In Reversing Attorneys' Fees Award, Court of Appeals (Div. 1) Provides Guidance on How and When Attorneys' Fees Can be Recovered

It is well established in Washington that absent a contract, statute or recognized ground in equity, attorneys’ fees are not available as either costs or damages.  In Radovich v. Bridges Investment Group, LLC, the Division I Court of Appeals reversed the trial court’s award of $376,469.41 in attorneys’ fees.  While Radovich is not a construction case, the decision provides guidance directly applicable to construction disputes, which frequently involve competing claims for attorneys’ fees (and the attorneys’  fees claims frequently become what the case is about), and what must be shown to obtain an award of attorneys’ fees under (i) a contractual prevailing party clause; (ii) a contractual indemnity clause; and (iii) equitable indemnity.

I.  Prevailing Party Clause

Many construction contracts contain a clause stating that the prevailing party in any dispute arising out of the contract or the project is entitled to an award of costs, including attorneys’ fees.  In addition, Washington’s mechanics lien statute grants the trial court discretion to award attorneys’ fees to the prevailing party.  Most construction cases also involve claims and counterclaims, making the question of which party prevailed a difficult one.  As a general rule in Washington, a prevailing party “is one that receives an affirmative judgment in its favor.”  Marassi v. Lau, 71 Wn. App. 912, 915 (1993), abrogated on other grounds by Wachovia SBA Lending, Inc. v. Kraft, 165 Wn.2d 481 (2009). While a plaintiff is not required to succeed on its entire claim, it must substantially prevail in order to be entitled to an award.  Silverdale Hotel Assocs. v. Lomas & Nettleton Co., 36 Wn. App. 762, 773-74 (1984). A defendant can recover as the prevailing party for successfully defending against the plaintiff’s claims.  Marassi, 71 Wn. App at 916.  

In the subject case, Bridges was awarded attorneys’ fees under a “substantially prevailing party” clause in a purchase and sale agreement because the trial court granted its motion for partial summary judgment, ruling that if a quitclaim deed was valid, then Radovich breached the purchase and sale agreement.  On appeal,  the court of appeals reversed, holding that because the alleged breach was contingent on the validity of a quitclaim deed and the trial court subsequently determined that the deed was invalid, that there was no breach of the purchase and sale agreement.  Thus, although Bridges received a partial summary judgment ruling in its favor, (which under the Marassi case, makes it the prevailing party because it received an affirmative judgment in its favor) it was not ultimately the prevailing party because Radovich successfully defended against the claims that it breached the underlying purchase and sale agreement.

II.  Entitlement to Attorneys’ Fees Under Contractual Indemnity Clause

The trial court also awarded attorneys fees to Bridges under a contractual indemnity clause in the purchase and sale agreement requiring Radovich to indemnify Bridges for “any and all liabilities or claims . . . arising in respect of the Property.”  Division I noted that the phrase “any and all claims” is to be given its ordinary meaning and includes all types of claims, citing MacLean Townhomes, LLC v. Am. 1st Roofing & Builders, Inc., 133 Wn. App. 828, 831 (2006).  This broad, all inclusive language defense and indemnity language is frequently included by owners in construction contracts, making the indemnity clause more akin to a “breach of contract catchall indemnity” under which an owner can recover breach of contract type damages, rather than a traditional indemnity clause intended to cover claims against the owner arising out of bodily injury or property damage and likely covered by a contractor’s standard commercial general liability (insurance) policy.

The trial court awarded Bridges attorneys fees under the broad defense and indemnity language because Radovich did not accept a tender of defense of a third party claim against Bridges that was covered by the indemnity clause.  The Court of Appeals agreed that Radovich had a defense and indemnity obligation to Bridges, but ruled that the trial court erred by awarding  Bridges its attorneys’ fees under the indemnity clause.  The Court of Appeals held that “attorneys fees sought pursuant to a contractual indemnity provision are an element of damages that must be proved to the trier of fact.”  However, rather than conducting a trial to provide its damages (attorneys’ fees), Bridges obtained an award of its fees pursuant to a post-trial motion.  The Court of Appeals rejected this approach, holding “Clearly, Bridges’ damages were not proved at trial.  No evidence or testimony regarding Bridges’ expenses or losses was ever presented to the court in its role as trier of fact.  Bridges asserts that whether to hold an evidentiary hearing regarding attorney fees is a matter that is left to the trial court’s discretion.  While this may be true where fees are awarded as part of the costs of litigation against an adverse party to a contract, where attorneys’ fees constitute an element of contract or tort damages, they must be proved to the trier of fact. The trial court erred by awarding attorney fees to Bridges based upon the contractual indemnity provision where no proof of these damages was presented at trial.”

This case provides important guidance that attorneys’ fees can be recovered as an element of damages under a broad indemnity clause, as occurred here, but that those damages must be proved to the trier of fact as a damages case, not through a simple application for the award of attorneys’ fees (usually done after a judgment has been entered).

III.  Entitlement to Attorneys’ Fees under Principle of Equitable Indemnifcation.

In Washington, “equitable indemnity” remains a basis, albeit rare, to obtain an award of attorneys’ fees:  “Where the acts or omissions of a party to an agreement or event have exposed one to litigation by third persons—that is, to suit by persons not  connected with the initial transaction or event—the allowance of attorney’s fees may be a proper element of consequential damages.”  In this case, the trial court determined that Bridges had incurred legal fees because of the actions of Radovich, and thus Bridges was entitled to fees under this equitable indemnity principle.  The Court of Appeals, however, found two flaws: First, because the claim was for damages, it suffered the same problem as the contractual indemnity claim, because no trial on damages had occurred.  Second, the theory can apply only if the defendant committed a “wrongful act or omission” against the party bringing the claim.  Generally, this must involve a breach of contract or tortious conduct by the party against whom the claim is asserted.  In addition, the theory fails if there are other reasons  the party bringing the claim becomes involved in litigation with the party against whom the claim is asserted.  The Court of Appeals ruled that these requirements were not met, and, because Bridges had bargained for a contractual indemnity clause, it could not rely on principles of equitable indemnity to obtain damages in the form of attorneys’ fees. 

While  the trial court awarded Bridges fees under three separate theories, the Court of Appeals rejected each one.  This case provides key guidance in seeking attorneys’ fees under construction contracts, which typically include contractual indemnity clauses, as well as what must be done to prove attorneys’ fees as an element of damages, even if clearly covered by a broad contractual indemnity provision. 

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