Opinion
G056866
03-19-2020
ASLAN ABREGOV et al., Plaintiffs and Respondents, v. KEVIN LAWRENCE et al., Defendants and Appellants.
Theodora Oringher, Jeffrey H. Reeves; Aviso Legal Group, Linda D. Lam and Lori Ginex-Orinion for Defendants and Appellants. John L. Dodd & Associates, John L. Dodd; Cadden & Fuller and John B. Taylor for Plaintiffs and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2013-00638650) OPINION Appeal from postjudgment orders of the Superior Court of Orange County, Ronald L. Bauer, Judge. Reversed and remanded with directions. Theodora Oringher, Jeffrey H. Reeves; Aviso Legal Group, Linda D. Lam and Lori Ginex-Orinion for Defendants and Appellants. John L. Dodd & Associates, John L. Dodd; Cadden & Fuller and John B. Taylor for Plaintiffs and Respondents.
* * *
INTRODUCTION
This is the second of two appeals in this lawsuit. We also file today our opinion affirming the judgment and certain postjudgment orders. (Abregov v. Lawrence (Mar. 19, 2020, G056629) [nonpub. opn.] (Abregov I).) The parties are the same shareholders of Bio-Nutritional Research Group, Inc. (BNRG) as in Abregov I. Minority shareholders Aslan Abregov, Craig Parrino, and Pierre Ngo are, collectively, Plaintiffs. BNRG board of director members Kevin Lawrence, Curtis Steinhaus, and Carlos Prietto are, collectively, Defendants. Defendants are the appellants here, and they challenge the trial court's postjudgment orders denying them all costs and fees.
Three independent statutory schemes for the recovery of postjudgment costs and attorney fees are germane to this appeal: (1) the general prevailing party cost provisions in Code of Civil Procedure section 1032 (section 1032); (2) the cost shifting statute applicable when a plaintiff rejects a pretrial statutory settlement offer and does not obtain a more favorable result at trial (Code Civ. Proc., § 998 (section 998)); and (3) the statute awarding attorney fees for parties who prevail on a contract with an attorney fees provision (Civ. Code, § 1717 (section 1717)). While there is some overlap, each statute applies in this case to one extent or another.
As a preliminary matter, we deny Plaintiffs' request to dismiss Defendants' appeal as having been taken from a nonappealable order. On the merits, we reverse and remand the matter to the trial court with directions. As a matter of law, Defendants are the prevailing parties on the action pursuant to section 1032 and entitled to statutory costs of suit. Defendants' section 998 offers to settle the complaint are evaluated independently of the prevailing party finding. The section 998 offers were valid, and Plaintiffs did not obtain a judgment in their favor. Accordingly, Defendants are entitled to reasonable attorney fees incurred from the date of the section 998 offers in connection with the complaint; the trial court has discretion to award reasonable expert witness fees incurred from the same date (§ 998, subd. (c)(1) (section 998(c)(1)). In light of our holding in Abregov I, the denial of Defendants' motion for section 1717 reasonable attorney fees as prevailing parties on the contract (i.e., the shareholder agreement) also must be reversed. On remand, the trial court is directed to award Defendants reasonable attorney fees, not otherwise awarded pursuant to section 998, pursuant to section 1717.
Based on the broad wording of the attorney fees provision in the shareholder agreement, Defendants argue they are entitled to reasonable attorney fees to defend both the contract and the tort causes of action in the complaint. Because contract interpretation presents a question of law, they ask this court to make that determination now. We decline to do so and express no opinion. The trial court never considered whether the attorney fees component of a section 998 costs award included postoffer fees incurred in connection with litigating the complaint's noncontract causes of action. The trial court should make this determination in the first instance.
FACTS AND PROCEDURAL HISTORY
The factual background and course of this litigation through entry of judgment are described in Abregov I. Briefly, Plaintiffs sued Defendants for damages and injunctive relief on a variety of legal theories stemming from alleged breaches of the parties' shareholder agreement and Defendants' fiduciary duties. The trigger for the lawsuit was Defendants' issuance of several million shares of BNRG stock to themselves, but not to Plaintiffs, pursuant to an amendment to the BNRG articles of incorporation that Plaintiffs did not approve.
