Daily Development for
Thursday, August 13, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

ATTORNEY'S FEES; "PREVAILING PARTY:" Where land contract buyer obtains judicial ruling that contract seller has breached contract, seller is entitled to reasonable attorney's fees under fee provision in contract, even when court also concludes that buyer has suffered no damages as a consequence of the breach.

Foote v. Clarke, 1998 WL 397129 (Utah 1998).

After signing a valid contract with buyers, sellers got into a dispute about interpretation of its terms and promptly sold the property to another for the same price. Apparently this happened so quickly after the signing of the original contract that buyers had incurred no reliance expenses, such as loan application fees, inspection costs, etc. Buyers nevertheless brought suit against the brokerage agency, the sellers' agent individually, and the sellers.

As the apparent fair market value of the property (based upon the resale) was exactly the same as the contract price, and as buyers had no special economic damages, they structured their suit as a claim for various "tort type" damages including emotional distress. They styled the claim as a suit for tortious "fraudulent interference with the contract."

The trial court dismissed the tort claims but found that the sellers had materially breached the contract by selling the property to another. It found, however, that buyers had suffered no damages as a consequence of the breach, and entered a judgment for $100 in "nominal damages." It then, however, proceeded to award over $14,000 in attorney's fees pursuant to a provision in the contract that provided "the defaulting party shall pay all costs and expenses, including a reasonable attorney's fee, which may arise or accrue . . . in pursuing an remedy provided . . . by applicable law."

The sellers appealed on the grounds that attorney's fees should not have been awarded when there were no damages. They also contested the amount of the fee award, which was based upon an affidavit and trial testimony, but not upon any findings as to reasonableness or appropriateness by the trial court.

The Utah Supreme Court held that there was no doubt that attorney's fees were payable under the contract. Decided authority established that obtaining a judicial decree of material breach is "prevailing" within the meaning of contract fee clauses, even when no damages are awarded. It further held that the amount of a damage award is not necessarily determinative in establishing attorney's fees.

The court ruled nevertheless that the trial court should have differentiated between those fees related to the contract claim and those related to the illfated attempt to recover tort based fees. The court commented: "While a court in assessing attorney fees should give latituted to a party advancing a novel theory, wellgrounded in policy and aimed at encouraging progress in our law, the court should not remiburse counsel for time spent pursuing ungrounded and infeasible theories of recover, particularly if the suit appears motivated solely by spite . . . an objective analysis of plaintiff's contract claim would have suggested to a prudent attorney that damages collectible under wellestablished remedies law were not great. Plaintiffs' counsel should have made that appraisal and allocated his time accordingly."

The court remanded for another cut by the trial court at attorney's fees. It also concluded that an award of $100 damages was more than "nominal" and reduced the damages amount to $1.

A strong dissent aargued that the fee award also should be limited to $1, since when nominal damages only are awarded, the usual appropriate attorney's fee is no fee at all.

Comment 1: On the question of whether there can ever be tortious claims for breach of land sale contracts, consider Sulka v. Dean Homes of Beverly Hills, 23 Cal. Rptr. 2d 902 (Cal. Ct. App. 1993), which awarded emotional distress damages in connection with a claim for absolute liability for breach of a builder's implied warranty of quality. Consider also that some courts have entertained tort claims based upon conspiracy between a party to a land contract and another party, such as a broker or lawyer, to interfere with contract. Typically, these cases involve suits brought by brokers who lose commissions when the properties are sold out from under their deal. See, e.g. Greenwood & Co. Real Estate v. CD Inv. Co., 18 Cal. Rptr. 2d 144 (Cal. App. 1993); HarperLawrence, Inc. v. United Merchants and Manufacturers, Inc., 619 A.2d 623 (N.J.Super.App.Div.1993) (the above two cases are leasing cases). Smith v. Welch, 611 S.W.2d 398 (Mo. App. 1981) (land sale contract conspiracy between broker and owner to defer sale documentation until after exclusive listing with first broker expired punitive damages awarded.)

Comment 2: The Utah court and the dissenting judge certainly have a point that it is undesirable to provide attorney's fee remedies under circumstances where the attorney's fee award itself seems to be the primary objective of the litigation and that just to punish the other side when there are no significant damages. On the other hand, the typical home purchaser is left with no effective remedy where the property under contract is sold to another for the same price prior to his being able to muster a specific performance suit (and perhaps even prior to his knowing of the proposed other sale). Buyers rarely negotiate for liquidated damages and brokers rarely, if ever, suggest that they do so. Further, executory land contracts for home purchases are almost never recorded. The editor recently completed a review of Chinese real estate law, which awards a disappointed buyer in this situation double the amount of the earnest money as statutory liquidated damages. Is this a more sensible approach? Should we have more teeth in a solemn contract obligation concerning something as unique as a home? Although the buyers may have no money damages, they indeed may have invested a great deal of psychological capital in the decision to buy this property and the negotiations to accomplish that. Are these things worth nothing?

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