The general rule for recovery of attorney fees in litigation is that each party must bear his or her own attorney fees, irrespective of who wins. This is called the "American Rule" to differentiate it from the "English Rule," in which the prevailing party in litigation recovers its attorney fees for prosecuting the action.

A typical attorney fee clause provides that the prevailing party in litigation can recover "reasonable" attorney fees. According to the California Supreme Court (Scott Co. v. Blount, Inc. (1999) 20 C4th 1103, 1106, 86 CR 614), a party's entitlement to attorney's fees in a lawsuit based on a contract containing an attorney's fees provision often depends not just upon the language of the contractual provision but also upon the complex interaction of several statutes that affect a party's contractual right to attorney's fees.

Our review starts with the statutory provisions that control the availability of fees. Code of Civil Procedure §1021 sets forth the statutory authority for parties to include attorney fee clauses in contracts. Under CCP §1021, parties to a contract can agree that the prevailing party in litigation may recover attorney fees for causes of action based on contract as well as tort. If an attorney fee provision in a contract is worded broadly enough, it may support an award of attorney fees to the prevailing party in an action alleging both contract and tort claims. A contract clause may also provide for attorney fees recovery for appeal of the litigation.

In general, California courts have liberally construed attorney fee provisions in contracts under CC §1717. The purpose of CC §1717 is to provide a reciprocal right to recovery of attorney fees. Civil Code §1717(a) provides:

In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.

Civil Code §1717 is limited in application to contract actions. Its effect is to make an otherwise unilateral right to attorney's fees reciprocally binding upon all parties to actions to enforce the contract.

One limitation on the application of CC §1717, CC §1717(b) specifically provides that there is no prevailing party when the contract action is voluntarily dismissed.

Code of Civil Procedure §§1032 and 1033.5 and CC §1717, the relevant statutes in a contractual attorney fee case, are confusing. The definition of "prevailing party" in CC §1717 and CCP §1032 vary. One party may be the prevailing party under CC §1717, yet another under CCP §1032. Under CCP §1032 (unless the contract clearly provides otherwise), "prevailing party" includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant in a case in which neither plaintiff nor defendant obtains any relief, and a defendant against whom the plaintiff does not recover any relief. In cases in which factors "other than monetary relief" apply (and in all other situations not specified), the prevailing party is to be determined by the court. But under CC §1717, the prevailing party on a contract is the "party who recovered a greater relief in the action on the contract."

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Peter A. Kleinbrodt