Before trial, Defendants cancelled all issued shares of BNRG stock in excess of one million. Plaintiffs rejected Defendants' pretrial section 998 offers to settle the complaint.
The action was tried to the court in two phases. In the first phase, the trial court rejected Plaintiffs' contention that BNRG is a statutory close corporation. In the second, the trial court determined Plaintiffs failed to prove Defendants breached any contractual or fiduciary duties. The judgment entered in favor of Defendants also recited that Defendants were the prevailing parties.
After entry of judgment, Defendants claimed costs in the amount of $626,341.65. This sum included $153,960.84 in ordinary costs and, pursuant to section 998, $472,380.81 in expert witness fees and costs. Defendants also brought a motion for attorney fees. Section 16.04 of the shareholder agreement provides the prevailing party in "any litigation concerning this Agreement between the parties to this Agreement" is entitled to attorney fees. By noticed motion, Defendants also sought $8,292,581.65 in attorney fees pursuant to section 1717 or, alternatively, section 998.
Plaintiffs responded with a motion to strike all costs on the ground Defendants were not prevailing parties. Alternatively, Plaintiffs sought an order taxing specific items in the cost memorandum. Plaintiffs also opposed the attorney fees motion.
On the first hearing date—and notwithstanding the recitation in the signed judgment—the trial court announced no party prevailed. The trial court took the motions off calendar so they could be refiled based on the trial court's determination there was no prevailing party in the action. However, the trial court did not order modification of the judgment that declared Defendants were the prevailing parties. (Code Civ. Proc., § 662.)
The motions were refiled and ruled upon on the record at a September 24, 2018 hearing. The trial court advised it "reviewed further the issue about a prevailing party in this case and concluded, as I did in July, that there is none." The trial court denied Defendants' postjudgment motions for costs and attorney fees and granted Plaintiffs' motion to strike Defendants' memorandum of costs. The section 998 offers were the primary optic of argument at the hearing, but the trial court's ruling did not address Defendants' request for section 998 costs.
DISCUSSION
I.
DEFENDANTS APPEALED FROM AN
APPEALABLE POSTJUDGMENT ORDER.
Plaintiffs ask this court to dismiss Defendants' appeal. They assert Defendants' failure to appeal from the July 11, 2018 minute order or to file a protective cross-appeal in Abregov I dooms this appeal, which challenges the trial court's September 24, 2018 orders. The record does not support the argument.
On July 11, 2018, the costs and attorney fees motions were initially heard together with Plaintiffs' motions for a new trial and to vacate the judgment. At the hearing, the trial judge "confess[ed] to having been snookered" by Defendants' counsel. He advised he never found Defendants to be the prevailing parties and it "is hard to say that either side is 100 percent successful in this litigation." The trial court did not rule on the costs and attorney fees motions at that time.
Instead, the July 11, 2018 order noted the costs and attorney fees motions "depend in significant measure upon the determination of who has prevailed in the litigation. To the court's considerable chagrin, defendants' counsel slipped into the judgment which the court signed a statement that the defendants are the prevailing parties. The court had made no such decision[,] certainly no such announcement." The trial court viewed this case "as a paradigm example of a case with no prevailing party" and advised the costs and attorney fees motions would "be re-calendared for a future date when the parties can perhaps present their arguments with this ruling in mind."
Defendants filed a second motion for attorney fees, this time requesting an award of $8,562,140.65. Plaintiffs filed a new motion to strike/tax Defendants' claimed costs. The September 24, 2018 ruling reiterated no party prevailed in the action. Plaintiffs' second motion to strike costs was granted; Defendants' second motion for attorney fees was denied.
The record is clear. The trial court did not rule in July 2018 on the original costs and attorney fees motions. Those motions were taken off calendar so the parties could revamp them, taking into account the trial court's conclusion no party prevailed in the action. The Defendants' second motion for attorney fees was not, as Plaintiffs contend, a motion for reconsideration. The trial court formally and, with finality, denied Defendants' motion for attorney fees in the September 24, 2018 minute order, which was the only appealable order issued. (Code Civ. Proc., § 904.1, subd. (a)(2).) Defendants' appeal is timely.
II.
DEFENDANTS ARE PREVAILING PARTIES ENTITLED TO
COSTS PURSUANT TO SECTION 1032.
