Opinion
D071080
06-23-2017
DWIGHT KELLY, Plaintiff and Appellant, v. SONDRA MAYER Individually and as Personal Representative, etc. et al., Defendants and Respondents.
Michael Jay Berger for Plaintiff and Appellant. Theodora Oringher PC, Rod A. Pacheco and Dan J. Bulfer for Defendants 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. RIC1113093) APPEAL from a judgment and orders of the Superior Court of Riverside County, Daniel A. Ottolia, Judge. Affirmed in part, reversed in part. Michael Jay Berger for Plaintiff and Appellant. Theodora Oringher PC, Rod A. Pacheco and Dan J. Bulfer for Defendants and Respondents.
Dwight Kelly sued Sondra Mayer and Sharon Newby, individually and as trustees of the Wilton Kenneth Newby Trust (collectively, the Newby Trust defendants), for breach of contract and other related causes of action, and, in response, the Newby Trust defendants sued Kelly and his wife (collectively, the Kellys) alleging usury and various causes of action related to fraud. Following a jury trial, the court entered a judgment by which Kelly took nothing on the complaint and the Newby Trust defendants took nothing on the cross-complaint. Both parties filed a motion for attorney's fees and costs and the court granted both motions. Kelly argues the court erred by admitting prejudicial and irrelevant evidence, and the Newby Trust defendants argue the court erred by awarding the Kellys fees and by improperly reducing the amount of fees awarded to them. We conclude the court did not err in its evidentiary rulings or in the fee award to the Newby Trust defendants, but that the court did err in awarding attorney's fees to the Kellys. We therefore affirm the judgment and order awarding attorney's fees to the Newby Trust defendants, and reverse the order awarding attorney's fees to the Kellys.
The original complaint does not include Kelly's wife and she is not a named party to this appeal, although she is named in the cross-complaint.
FACTUAL AND PROCEDURAL BACKGROUND
Kelly, through his company O'Kelley's Investments, LLC (O'Kelley's), purchased a commercial property from Wilton Kenneth Newby (Newby) in June 2004 for $1 million. The estimated value of the property at the time was between $1.3 and $1.6 million, and increasing on a monthly basis. Kelly paid Newby $10,000 down and another $50,000 out of escrow, and Newby agreed to carry a trust deed loan for the remaining $940,000 for nine months, or until Kelly could refinance, avoiding the need for Kelly to obtain traditional financing. When Newby's son-in-law inquired as to why Newby sold the property for less than fair market value, Newby told him he was getting an additional $500,000 in cash from Kelly under the table. Sondra Newby, Newby's daughter, also heard Newby discuss the additional $500,000 cash payment on at least one occasion.
In 2005, O'Kelley's refinanced the loan on the property, used a portion of the proceeds to pay off the trust deed loan from Newby, and took out an additional $266,000 in equity, based on the increased value of the property at that time. O'Kelley's then gave the $266,000 to Kelly and his wife through a loan, so that the Kellys would not be subject to income tax. O'Kelley's refinanced again in 2007, this time for approximately $2.2 million, paid off the loan from the prior refinancing and transferred the remaining $1.1 million in proceeds to Kelly and his wife, through another loan.
In October 2007, Kelly and Newby executed a "Straight Note" agreement and Kelly transferred $250,000 to Newby. The agreement stated, in its entirety:
This Note is made for $250,000.00 - Two Hundred and Fifty Thousand Dollars, at Riverside, California, on October 15, 2007 until January 15, 2008, I Wilton K. Newby promise to pay Dwight Eric Kelly the sum of $250,000.00 - Two Hundred Fifty Thousand Dollars, with interest from October 15, 2007 until paid, at the rate of 12% per annum, payable in interest only payments.
Should default be made in payment of interest when due the whole sum of principal and interest shall become immediately due at the option of the holder of this note. Principal and Interest are payable in lawful money of the United States. If action be instituted on this note I promise to pay such sum as the Court may fix as attorney's fees.
Newby made 10 monthly payments of $2,500 each to Kelly, credited towards the loan, but then stopped making payments in August 2008. Newby never resumed payments and Kelly did not take any action to collect on the debt at that time but, instead, gave Newby a check for an additional $15,000.
