A case recently decided by the United States District Court of Appeals proved that “prevailing party” status for purposes of an attorneys’ fee award isn’t always as clear as one might think.

A jewelry store sustained a loss from a break-in of more than $800,000. The company filed an action against the alarm company alleging, among other things, breach of contract and gross negligence, along with a request for attorneys’ fees. The case was filed in the United States District Court of the Central District of California. The court granted summary judgment in favor of the alarm company on the claim for gross negligence, upheld the enforcement of the limited damages provision after granting summary judgment in favor of the jewelry store (the plaintiffs) on the breach of contract claim and refused to award attorneys’ fees to the plaintiffs, notwithstanding the fact that a judgment was entered in favor of plaintiffs.

The plaintiffs appealed to the District Court of Appeals, which upheld the District Court’s ruling granting summary judgment in favor of the alarm company on the gross negligence claim. Although the company failed to properly install the  alarm system and provide notification services when it received an alarm signal, the alarm company’s legal obligation to provide either service arose solely from its contractual relationship with the plaintiffs, not from any duty independent of the parties’ contract.

The court further ruled that the District Court properly limited the plaintiffs’ damages for breach of contract to $1,000. In California, liquidated damages provisions in commercial contracts are presumed valid, “unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made” (Cal. Civ. Code § 1671(b). The court pointed out that the plaintiffs had not identified any circumstances at the time of contract formation that would support a conclusion that the provision was unreasonable.

In another interesting portion of the decision, the Court of Appeals indicated that the District Court properly denied the plaintiffs’ request for attorneys’ fees, stating that although the plaintiffs were successful in obtaining a breach of contract judgment against the alarm company, “prevailing party” status for purposes of an attorneys’ fee award under Cal. Civ. Code §1717 is measured by “comparing the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings . . . and similar sources.” The court pointed out that the plaintiffs succeeded in obtaining only a minute portion of the claimed damages. It was therefore well within the trial court’s discretion to decline the plaintiffs’ prevailing party status. It should be noted that the court also denied the alarm company’s request for attorneys’ fees, stating that when comparing simple monetary results, the alarm company was more successful in achieving its litigation goals than the plaintiffs. A determination of prevailing party status, however, does not turn on monetary results, but requires evaluation of overall litigation success.

Readers Ask

Q  I am presently negotiating with a large defense contractor for installation of a security system. I submitted my proposal and contract for the subscriber to sign. The contractor indicates that he will not sign my contract, but instead has forwarded his contract for signature. Should I sign his contract or shall I insist that both his and our contracts be signed?

A  Your contract should contain those limitation of liability, third party indemnification and liquidated damage clauses that protect you in the event there is a problem and if in fact there is a loss. Without seeing the contract that the contractor sent to you, I can assure you that it does not include the provisions that are included in your contract to protect you and, to the contrary, I am sure there are provisions in their contract that require your indemnification. Therefore, I would not sign their contract, nor would I insist that both their contract and your contract be signed. I am sure their contract would have a provision that in the event there is an inconsistency, their contract would prevail. Even if there were no such provision in either contract, the two contracts would still be inconsistent and would lead, at best, to litigation. Bottom line, do not sign their contract. Be prepared to hold fast with your contract and bottom line, be prepared to walk away from the deal if you cannot reach a compromise that would allow the protective provisions of your contract to prevail.

To ask Les Gold a question, e-mail sdm@bnpmedia.com.