the Court of Appeal was divided, too.)  However, the Court of Appeal’s reasoning — that an affirmative defense is a “legal action” or “other proceeding” — is rejected by all seven of the Supreme Court’s justices.  The high court also disapproves an opinion by the Second District, Division Three.

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