A.
Governing Legal Principles
Section 1032 is the general cost recovery statute for civil lawsuits. Pursuant to section 1032, subdivision (a)(4) (section 1032(a)(4)), there always will be a prevailing party in a civil action. By statute, the prevailing party must be the defendant "where neither plaintiff nor defendant obtains any relief . . . and . . . against those plaintiffs who do not recover any relief against that defendant." The defendant is also the prevailing party when a plaintiff recovers nothing on the complaint, and the defendant recovers nothing or only some relief on a cross-complaint. (Building Maintenance Service Co. v. AIL Systems, Inc. (1997) 55 Cal.App.4th 1014, 1026 (Building Maintenance); Zintel Holdings, LLC v. McLean (2012) 209 Cal.App.4th 431, 438, and cases cited therein.) Under these circumstances and unless a different statute applies, "a prevailing party is entitled as a matter of right to recover costs." (§ 1032, subd. (b) (section 1032(b).)
If the situation is other than as described in the previous paragraph and "[i]f any party recovers other than monetary relief . . . , the 'prevailing party' shall be as determined by the [trial] court." (§ 1032(a)(4).) In that case, the trial court has discretion to deny the prevailing party its costs or to apportion them. (Ibid.) But the trial court is without discretion to determine no party has prevailed. Trial courts are required to make a prevailing party determination in every action. (Charton v. Harkey (2016) 247 Cal.App.4th 730, 738.)
The May 7, 2018 judgment states Defendants are the prevailing parties. Defendants served a notice of entry of judgment on May 21, 2018. Pursuant to Code of Civil Procedure section 662, the trial court's July 11, 2018 ruling that no party prevailed could have included an order to modify the judgment; but it did not do so. Consequently, in Abregov I, we simply affirmed the judgment as entered. In this appeal, we explain why.
B.
Analysis
The trial court intended each side would be responsible for its own litigation costs. However, Plaintiffs sought damages and injunctive relief on their complaint and recovered nothing. Defendants obtained some relief on their cross-complaint—a declaration BNRG was not a statutory close corporation. By statute, Defendants are prevailing parties entitled to litigation costs as a matter of right. (§ 1032(b); Zintel Holdings, LLC v. McLean, supra, 209 Cal.App.4th at p. 438; Building Maintenance, supra, 55 Cal.App.4th at pp. 1025-1026; McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn. (1991) 231 Cal.App.3d 1450, 1454-1455.) The trial court erred in ordering the parties to bear their own costs. (Charton v. Harkey, supra, 247 Cal.App.4th at p. 739; Building Maintenance, supra, 55 Cal.App.4th at p. 1026.)
Plaintiffs' reliance on the "other than monetary relief" clause in section 1032(a)(4) to justify the denial of costs to Defendants misses the mark. They contend Defendants' voluntary pretrial cancellation of all issued BNRG shares of stock in excess of one million and the trial court's decision to reform, but still preserve, the shareholder agreement constitute "other than monetary relief." We disagree.
The term "recovers other than monetary relief" in section 1032(a)(4) typically refers to injunctive relief, declaratory relief, and other equitable remedies awarded by the court. (E.g., Lincoln v. Schurgin (1995) 39 Cal.App.4th 100, 104 [denial of costs where the defendants obtained declaratory relief]; United States Golf Assn. v. Arroyo Software Corp. (1999) 69 Cal.App.4th 607, 625 [award of costs where the plaintiff is granted a permanent injunction].) Additionally, as the Supreme Court explained in Goodman v. Lozano (2010) 47 Cal.4th 1327, "'[t]he word "recover" means "to gain by legal process" or "to obtain a final legal judgment in one's favor."'" (Id. at p. 1334.) Defendants' share cancellation, albeit a calculated litigation strategy, was voluntary. It was not ordered by the trial court; and it was not intended to, nor did it, result in a settlement of the lawsuit. The share cancellation was not an award by the trial court or a recovery by Plaintiffs of "other than monetary relief" under section 1032(a)(4).
