California Civil Code section 1717 establishes mutuality of remedy where a contractual provision entitles only one party to the contract to its attorney’s fees if it prevails in an action on the contract.
In Reynolds Metals Co. v. Alperson, 25 Cal. 3d 124 (1979), the Supreme Court held that where a party is sued on such a contract as an alter ego of a contracting party and the alleged alter ego prevails on the contract claim, the alleged alter ego is entitled to his attorney’s fees. Since the plaintiff would have been entitled to attonrey’s fees had it proved that the defendants were liable as alter egos, Section 1717 ensures that the defendants are entitled to their fees if the plaintiff fails to prove its case.
Steven Ruth represents clients who were sued as alleged alter egos of a corporation. Our clients obtained summary judgment and moved for an award of attoney’s fees. The trial court ordered that they not recover their fees because they were not signatories to the contract.
California Court of Appeal recently reversed that order. It held that “Reynolds is on all fours with this case” and directed the trial court to determine the amount of attorney’s fees to be awarded.
Fewer than twenty percent of all appeals in civil cases result in a reversal.
The action will be remanded to the Superior Court early next year.