Kelly A. Knight is an attorney and mediator based in Los Angeles, CAlifornia. He handles matters throughout California.

Court of Appeal holds that a plaintiff may dismiss a case during trial and not suffer an adverse prevailing-party determination for purposes of contractual attorney's fees under Civil Code 1717

Here's an interesting one. In Shapira v. Lifetech Resources, Cal. Ct. App. 2nd Dist. no. 283445 (Apr. 17, 2018) (slip op. linked here), the Second District Court of Appeal reversed a contractual attorney's-fee award to a defendant after a bench trial where the plaintiff requested that the court dismiss the case after the close of evidence but before the court issued its decision.

This case came out of Judge Elizabeth Allen White's trial courtroom in the Los Angeles County Superior Court's Central District, Stanley Mosk Courthouse. The plaintiff sued his former employer for breach of employment contract, and the case went to bench trial before Judge White. After the evidence was presented, the parties rested, and the parties agreed to submit closing arguments via written briefs. Slip op. at 2.

But before the plaintiff submitted his closing brief, he requested that the trial court dismiss the case under Code of Civil Procedure section 581(e), which provides: “After the actual commencement of trial, the court shall dismiss the complaint . . . with prejudice, if the plaintiff requests a dismissal . . . .” Slip op. at 2. The trial court denied the motion, the parties filed their closing briefs, and the trial court entered a statement of decision in the employer's favor. Id. The trial court ruled that the employer was the prevailing party under Civil Code section 1717 and awarded costs and $137,000 in attorneys fees to the employer. Id. 

As a reminder, Civil Code section 1717 essentially makes contractual attorneys fees a mutual provision to any party in the action against whom the provision is asserted:

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. . . .

Civ. Code § 1717(a).

Importantly, Civil Code section 1717(b)(2) provides that where the case is voluntarily dismissed, there is no prevailing party under section 1717: "Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section." Id. § 1717(b)(2).

The question on appeal was whether a plaintiff has a right to dismiss with prejudice under Code of Civil Procedure section 581(e) (providing that a court shall dismiss a complaint with prejudice at the plaintiff requests) before after the close of evidence but before closing argument and thereby avoid an adverse-prevailing-party determination for purposes of Civil Code section 1717(a) in the face of a contractual-attorney's-fees provision.

As you can tell from the title of this post, the Court of Appeal answered this question in the affirmative:

We agree with Shapira and reverse. Section 581(e) provides a right to dismiss a case before the completion of trial, and the court erred by refusing to dismiss the case upon Shapira’s request. As such, there was no prevailing party under section 1717(b)(2), and the attorney fees award was erroneous. 

Slip op. at 2-3.

That's really the end of the short take. Here's some more info. 

This case involved a claim for breach of employment contract to " 'retain the services of [Shapira] as a consultant and its director of international development' for one of Lifetech’s products." The plaintiff, Shapira, alleged that while the contract included a provision that his employment would not be terminated except for substantial cause for an initial period of eight months and, after that, on sixty days notice, the employer, Lifetech, terminated the contract less than two months later "without substantial cause." The plaintiff claimed eight months' compensation and other damages for the alleged breach.  Id. at 3.

After presentation of evidence, the parties agreed to submit closing briefs, and the trial court stated that the matter "will stand submitted . . . [a]s of the reply brief." Id. at 3-4.

But before any of the closing briefs were submitted, the plaintiff filed an ex parte application requesting dismissal of the case with prejudice, stating: "Plaintiff has elected to exercise his right to voluntarily dismiss the action with prejudice pursuant to California Code of Civil Procedure section 581(e)." Id. at 4.

The employer opposed on grounds that the case had proceeded to a full trial (except for closing-argument briefing) and that it had made numerous attempts to settle before trial, with the plaintiff refusing. Accordingly, the employer "argued that the dismissal was 'a transparent attempt to avoid the prevailing party’s’ contractual right to attorney’s fees. . . . [and] [ ] argued that the right to dismiss is extinguished once a case has been 'submitted at trial.'” Id. The employer also argued that the purpose of Civil Code section 1717(b)(2) was to encourage plaintiffs to dismiss meritless contract litigation, but once the plaintiff forces the employer to go through trial, the purpose of section 1717 "would be annihilated."  

The trial court denied the plaintiff's request to dismiss the action. Id. at 4-5. The plaintiff followed by filing a "Notice of Voluntary Dismissal," notwithstanding the court's ruling. Id. at 5. The defendant filed an objection to the document, and the trial court issued a minute order sustaining that objection. Id. at 6.