The trial court's reformation of the shareholder agreement also did not constitute "other than nonmonetary relief." In the complaint, Plaintiffs took the position BNRG was a statutory close corporation and the shareholder agreement's requirement of unanimous shareholder approval of all amendments to the articles of incorporation meant the amendment increasing the number of authorized shares of stock to 15 million was void as an ultra vires act. Plaintiffs sought a mandatory injunction on that basis, but were not successful. Although the trial court did not rescind the shareholder agreement as Defendants requested, the legal consequence of the trial court's finding that BNRG is not a statutory close corporation is that section 3.03(a) of the shareholder agreement never became effective to govern the protocol to amend the articles of incorporation, nor is that provision independently enforceable. (Abregov I, supra, G056629.)
The order granting Plaintiffs' motion to strike costs is reversed. The matter is remanded to the trial court with directions to deny Plaintiffs' motion to strike costs and to consider Plaintiffs' motion to tax costs.
III.
DEFENDANTS ARE ENTITLED TO RECOVER COSTS
PURSUANT TO SECTION 998.
A.
Background
On April 1, 2016, Defendants made to each plaintiff an offer to settle the complaint for $500,000 in exchange for a "Dismissal with Prejudice of all claims Plaintiff has asserted against the Offeror Defendants in the above-captioned action," with all parties bearing their own costs and attorney fees. (§ 998.) The section 998 offers were not conditioned on each Plaintiff executing a release. Plaintiffs rejected the offers, and the case proceeded to trial.
After the entry of judgment in their favor, Defendants sought recovery of reasonable attorney fees incurred in defending the complaint from the date the section 998 offers were served. They based their motion on section 1717 and section 998. In denying all costs and attorney fees to Defendants, the trial court did not mention the section 998 offers.
B.
Governing Legal Principles
"[S]ection 998 establishes a procedure to shift costs if a party fails to accept a reasonable settlement offer before trial. The purpose of the statute is to encourage pretrial settlements." (Fassberg Construction Co. v. Housing Authority of City of Los Angeles (2007) 152 Cal.App.4th 720, 764.)
Section 998, subdivision (b) (section 998(b)) requires statutory settlement offers to be in writing and "include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted." "[W]here both a complaint and cross-complaint are pending, an offer to settle only the complaint is valid to trigger the provisions of section 998 because '"[a] complaint and a cross-complaint are, for most purposes, treated as independent actions."'" (One Star, Inc. v. STAAR Surgical Co. (2009) 179 Cal.App.4th 1082, 1096.)
A plaintiff who rejects a section 998 offer and does not obtain a more favorable judgment "shall pay the defendant's costs from the time of the offer." (§ 998(c)(1).) Costs include reasonable postoffer attorney fees if the lawsuit is based on a contract with an attorney fees provision. (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1106-1107; Code Civ. Proc., § 1033.5, subd. (a)(10)(A).) In addition, the trial court has discretion to award the defendant "a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration." (§ 998(c)(1).)
A defendant's right to recover section 998 costs and attorney fees is independent of any prevailing party finding. The only criteria are a valid section 998 offer and the plaintiff's failure to recover a judgment more favorable than the statutory offer. (Scott Co. v. Blount, Inc., supra, 20 Cal.4th at p. 1114.)
General contract principles apply when interpreting section 998 offers. (Prince v. Invensure Ins. Brokers, Inc. (2018) 23 Cal.App.5th 614, 622.) We review section 998 offers de novo and construe any ambiguities against the offeror. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955; Ignacio v. Caracciolo (2016) 2 Cal.App.5th 81, 86.) Where, as here, a trial court does not address section 998 in denying a defendant's request for postoffer costs and attorney fees, we infer from the trial court's silence it found either the section 998 offers were not valid or Plaintiffs obtained a judgment more favorable than the statutory offer. (Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242, 1271.)
C.
Analysis
1. The Section 998 Offers Were Valid
We reject Plaintiffs' contention that Defendants' use of the phrase "all claims Plaintiff has asserted" created ambiguities because it might refer to claims by Defendants in the cross-complaint or future claims. The technically correct term for allegations giving rise to relief is "cause of action" or "count," not claim. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2019) ¶¶ 6:104-6:110, pp. 6-32 to 6-34.) But the word "claim" (as a noun) or the phrase "claim for relief" is commonly used interchangeably with "cause of action." (Chen v. Interinsurance Exchange of the Automobile Club (2008) 164 Cal.App.4th 117, 122, fn. 6 (Chen).)
