Public/Private Agreements & Attorney Fees.

Plaintiff is a health care district is a public agency established in 1948 pursuant to the Health and Safety Code. Defendants include one of the hospitals that was operated by the district prior to 1998 as well as a nonprofit corporation formed to operate the hospital for the district. In 2004, when defendant hospital faced closure due to seismic requirements, the district entered into an agreement with the nonprofit corporation to construct a new hospital. In 2006, the nonprofit notified the district it would not build the new hospital, and the district claimed there was an anticipatory breach. A series of related agreements ensued. A lawsuit followed and was stayed pending arbitration. The district lost, but the arbitrator did not rule on the issue of whether any of the many agreements had been created in violation of Government Code section 1090, as claimed by the district.  That statute provides in relevant part: “Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.” Where a prohibited interest is found, the affected contract is void from its inception. (Thomson v. Call (1985) 38 Cal.3d 633, 646, fn. 15, [699 P.2d 316, 323; 214 Cal.Rptr. 139, 146].)  The superior court denied defendant’s request for attorney fees, finding the action was not “on a contract” for purposes of Civil Code section 1717. The appellate court reversed, finding that since the district elected to proceed with its contractual invalidation theory under Government Code section 1090 regarding some of the agreements, the agreements’ attorney fee clauses were put in play.  The appellate court concluded: “Having failed in its attempt to prove that the 2008 Agreements are void, the District is now liable for EMC’s attorney fees under section 1717.” (Eden Township Healthcare District v. Eden Medical Center  (Cal. App. First Dist., Div. 1; October 9, 2013) 220 Cal.App.4th 418, [162 Cal.Rptr.3d 932].