The California Court of Appeal recently reviewed a case involving two siblings who operated a real estate partnership together for over twenty-five years. Johnson v. Johnson discusses the importance of attorneys’ fees clauses in a partnership and the scope of these clauses during litigation.

In 1982, Brother and Sister had equal interests in a partnership agreement that owned real estate. Sister was to manage the properties as Brother lived out of California. The Partnership Agreement required that adequate books and records be kept, required an annual accounting, and split profits equally between the two siblings. Further, there was an attorneys’ fee clause that stated, “In the event that litigation is instituted with respect to any matter regarding the covenants in this Agreement, the prevailing party shall be entitled to an award of attorney’s fees actually expended and costs actually incurred.”

The partnership eventually owned two commercial properties in Modesto and three residential properties. The last residential property acquired was occupied by Sister’s wife, and Sister occupied one unit in the commercial property for her own psychology business. There was also a New Jersey beach home in the partnership that had been acquired by the Siblings when their parents died. Brother took out a $175,000 mortgage on the beach house and sent the money to Sister for the partnership.

In 2009, Brother wanted to review the accounting and books. Sister failed to provide complete documents. Brother contacted a law firm. In 2010, Brother filed a lawsuit for accounting, breach of fiduciary duty, breach of the partnership agreement, conversion and appointment of receiver. In 2012, the Siblings settled their dispute by a handwritten agreement. Sister failed to perform under the handwritten Settlement Agreement.

In 2013, Brother filed a second lawsuit against Sister for breach of contract arising out of the Settlement Agreement. A jury found that Sister had breached the Settlement Agreement, but found in favor of Sister for the causes of action breach of fiduciary duty, conversion and negligent misrepresentation. Jury awarded Brother $12,822.

In response, Sister filed a Motion for Attorneys’ Fees requesting $120,000 in fees. The trial court awarded the fees and costs to Sister as the prevailing party. Brother appealed.

On appeal, the Court found that the trial court incorrectly found that Sister was the prevailing party because Brother received a judgment of $12,822. Further, it found that the attorneys’ fees provision in the Partnership Agreement could encompass the types of claims that were raised in the litigation. Therefore, the trial court would be required first to determine who was the prevailing party for attorneys’ fees; however, the Court found that Brother was the prevailing party for costs.