Indeed, in respondent's brief, Plaintiffs occasionally use the term "claim" to refer to their causes of action.
In addition, the phrase "all claims" in Defendants' section 998 offers must be read in context as part of the whole of the contract. (Civ. Code, § 1641.) The condition for acceptance in this case was "entry of a Request for Dismissal with Prejudice of all claims." A voluntary dismissal with prejudice could only refer to the complaint, the only pleading Plaintiffs had the authority to dismiss. Plaintiffs had no authority to dismiss Defendants' cross-complaint. Although affirmative defenses can be dismissed (see Ovando v. County of Los Angeles (2008) 159 Cal.App.4th 42, 53), they are not, and cannot reasonably construed to be, "claims."
The suggestion that "a dismissal with prejudice of all claims" might refer to future claims also is not reasonable. Defendants' section 998 offers were not conditioned on Plaintiffs' signing releases. In this regard, Defendants' section 998 offers sharply contrast with the one in Chen, supra, 164 Cal.App.4th at pages 120-121, where the statutory offer was conditioned on plaintiffs' signing a release of all claims, not just a dismissal with prejudice of the current lawsuit.
In Chen, the Court of Appeal held the condition requiring the plaintiffs to release "'all claims'" rendered the entire section 998 offer ambiguous due to a pending insurance claim that was not yet the subject of any litigation. Because the phrase "all claims" created an ambiguity that could not be resolved and was construed against the offeror, the section 998 offer was ineffective to shift costs to the offerees. (Chen, supra, 164 Cal.App.4th at pp. 120-121; see Ignacio v. Caracciolo, supra, 2 Cal.App.5th at pp. 83, 88-89 [section 998 offer invalid because it required release of claims outside the scope of the current litigation]; Linthicum v. Butterfield (2009) 175 Cal.App.4th 259, 272 [section 998 offer including release of all current claims between the parties was valid]; Goodstein v. Bank of San Pedro (1994) 27 Cal.App.4th 899, 907; Valentino v. Elliott Sav-On Gas, Inc. (1988) 201 Cal.App.3d 692, 696-697 [a valid section 998 offer cannot require the release of claims in addition to those in the current lawsuit].)
Nor do we find an ambiguity based on the proviso the parties will bear their own costs and attorney fees. The section 998 offers did not mention the cross-complaint or purport to resolve it in any way. Given this context, the costs and fee waiver could only be interpreted as relating to Plaintiffs' complaint. (One Star, Inc. v. STAAR Surgical Co., supra, 179 Cal.App.4th at p. 1096.)
Plaintiffs argue it would be difficult to determine which costs and attorney fees are related to the cross-complaint because the issues raised by the cross-complaint and the issues raised by the complaint were "so intertwined." Trial courts routinely make these difficult decisions. In any case, if the claims for relief in the complaint and the cross-complaint are so intertwined that separating attorney time into recoverable and nonrecoverable units is impossible or impracticable, apportionment is not required. (Calvo Fisher & Jacobs LLP v. Lujan (2015) 234 Cal.App.4th 608, 625-626.)
Further, Michael Quigley, a minority shareholder who was not a defendant in the complaint but was, for a time, a cross-complainant, was not an offeror. If the section 998 offers were intended to resolve both the complaint and the cross-complaint, then, it would seem, Quigley would have been one of the offerors.
The section 998 offers in this case were "sufficiently specific to allow the recipient to evaluate the worth of the offer and make a reasoned decision whether to accept the offer." (Fassberg Construction Co. v. Housing Authority of City of Los Angeles, supra, 152 Cal.App.4th at p. 764.) Plaintiffs were offered $500,000 each, for a total of $1.5 million, in exchange for dismissing the complaint and a mutual waiver of costs and attorney fees related to the complaint. If Plaintiffs believed the offers were ambiguous or had questions about them, they were "'free to explore those matters with'" Defendants. (Prince v. Invensure Ins. Brokers, supra, 23 Cal.App.5th at pp. 622-623.)
