In Marina Glencoe v. Neue Sentimental Film AG, (— Cal.Rptr.3d —, Cal.App. 2 Dist., Nov. 25, 2008), a California Court of Appeal considered whether a defendant in a lawsuit was entitled to attorney fees as the prevailing party when a plaintiff voluntary dropped the action, with prejudice. The court ruled that since the plaintiff’s action was voluntary, with the intent of simply ending the litigation rather than avoiding an unfavorable outcome, the defendant was not a prevailing party and not entitled to attorney’s fees.
Neue Sentimental Film USA (“NSF”) leased a commercial property from Marina Glencoe, L.P. The lease contained a provision for an award of attorney fees and costs to the prevailing party in the event of an action for breach or to enforce provisions of the lease. In 2003, NSF fell behind in its rental payments and Marina Glencoe sued for breach of the lease.
On September 29, 2004, NSF proposed a settlement offer to pay Marina Glencoe some of the past due rent but stipulated that the offer must be accepted by October 4, 2004 – five days later. Marina Glencoe did not respond and the trial commenced. Before it was concluded, Marina Glencoe filed a voluntary dismissal of the action with prejudice.
NSF moved for attorney fees as the prevailing party in the matter. The court ruled that NSF was not entitled to attorney fees, and NSF appealed.
Civil Code Section 1717 provides that when a contract provides for attorney fees for the prevailing party in an action to enforce the contract, then the prevailing party is entitled to collect attorney fees. However, it adds than when an action is voluntarily dismissed or dismissed pursuant to a settlement, “there shall be no prevailing party for the purposes of this section.” That is what happened here, the court said, concluding that NSF was not a prevailing party and not entitled to attorney fees.
Under certain conditions, voluntary dismissal does not rule out the payment of attorney fees, the court added, such as when all issues are deemed decided in the defendant’s favor, or when a judgment for the defendant “has ripened to the point of inevitability.” However, those conditions did not exist here, the court said. Marina Glencoe dismissed the case with prejudice, signaling its intent was to simply end the litigation, not manipulate the process to avoid an inevitable unfavorable outcome. For a case such as this, the court said, “the statute specifically contemplates the voluntary dismissal of an action as an exception to an award of fees to the prevailing party.”
The court also dismissed NSF’s claim that Marina Glencoe’s non-response to its September 29, 2004 offer to settle entitled it to attorney fees under Code of Civil Procedure Section 998, which entitles a party to attorney fees if a defendant’s settlement offer is rejected, and a plaintiff subsequently fails to win a more favorable result. Section 998 specifies that such an offer must remain open for 30 days to function as an “offer” for the purposes of cost benefits under Section 998. NSF’s offer, open for just five days, failed that test.
Since Marina Glencoe voluntarily dismissed the action simply to end the litigation and not to avoid an unfavorable result, and since no valid offer had been made to settle, there was no prevailing party in this case and NSF was not entitled to collect attorney fees. The judgment was affirmed.
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