Can defendants recover attorney fees when plaintiffs lack standing to enforce contracts? Hooban v. Unicity International, Inc. Explained

Background and Facts

Roger Hooban purchased stock in H&H Networking Services at a bankruptcy auction. H&H had previously entered into a distributorship agreement with Unicity International that included attorney fee provisions and transfer restrictions. When Unicity objected to the stock transfer and attempted to exercise its right of first offer, Hooban sued to enforce the contract as if he were a party to it. The district court granted summary judgment for Unicity, finding that Hooban lacked standing because he was not actually a party to the distributorship agreement.

Key Legal Issues

The central issue was whether Utah Code section 78B-5-826 permits attorney fee awards to defendants who successfully defend against contract-based litigation where the plaintiff is found not to be a party to the underlying contract. The district court denied Unicity’s attorney fee motion, reasoning that the contract could not serve as a basis for fees since Hooban was not a party to it.

Court’s Analysis and Holding

The Court of Appeals reviewed the district court’s statutory interpretation for correctness rather than abuse of discretion, finding the denial was based on legal error rather than discretionary judgment. The court held that section 78B-5-826 requires only two conditions: the litigation must be “based upon” a contract, and the contract must allow attorney fee recovery. The statute does not require that the contract be enforceable or that the party asserting enforceability actually be a party to the contract. The court emphasized that the statute “requires only that a party to the litigation assert the [contract’s] enforceability as basis for recovery.”

Practice Implications

This decision clarifies that defendants can seek reciprocal attorney fees under Utah’s attorney fee statute even when plaintiffs ultimately lack standing to enforce the contract they sued upon. Practitioners defending contract-based claims should preserve attorney fee requests early in litigation, as the statute’s application depends on the nature of the plaintiff’s claims rather than their ultimate enforceability. The court remanded for the district court to exercise its discretion in determining whether to actually award fees based on policy considerations and equitable principles.