Zhu v. Li

Background

Plaintiff filed the case in 2019. A jury later found in Plaintiff’s favor on claims for breach of contract, breach of fiduciary duty, and intentional misrepresentation, and judgment was entered on May 2, 2023. Plaintiff then moved for $376,373 in attorney’s fees and $91,654.20 in costs, relying on the indemnification provision in the Purchase and Sale Agreement.

Contractual Fee Provision

The court held that the agreement’s indemnification provision was broad enough to cover disputes between the parties, not only claims brought by third parties. The court also found that the separate fee provision in the agreement’s mediation and arbitration section did not control because arbitration was optional and the parties did not use arbitration. The indemnification provision specifically covered reasonable attorney’s fees and costs resulting from a purchaser’s breach of the agreement.

Contract Claim

Under California law, a prevailing party may recover reasonable attorney’s fees when a contract provides for fees incurred to enforce the contract. The court concluded that the indemnification provision operated as a fee provision for the breach-of-contract claim. Plaintiff was therefore entitled to recover attorney’s fees for that claim.

Tort Claims

The court treated the breach-of-fiduciary-duty and intentional-misrepresentation claims as tort claims. It concluded that the fee provision did not cover them because it applied to fees and costs arising from a breach, violation, or default under the agreement. The tort claims instead rested on duties arising from the parties’ fiduciary relationship and on alleged misrepresentations made before the agreement was created. The court therefore denied the request for attorney’s fees under California Civil Code section 1021 for those claims.

Costs and Defendant Chen

The court held that the agreement could allow recovery of costs beyond the limits in federal statutes governing ordinary taxable costs. But Plaintiff could recover costs and expenses only to the extent they related to the breach-of-contract claim. The court also rejected Defendants’ argument that Defendant Chen was not liable for fees and costs. Chen’s personal guarantee made him jointly and severally liable with the purchaser for the agreement’s payment obligations, and the court found the contractual fee provision applicable.

Disposition

The court granted in part and denied in part Plaintiff’s motion for attorney’s fees and costs. Plaintiff may recover fees and costs for work related to the breach-of-contract claim, while the request for fees and costs related to the tort claims was denied. The court ordered Plaintiff to submit, by August 8, 2023, a revised accounting limited to contract-related work. The court stated that it would issue a separate order setting the amount of the award after reviewing that submission. If Plaintiff did not timely submit the accounting, the court would apply its own reduction based on the existing record.