In September 2010, Newby passed away and Sondra Mayer and Sharon Newby Gilbert took over management of the Newby Family Trust. Kelly began demanding repayment of the loan from the Newby Trust and, having received no further payment, filed a complaint against the Newby Trust defendants in August 2011 asserting a claim for breach of contract based on the "Straight Note" and other related causes of action.
The Newby Trust defendants filed a defensive counter-complaint against Kelly and his wife, alleging the $250,000 loan was part of a fraudulent scheme carried out by the Kellys, along with Newby, to avoid paying taxes by selling the commercial property for less than market value with additional funds transferred under the guise of a loan, and that the Kellys had knowingly made false statements to the Newby Trust defendants to collect on the fraudulent loan after Newby's death. The cross-complaint also asserted a cause of action for usury based on the 12 percent interest rate on the face of the "Straight Note."
After a 25-day jury trial on the complaint and cross-complaint, a jury found as follows: 1) Kelly and Newby did not enter into a written contract as evidenced by the "Straight Note" document; 2) Kelly knew there was a plan to fraudulently sell the commercial property and knowingly made false statements to the trustees of the Newby Trust; 3) the interest rate on the "Straight Note" exceeded the statutory maximum but Newby was not supposed to repay the loan and interest amount; and 4) the fraud, breach of trust, and usury claims asserted in the cross-complaint were barred by the statute of limitations. The court then entered a judgment under which Kelly took nothing on the complaint and the Newby Trust defendants took nothing on the cross-complaint.
Following the judgment, the Newby Trust defendants filed a motion for attorney's fees and costs as the prevailing party on the contract pursuant to Civil Code section 1717. They sought approximately $750,000 in attorney's fees, based on a blended hourly rate of $450 and approximately 1,675 hours of time spent on the case. The Kellys filed a competing motion for attorney's fees and costs as the prevailing party on the usury claim in the cross-complaint, also pursuant to section 1717, and sought fees based on a blended rate of $172 per hour.
All further statutory references are to the Civil Code unless otherwise noted.
In its tentative ruling, the court found that the Newby Trust defendants were the prevailing parties because the jury found that a contract had not been formed, and awarded them attorney's fees, but reduced the hours submitted to 1,000 and the blended hourly rate to $250, and also awarded the Kellys attorney's fees as the prevailing parties on the usury counter-claim. The Newby Trust defendants argued that the 1,675 hours they submitted were reasonable and asked the court to raise the hourly rate from the $250 set forth in the tentative ruling to $300 per hour, and asserted that the Kellys were not a prevailing party and thus should not be awarded fees. Ultimately, the court awarded the Newby Trust defendants $275,000 in attorney's fees, for 1000 hours at a blended rate of $275 per hour, and awarded the Kellys $86,000 in attorney's fees on the cross-complaint.
Kelly appeals and the Newby Trust defendants cross-appeal.
DISCUSSION
Kelly asserts the superior court made a number of erroneous evidentiary rulings including: 1) allowing extrinsic evidence regarding the written "Straight Note" in violation of the parol evidence rule, section 1698, and Probate Code section 18100; 2) allowing expert testimony containing legal opinions from an attorney regarding the terms of the Newby Trust while refusing to permit evidence regarding the value of the Newby Trust; and 3) allowing irrelevant, prejudicial and hearsay evidence in a number of other instances. The Newby Trust defendants assert Kelly's opening brief is inadequate as it fails to provide a fair, honest, and properly cited recitation of the facts. On cross-appeal, they assert that the court erred by reducing the amount of attorney's fees awarded to them and by awarding attorney's fees to the Kellys because there can be only one prevailing party on a contract pursuant to section 1717. I. Briefing on Appeal
Before turning to the merits, we address the Newby Trust defendants' request that this court strike Kelly's opening brief and dismiss the appeal because the brief does not include adequate citations to the record to support the factual assertions set forth therein and does not fairly summarize the facts of the case in light of the judgment.