2. Plaintiffs Failed to Obtain a More Favorable Judgment
Alternatively, Plaintiffs argue they obtained "a more favorable judgment or award" than the $500,000 apiece Defendants offered because they "secur[ed] the continuing validity of the Shareholder Agreement [and] ensured they could never be diluted below 2.689%, solidifying a gain of approximately $14 million, $4,658,000 each." Again, we disagree.
The word "award" is used in section 998 in the context of arbitrations conducted pursuant to written agreement (Code Civ. Proc., §§ 1281, 1295). (§ 998(b).)
The validity vel non of the shareholder agreement was the subject of the cross-complaint; and Defendants did not make a section 998 offer as to that pleading. This litigation resulted in a defense judgment. Although a number of provisions in the shareholder agreement may remain in effect, this court held in Abregov I the unanimity provision in section 3.03(a) is not one of them. Nor did Plaintiffs gain antidilution protection for their percentage interests in BNRG. BNRG is not a statutory close corporation, the amendment to the articles of incorporation increasing the number of authorized shares is valid, and Plaintiffs failed to prove Defendants breached a contract or fiduciary duties. (Abregov I.) Plaintiffs recovered nothing on their complaint and did not receive any court-ordered corporate protections moving forward.
See, e.g., section 15.01 of the shareholder agreement.
3. Conclusion and Directions on Remand
Defendants' section 998 offers were timely and directed to Plaintiffs' complaint only. The judgment, which this court has affirmed, was not in Plaintiffs' favor. Defendants are entitled to recover postoffer costs and reasonable attorney fees incurred from the date of the offer incurred in connection with litigating the complaint. (Code Civ. Proc., § 1033.5, subd. (a)(10)(A); Scott Co. v. Blount, Inc., supra, 20 Cal.4th at pp. 1106-1107.) Finally, the section 998 costs may, in the trial court's discretion, include reimbursement for expert witness fees and costs "actually incurred and reasonably necessary" after the date of the statutory offer. (§ 998(c)(1).)
IV.
DEFENDANTS ARE ENTITLED TO SECTION 1717 ATTORNEY
FEES; REMAND IS NECESSARY TO DETERMINE THE
AMOUNT.
A.
Section 1717"[T]o invoke section 1717 . . . a party must show (1) he or she was sued on a contract containing an attorney fee provision; (2) he or she prevailed on the contract claims; and (3) the opponent would have been entitled to recover attorney fees had the opponent prevailed." (Brown Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809, 820 (Brown Bark).) Plaintiffs initiated this lawsuit based on section 3.03(a) of the shareholder agreement. Section 16.04 of the shareholder agreement authorizes recovery of attorney fees to the prevailing party "[i]n the event of any litigation concerning this Agreement." The first and third Brown Bark elements are satisfied: If either side is deemed to have prevailed on the contract, it will be entitled to section 1717 attorney fees. Consequently, this appeal implicates only the second element, i.e., whether Defendants prevailed on the contract, i.e., the shareholder agreement.
Contending they were prevailing parties on the shareholder agreement, Defendants sought reasonable attorney fees incurred in litigating the complaint before the date of the section 998 offers and to pursue the cross-complaint. (§ 1717.) Despite the adverse judgment, the trial court determined Plaintiffs achieved a significant litigation objective when Defendants voluntarily cancelled the issuances of all shares of stock in excess of one million and found no party prevailed on the shareholder agreement. Accordingly, Defendants' request for reasonable attorney fees under section 1717 was denied. We review this finding under the abuse of discretion standard. (DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968, 971.)
Our holding that Defendants are entitled to reasonable attorney fees incurred after their section 998 offer to defend against the complaint has no bearing on the section 1717 analysis. (Scott Co. v. Blount, Inc., supra, 20 Cal.4th at p. 1111, fn. 1.) Similarly, our conclusion that Defendants are prevailing parties under section 1032 is of no moment in the section 1717 analysis. As this court has recognized, "'the prevailing party' inquiries under . . . section 1717 and . . . section 1032 are distinct." (PNEC Corp. v. Meyer (2010) 190 Cal.App.4th 66, 70, disapproved on another point in DisputeSuite.com, LLC v. Scoreinc.com, supra, 2 Cal.5th at p. 979; see Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1142 ["the prevailing party for the award of costs under section 1032 is not necessarily the prevailing party for the award of attorney's fees in contract actions under section 1717"].)
