Does the Voluntary Dismissal of an Unlawful Detainer Action Bar Recovery of Attorney's Fees?

The recent decision in Riverside Mining Limited v. Quality Aggregates, considered parties who entered into a lease agreement allowing defendant and appellant Quality Aggregates (Quality) to mine on a property owned by plaintiff and respondent Riverside Mining Limited (Riverside Mining).

The business relationship soured, and litigation began.

The appeal contested two orders issued after Riverside Mining voluntarily dismissed the unlawful detainer action.

One is an order denying Quality’s motion for attorney fees under Code of Civil Procedure section 998, and the other an order granting Riverside Mining’s motion to disburse to it certain payments Quality had deposited with the court.

The appellate court affirmed both orders.

Riverside Mining owns a property of more than 150 acres in Jurupa Valley. In 2017, Quality leased about 73 acres that the parties call the Pyrite Quarry.

The lease agreement includes a provision shifting attorney fees to the prevailing party in any action, either at law or in equity, to enforce or interpret the terms of the agreement.

According to Quality, by 2020, Riverside Mining began infringing on its leasehold in various ways.

In 2021, Quality sued Riverside Mining, alleging breach of contract, trespass, and quiet title claims.

In August 2022, Riverside Mining filed an unlawful detainer action, seeking to evict Quality from the Pyrite Quarry for various alleged breaches of the lease agreement. The appeal concerned the unlawful detainer lawsuit.

Near the outset of the unlawful detainer lawsuit, the parties filed a stipulation that could help preserve the funds at issue during the litigation. They stipulated under that Quality would deposit with the court amounts “otherwise payable to” Riverside Mining “as monthly rental payments” under the lease agreement.

The stipulation explained Riverside Mining’s position that Quality’s breach of the lease agreement “constitutes forfeiture” of the lease agreement, while Quality’s position was it “has not breached nor forfeited the lease agreement” and intended to “continue paying rent.”

As requested, the court ordered Quality to deposit with the Clerk of the Court those funds otherwise payable to Riverside Mining as monthly rent for the pendency of the above-captioned action.

In 2022, Quality offered to compromise under Code of Civil Procedure section 998, proposing settlement of the unlawful detainer action “by entry of a dismissal with prejudice” of the action, “each party to bear their own attorneys’ fees and costs.”

Riverside Mining did not accept the offer.

In 2023, after substantial discovery but before trial, Riverside Mining requested the unlawful detainer action be dismissed without prejudice. The trial court entered the dismissal.

Later, Quality filed a memorandum of costs, claiming $118,372.65, a sum that included no attorney fees, but did include costs and the costs of the services of expert witnesses. Riverside Mining did not object to these costs, paying them in full in May 2023.

Meanwhile, Riverside Mining filed a motion requesting disbursement to it of the payments Quality had deposited with the court per the September 2022 stipulation.

According to the motion, the amount deposited totaled $228,000. Quality opposed the disbursement motion.

Quality also filed a motion for attorney fees under section 998. Quality requested an award of $199,514.38, based on a 1.25 multiplier. Riverside Mining opposed the fee motion.

The trial court granted Riverside Mining’s disbursement motion and denied Quality’s motion for attorney fees.

Quality argued it was entitled to recover attorney fees incurred after its section 998 offer because the lease agreement has a prevailing party attorney fee clause and Riverside Mining failed to obtain a result more favorable than Quality’s offer to compromise. The trial court disagreed, applying Ford Motor Credit Company v. Hunsberger.

Generally, except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.

Prevailing party includes a defendant in whose favor a dismissal is entered.

Consequently, after Riverside Mining voluntarily dismissed this lawsuit, it properly paid Quality’s costs.

Attorney fees are not normally recoverable costs. Rather, under what is known as the "American rule," each party to a lawsuit must ordinarily pay his or her own attorney fees.

Nevertheless, recoverable litigation costs include attorney fees when the party entitled to costs has a legal basis, independent of the costs statutes and grounded in an agreement, statute, or other law, upon which to claim recovery of attorney fees.

Civil Code section 1717 governs the award of attorney’s fees as costs in contract actions where the contract has an attorney fee provision.

If an unlawful detainer action is based on an alleged breach of the lease during an unexpired term (e.g., nonpayment of rent, improper use of the premises), then it is an action sounding in contract.

The statute requires any prevailing party attorney fee provision be treated as mutual, regardless of its wording, to avoid the perceived unfairness of one- sided attorney fee provisions.

Also, the statute defines “prevailing party” as “the party who recovered a greater relief in the action on the contract.”

There may be one prevailing party, or no party prevailing on the contract.

Sometimes, the trial court has discretion to determine who prevailed: If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.

Other times, however, the trial court has only one option. For example, if a party achieves a “‘simple, unqualified win’” on a contract claim, the trial court must find that party prevailed.

Importantly here, Civil Code section 1717(b)(2), specifies that “[w]here 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.”

This means that if, as here, a case is dismissed voluntarily, a prevailing party attorney fee clause does not alone permit recovery of attorney fees.

Although Quality made a valid section 998 offer to compromise this case, section 998 does not, expressly authorize an award of attorney fees. Attorney fees are recoverable as costs only if there is some other statutory or contractual right to such fees.

In Ford, the court of appeal applied these principles to facts like this case. The plaintiff sued alleging breach of a contract involving a lease agreement that included a unilateral attorney fee clause, made bilateral by Civil Code section 1717(a). The court noted no appellate authority had held Civil Code section 1717(b)(2) trumps section 998, but found a plain reading of the relevant statutes leads to this result.

The distinction between a voluntary dismissal (which is a result in a defendant’s favor) and a trial (which could result in a judgment in either side’s favor) is one of policy.

Civil Code section 1717, subdivision (b)(2), reflects a determination that the American rule that parties bear their own attorney fees should not change where a defendant in a contract action prevails by voluntary dismissal.

In the decade and a half since Ford, no appellate authority has parted ways with it and interpreted the statutes as Quality proposed. Additionally, section 998 has been amended since Ford, and the Legislature did not abrogate it.

When a statute has been construed by the courts, and the Legislature thereafter reenacts that statute without changing the interpretation put on that statute by the courts, the Legislature is presumed to have been aware of, and acquiesced in, the courts’ construction of that statute.

LESSONS:

1.         Generally, except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.

2.         Attorney fees are not normally recoverable costs. Rather, under what is known as the "American rule," each party to a lawsuit must ordinarily pay his or her own attorney fees.

3.         Sometimes, the trial court has discretion to determine who prevailed: If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.

4.         Although Quality made a valid section 998 offer to compromise this case, section 998 does not, expressly authorize an award of attorney fees. Attorney fees are recoverable as costs only if there is some other statutory or contractual right to such fees.