The parties filed their closing briefs, and the trial court ultimately issued a final statement of decision for the employer, entered judgment for the employer, and awarded costs and attorney's fees in an amount to be determined. Id. At the hearing on the employer's motion for attorney's fees, the trial court made the following statements that it was improper to request a dismissal after close of evidence but before final decision to avoid a prevailing-party fee award:

"So, when we talk about trying to voluntarily dismiss something in between the time that the evidence is submitted to the court, and the time that closing briefs arrive, I can’t imagine – I can’t imagine under any circumstance that you could just voluntarily dismiss – well, it looks like a losing battle here, so I am going to avoid the attorney’s fees – that’s just sabotage. It is sandbag. It is improper.” The court later added, “We had had a full trial, and you want to come in at the last minute recognizing that, perhaps, your client is in peril and avoid the attorney’s fees? No.”

Id. at 7-8.

The trial court awarded $137,000 in attorney's fees to the employer, and the employee appealed. Id. at 8.

The appellate court applied de novo review (id. at 8) on the pure legal issue of whether the plaintiff had a right to voluntarily dismiss with prejudice under Code of Civil Procedure section 581 after the close of evidence but before final decision (id. at 10).

First, the parties' focus on whether the case had been "submitted" at the time of the request for dismissal was misplaced. Id. at 10. (Section 581(d) provides: "Except as otherwise provided in subdivision (e), the court shall dismiss the complaint, or any cause of action asserted in it, in its entirety or as to any defendant, with prejudice, when upon the trial and before the final submission of the case, the plaintiff abandons it.") But the plaintiff requested dismissal under section 581, subdivision (e) (dealing with a request for dismissal by the plaintiff), not subdivision (d) (dealing with the plaintiff's abandonment of the case). Since the parties both assume that the "outer limit" for requesting a dismissal under section 581(e) is submission of the case, however, the appellate court adopted this assumption (without deciding the issue) that a plaintiff may dismiss under section 581(e) prior to the case being submitted. See id. at 10. 

Next, the appellate court then held that the case had not been submitted at the time the plaintiff requested dismissal. Under Rule 2.900(a) of the California Rules of Court, a "cause is deemed submitted" at the earlier of (1) the court ordering the matter submitted or (2) the date the final paper is required to be filed or the date argument is heard, whichever is later. Id. at 10. And under Jalof v. Robbins, 19
Cal. 2d 233, 235 (1941), “A case is deemed to be under submission when the court, trying the case without a jury, has heard the evidence and the arguments of counsel and has taken the case under advisement.” Id. at 10-11 (italics in original).

Here, at the time the request for dismissal was made, the trial court had not ordered the matter submitted, and the final argument (via closing briefs) had not been made. And, during the motion for attorney's fees, the trial court even said that the matter was not submitted as of the date dismissal was requested. Since the matter was not ordered submitted and the time for the last paper to be filed had not passed, the deadline to voluntarily dismissal under section 581(e) had not yet passed when the request was made. Id. at 11.

The employer argued that the trial court must have some discretion to determine that a request for voluntary under section 581(e) is untimely. But the appellate court rejected the argument, noting that under section 581(e) a court "shall" dismiss the complaint with prejudice if the plaintiff requests it, suggesting there is no discretion and dismissal is mandatory if the plaintiff requests it. Further, section 581(e) also contains language that a court may order dismissal without prejudice for good cause---this suggests that a court has discretion to dismiss without prejudice, but does not have discretion to refuse to dismiss the case entirely. Id. at 11-12. (For these same reasons, the appellate court rejected the position taken by the trial court and argued by the employer that a dismissal under section 581(e) can be rejected under unfairness grounds. See id. at 16.)

Order granting attorney's fees reversed and case remanded. Id. at 19.

While the case involved an employment matter, this case has much broader applicability to any case involving a contractual attorney's-fee provision.

Although the Shapira court assumed without deciding that submission of the case provides an outer limit, there is still a lot of guidance here. A trial court has no discretion to refuse to dismiss a case with prejudice if requested by the plaintiff after commencement of the trial and before the requisite time. Although section 581(e) does not specify when the request must be made (other than "[a]fter commencement of trial"), the Shapira court assumed that before submission of the case was the outer limit for purposes of the case before it. You will have to determine whether there is a timing issue and when you'd want to make the request, but obviously the earlier the better (and definitely before submission).

If you are in a breach-of-contract case with a fee provision and the case is going south during trial, you should read the Shapira opinion and section 581 as part of your research. Who knows? You might be able to avoid a contractual fee award. The Shapira plaintiff did.

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