For the purposes of a section 1717 analysis, if a party fails to "achieve[] a complete victory on all the contract claims," the trial court has discretion to determine a party who did not obtain a favorable judgment nevertheless prevailed on the contract and is entitled to attorney fees or to conclude no party prevailed on the contract and decline to award any attorney fees at all. (Scott Co. v. Blount, Inc., supra, 20 Cal.4th at p. 1109.) In this type of analysis, courts focus "on a pragmatic definition of the extent to which each party has realized its litigation objectives, whether by judgment, settlement, or otherwise." (Santisas v. Goodin (1998) 17 Cal.4th 599, 622, italics added; see Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 571-572.)
In determining litigation success, courts respect substance rather than form and may be guided by equitable considerations connected to litigation success. A party denied direct relief on a claim may nonetheless be a prevailing party on the contract if it is clear the party has otherwise achieved its main litigation objective. (Hsu v. Abbara (1995) 9 Cal.4th 863, 877.) "Essentially, the trial court is to attain an overview of the totality of the case, then compare the extent to which each party has won and lost." (de la Cuesta v. Benham (2011) 193 Cal.App.4th 1287, 1294.) As always, however, a trial court's discretion in this regard is not unbridled: "If the results in a case are lopsided in terms of one party obtaining 'greater relief' than the other in comparative terms, it may be an abuse of discretion for the trial court not to recognize that the party obtaining the 'greater' relief was indeed the prevailing party." (Id. at p. 1295.)
The trial court took this approach. It identified and weighed the parties' respective litigation gains and losses and declared no party prevailed on the contract. Although the judgment was in Defendants' favor, the trial court determined Plaintiffs achieved a main litigation objective when Defendants voluntarily cancelled the issuance of all shares of BNRG stock in excess of one million. (Hsu v. Abbara, supra, 9 Cal.4th at p. 877.)
But the trial court rebuffed Plaintiffs' efforts to make the share cancellation achievement part and parcel of the judgment itself and would not declare the unanimity provision of section 3.03(a) of the shareholder agreement valid and the 2012 amendment to the articles of incorporation invalid. In affirming the judgment, we held section 3.03(a) never became effective and is not independently enforceable. We also upheld the validity of the 2012 amendment to the articles. Thus, even considering the share cancellation as a litigation gain for Plaintiffs, this achievement was lost as a result of Plaintiffs' appeal. Defendants' litigation achievements, on the other hand, are—to use de La Cuesta's words—so "lopsided" that on remand the trial court must recognize them as the prevailing parties in the action on the shareholder agreement. (de la Cuesta v. Benham, supra, 193 Cal.App.4th at p. 1295.) Defendants must be deemed the prevailing parties on the contract, entitled to reasonable attorney fees not otherwise awarded pursuant to section 998. (§ 1717.)
In addition, although courts do not evaluate the noncontract theories to determine whether a party prevailed for the purpose of awarding section 1717 attorney fees, the trial court in the first instance will determine whether the attorney fees provision in the shareholder agreement is broad enough to cover the reasonable attorney fees incurred in connection with the noncontract causes of action (see fn. 1, ante). (Brown Bark, supra, 219 Cal.App.4th at p. 818.)
DISPOSITION
Defendants are prevailing parties pursuant to section 1032. The order granting Plaintiffs' motion to strike Defendants' memorandum of costs is reversed, and the matter is remanded to the trial court with directions to reconsider Plaintiffs' motion to tax specific items of claimed costs.
Defendants' section 998 offers were valid, and Plaintiffs did not obtain a judgment in their favor. The matter is remanded to the trial court with directions to award Defendants postoffer costs associated with their defense of the complaint, including reasonable attorney fees, under section 998. The trial court may exercise its discretion to award Defendants' their postoffer expert witness fees and costs reasonably incurred to defend against the complaint.
Defendants are prevailing parties on the causes of action arising out of the shareholder agreement and entitled to reasonable attorney fees under section 1717, not otherwise awarded pursuant to section 998 (see fn. 1).
Defendants are awarded costs on appeal.
DUNNING, J. WE CONCUR: ARONSON, ACTING P. J. IKOLA, J.
Retired judge of the Orange Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.