Winning With a Contract Is Not the Same as Suing on It: Attorney Fees After Mountain Air

A defendant wins a case outright. The reason she wins is a contract: she produces it, shows the court it superseded the agreement she was sued on, and the claim collapses. She then asks for her attorney fees under that contract's fee provision, and loses the motion.

That result strikes most clients as absurd, and it is the rule the California Supreme Court confirmed in Mountain Air Enterprises, LLC v. Sundowner Towers, LLC. The case is essential reading for anyone who assumes a fee clause protects them whenever the contract comes up in a lawsuit. Usually it does not, and the difference comes down to wording that most parties never read before signing.

The baseline: fees are the exception

California follows the American Rule. Under Code of Civil Procedure section 1021, each side pays its own attorney fees unless a contract or a statute says otherwise. You can win completely and still absorb your entire legal bill.

That makes fee recovery a question of finding a source, and there are two: a contract containing a fee provision, or a statute that shifts fees for that kind of claim. Our overview of when you can recover attorney fees in litigation walks through both routes. Mountain Air is about the first one, and about how narrowly courts read it.

What happened in Mountain Air

The parties had two agreements: a repurchase agreement and an earlier option agreement. Mountain Air sued Sundowner for breach of the repurchase agreement.

Sundowner's defense was the option agreement. It argued novation: the option agreement had superseded the repurchase agreement, and the option gave Sundowner the right to buy the property but no obligation to do so. The defense worked, and Sundowner won.

Sundowner then moved for its fees under the option agreement's fee clause. That clause provided that if any legal action or other proceeding "is brought for the enforcement of this Agreement or because of an alleged dispute, breach, default, or misrepresentation in connection with any provision of this Agreement," the prevailing party recovers reasonable attorney fees.

Sundowner's argument was intuitive. It had prevailed by relying on the option agreement, so the option agreement's fee clause should apply.

Holding one: a defense is not an action

The Supreme Court rejected that argument, unanimously.

The clause is triggered when an action or proceeding is "brought." Raising a contract as an affirmative defense is not bringing anything. The court described defenses as discrete procedural events within a lawsuit rather than separate actions, and declined to stretch the word to cover them. A party who never filed anything has not brought an action, however central the contract turned out to be.

This is the holding to internalize. Using a contract as a sword, by filing suit on it, can trigger its fee clause. Using it as a shield frequently does not, unless the clause was drafted to say so.

Holding two: why Sundowner got paid anyway

Sundowner still recovered its fees, on a different theory, and here the court split four to three.

The same clause contained a second trigger. It applied not only to actions brought to enforce the agreement, but to actions brought "because of an alleged dispute" in connection with any provision of it. Mountain Air's lawsuit, though pleaded on the repurchase agreement, arose out of a dispute connected to the option agreement, including its integration clause. That was enough.

So the fee award turned entirely on language the parties almost certainly regarded as boilerplate, and on the presence of a second trigger broader than the standard enforcement phrasing. Narrow that clause slightly and the outcome flips.

The distinction that trips people up

Mountain Air also clarifies a point that causes constant confusion: Civil Code section 1717 is not the whole universe of fee recovery.

Section 1717 governs actions on a contract. It is the provision that makes one sided fee clauses reciprocal, so a lease drafted to give only the landlord fees will give them to a prevailing tenant too. It is protective, and it is limited to contract claims.

A contractual fee provision operating under section 1021 is a different instrument. Parties can agree to shift fees on terms broader than section 1717 reaches, including for claims that do not sound in contract at all. That freedom is exactly why the specific words matter so much, and why courts parse them closely rather than applying a general sense of who deserved to win.

What this means when you are drafting

If you want a fee clause that protects a party who gets dragged into court and wins by relying on the agreement, the clause has to say so. Language limited to actions "brought to enforce this Agreement" will not get you there.

Provisions worth considering: cover any action or proceeding arising out of or relating to the agreement, not merely actions to enforce it; state expressly that fees are recoverable whether the agreement is asserted as a claim or as a defense; address declaratory relief, arbitration, appeals, and the fee motion itself; and define prevailing party rather than leaving it to argument later.

And remember the trade. In California a fee clause generally runs both ways in contract actions. An aggressive clause arms your counterparty exactly as much as it arms you. That is a decision to make deliberately, not by copying whatever form you used last time.

What this means when you are litigating

Read the fee clause before you plan the case, not after judgment.

If you are the defendant, notice that how you deploy the contract can affect recovery. There is a real difference between raising an agreement as an affirmative defense and filing a cross-complaint on it. A cross-complaint may open a fee door that a defense alone leaves closed, though it also expands the case and the fee exposure running back at you, which we discuss in our general guide to fee recovery.

If you are the plaintiff, read the clause the same way. Filing suit on an agreement with a broad fee provision can expose you to the other side's fees even where your claim was brought reasonably.

And on either side, look past the phrase "brought to enforce." Mountain Air rewarded a party because a second, broader trigger happened to be sitting in the same paragraph. Fee motions are frequently won and lost on that kind of language rather than on the equities.

Talk to a Los Angeles business litigation attorney

The Darvish Firm's Los Angeles business litigation attorneys evaluate fee exposure at the outset of every matter, because it drives strategy more than most clients expect, and we draft and review contracts treating the fee clause as a substantive term rather than boilerplate. To discuss a dispute, or to have an agreement reviewed before you sign it, call (310) 677-3512 or request a consultation. See also our page on breach of contract claims.

This article is general information about California law, not legal advice, and reading it does not create an attorney-client relationship. Every case depends on its facts. Consult an attorney about your specific situation.