In Khavarian Enterprises Inc. v. Commline Inc.,2013 DJDAR 6107 (2013) the California Court of Appeal for the Second Appellate District overruled the trial courts denial of a fee claim arising out of a settlement agreement. 

The court of appeal concluded that parties to a settlement agreement can validly specify that one party is a potentially prevailing party. The court also stated that the “prevailing party” issue can be reserved by the parties for later determination by the trial court.

The Plaintiff filed an action for trade secret misappropriation against several defendants, seeking damages, restitution and injunctive relief.

After almost two years of litigation that parties engaged in mediation, and entered into a settlement agreement that specifically reserved the issue of whether the Plaintiff was entitled to recover attorney fees and to file a cost bill. The parties filed a notice of settlement and the action was dismissed. 

The Plaintiff, then filed a memorandum of costs and a motion for attorney fees. After a hearing, the trial court denied the motion for attorney fees and also struck the Plaintiffs memorandum of costs. The trial court concluded that the Plaintiff was not the prevailing party in the litigation. The trial concluded that the settlement precluded an award of fees as the “matter was resolved in a settlement.”

The Court of Appeal reversed noting that when interpreting a settlement agreement, the court’s goal is to objectively determine the mutual intention of the parties from the provisions contained in the agreement. In this case the court focused on the parties’ objective intent from the terms of the contract.  The court concluded that the Plaintiff’s potential entitlement to fees was specifically reserved for further handling. The trial court’s decision to deny the Plaintiff’s motion for attorney fees and costs was reversed on that basis.