## Facts

- Midland Warehouse and Distribution, Inc. and Transmotor Express, Inc. (collectively, Midland) leased a warehouse with an option to purchase.
- Coldwell Banker Commercial Group, Inc. and its agent, Kent Williams (collectively, Coldwell), acted as Midland’s real estate brokers.
- Coldwell arranged a sublease for Midland that violated Midland’s master lease.
- The violation led to Midland’s forfeiture of the warehouse and its option to purchase.
- Steve Moallem, as assignee of Midland’s claims, sued Coldwell for negligence, breach of fiduciary duty, and breach of contract.
- A jury found for Moallem on negligence and breach of fiduciary duty, and for Coldwell on the breach of contract claim.
- The trial court entered judgment for Moallem for $1,430,937 and applied some, but not all, requested setoffs for pretrial payments made by other parties.
- The brokerage commission schedule contained a unilateral attorney-fee clause favoring Coldwell only if Coldwell sued Midland regarding the schedule or an agreement of which it was a part.
- Both sides sought attorney’s fees under the clause and California Civil Code § 1717; the trial court denied fees, finding no prevailing party on the contract.

## Issues

1. Whether pretrial payments made to Midland and/or its bankruptcy estate by other parties compensating the same injury had to be credited as offsets against the judgment to prevent multiple recovery.
2. Whether a payment made directly to Moallem personally was properly deducted from the judgment as a setoff.
3. Whether Moallem was entitled to additional prejudgment interest beyond what the trial court awarded.
4. Whether Civil Code § 1717 permitted Moallem to recover attorney’s fees for prevailing on tort claims where the contract’s unilateral fee clause benefited only Coldwell and was triggered only when Coldwell sued Midland.

## Decision

- The Court of Appeal held Coldwell was entitled to additional offsets for two pretrial payments made to Midland and/or its bankruptcy estate and modified the judgment accordingly.
- The Court of Appeal rejected Moallem’s challenges to the setoff applied for a payment made to him and rejected his request for additional prejudgment interest.
- The Court of Appeal affirmed the denial of attorney’s fees to both sides, agreeing there was no prevailing party on the contract under Civil Code § 1717(b).
- As modified to include the additional offsets, the judgment was affirmed.

## Legal Principles

- Courts must credit settlement or related payments against a judgment when they compensate the same injury, to avoid excessive or multiple recovery.
- Civil Code § 1717 makes unilateral contractual fee provisions reciprocal only in an “action on a contract,” and only for the party prevailing on the contract.
- A party who prevails only on tort claims (and does not prevail on the contract claim) cannot use § 1717 to recover attorney’s fees based on a contractual fee clause.
- Where a fee clause is expressly limited to fees for one party only in actions that party initiates (e.g., broker suing owner), it does not support a fee award to the opposing party who sues and prevails on tort theories.

## Conclusion

The court modified the damages award to include additional offsets for payments received for the same loss, affirmed setoffs applied against Moallem and the denial of added prejudgment interest, and held that Civil Code § 1717 did not authorize attorney’s fees for Moallem’s tort recoveries under a unilateral fee clause tied to contract litigation initiated by Coldwell.


Moallem v. Coldwell Banker Com. Grp., Inc., 25 Cal. App. 4th 1827, 31 Cal. Rptr. 2d 253 (Ct. App. 1994)