In a recent court of appeal decision (Kim v. Euro Motors, et al.), the Court held that notwithstanding the fact that a defendant settled prior to trial, it could be liable for attorney’s fees. Kim brought an action against a car dealer pursuant to the Consumer Legal Remedies Act (CLRA, Civil Code § 1750, et seq.) in connection with a Porsche Turbo that he leased from a dealer. During the first year of the lease, the vehicle was out of service for over 78 days, due to various problems. When the dealer was unable to fix the car to Kim’s satisfaction, he demanded that the dealer take the car back and refund to him all monies that he had spent. When his demand was refused, he brought an action against the dealer for damages and for recission of the lease. Kim ultimately settled with the dealer, short of trial and entered into a mutual general release and settlement agreement wherein, among other things, the dealer agreed to take back the vehicle, terminate the lease and pay a$10,000 lump sum settlement to Kim. Kim acknowledged that the payment was in full and final settlement of all claims with the exception of attorney’s fees and costs. The agreement contained the usual language that neither party admitted liability or that the other was the prevailing party.
Kim filed an application for attorney’s fees, which was opposed by the dealer on the grounds that Kim was not the prevailing party. The trial court denied the application finding in light of the settlement, there was no prevailing party. Kim appealed.
The appellate court observed that as a general rule, a litigant is not entitled to attorney’s fees absent a statute or agreement to the contrary. Where the right to attorney’s fees is by contract, when an action is voluntarily dismissed there shall be no prevailing party. However, this prohibition does not apply where attorney’s fees are authorized by statute.
The Consumer Legal Remedies Act requires the award of attorney’s fees to the prevailing plaintiff. While the statute does not define “prevailing plaintiff:”, the Court stated that a pragmatic approach should be applied in assessing whether a plaintiff prevailed. Here, the trial court, without analyzing the actual relief received by Kim, ruled that he could not be the prevailing party since he settled short of trial. The Court of Appeal remanded the case back to the trial court with directions that it consider the relief Kim ultimately received which was clearly not inconsequential and included a recission of the lease and payment of $10,000.
This case serves as a lesson to both attorneys and business litigants that despite the best of intentions, a settlement may not buy peace. When defending a commercial action, they must consider whether the plaintiff has brought the action based on a statute which authorizes the award of attorney’s fees and, if so, take this into account when drafting settlement agreements. Otherwise, like the auto dealer sued by Kim, they may be faced with a nasty surprise of having to pay their opponent’s huge legal bill.
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