As with any appeal, we presume the lower court's ruling is correct and indulge all presumptions and inferences to support the ruling, and the appellant has the burden to provide an adequate record to overcome the presumption of correctness and to show prejudicial error. (Aguilar v. Avis Rent A Car System, Inc. (1999) 21 Cal.4th 121, 132 (Aguilar); Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) In doing so, the appellant must support all factual assertions with a citation to the volume and page number in the record where the matter appears, and must support all assertions with argument and, where available, legal authority. (See Cal. Rules of Court, rule 8.204(a)(1)(B), (C); City of Lincoln v. Barringer (2002) 102 Cal.App.4th 1211, 1239 (Barringer).) If the appellant fails to provide adequate citations, the reviewing court is not required to search the record for supporting evidence. (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1011 (ComputerXpress).)
In many instances, Kelly's opening brief either does not provide any citation to the record or provides block citations to as many as 100 pages of testimony that are not particularly useful to the court. However, these inadequate citations appear primarily in the background portion of the brief and, in the argument section, Kelly does provide appropriate citations to the portions of the record containing the relevant testimony, objections and rulings for at least some of the particular evidentiary rulings he contests on appeal. We therefore decline to strike appellant's brief or dismiss the appeal altogether; however, we will not consider those assertions that Kelly does not support with proper citation to the record. (See Cal. Rules of Court, rule 8.204(a)(1)(B), (C); Barringer, supra, 102 Cal.App.4th at p. 1239.)
Regarding the factual summary, Kelly's framing of the case differs notably from the framing of the case as put forth by the Newby Trust defendants, but the opening brief does set forth the facts supporting Kelly's view of the case while also acknowledging the conflicting allegations set forth in the cross-complaint. Thus, the recitations of the facts are not so misleading as to warrant sanctions and we likewise decline to strike the brief or dismiss the appeal on this ground. (Cf. Kleveland v. Siegel & Wolensky, LLP (2013) 215 Cal.App.4th 534, 558 [sanctions warranted where appellant excluded significant adverse ruling by the court].) II. Evidentiary Rulings
A. Standard of Review
We turn now to the evidentiary rulings Kelly contests, and first address the appropriate standard of review. Kelly argues this court should apply a de novo standard of review because the interpretation of a written instrument is a question of law. (See Broffman v. Newman (1989) 213 Cal.App.3d 252, 257.) The Newby Trust defendants argue that the de novo standard does not apply because Kelly's arguments do not relate to the interpretation of the written instrument, and assert that this court should instead apply a substantial evidence standard of review to determine whether the evidence supported the jury's verdict. As both parties misconstrue the arguments raised on appeal, neither identifies the appropriate standard of review.
Kelly does not assert that the court or the jury misinterpreted the wording of the contract or that the verdict was not supported by substantial evidence, but instead argues that the superior court erred by permitting irrelevant and prejudicial evidence related to the terms of the "Straight Note" and the circumstances under which it was executed. Although Kelly asserts there was no dispute that the parties executed an unambiguous written agreement, he does not argue the verdict or judgment was incorrect based on this fact alone. Instead, he makes this assertion to support his argument that the superior court erred by allowing parol evidence, and other irrelevant and prejudicial evidence, despite the existence of a fully executed, unambiguous written contract.
We review de novo the legal question of whether the parol evidence rule, section 1698 or Probate Code section 18100 apply under these facts. (EPA Real Estate Partnership v. Kang (1992) 12 Cal.App.4th 171, 175; Dacey v. Taraday (2011) 196 Cal.App.4th 962, 979.) We review any relevant underlying factual findings of the trial court for substantial evidence (see Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632); but where, as here, the applicability of the cited statutes is determined primarily on the factual allegations and asserted claims as set forth in the complaint and cross-complaint, there are no relevant factual findings requiring review. Finally, we review the rulings by the trial court on the admissibility of evidence, including both those that relate to expert testimony and those that depend on the relevance of the evidence in question, for an abuse of discretion. (People v. Waidla (2000) 22 Cal.4th 690, 717; Summers v. A.L. Gilbert Co. (1999) 69 Cal.App.4th 1155, 1178 (Summers).)
B. The Court Did Not Err In Allowing Evidence Regarding Fraud
Kelly argues the court erred by allowing oral testimony regarding the alleged fraud perpetrated by him and Newby in violation of the parol evidence rule and section 1698 because the testimony altered the terms of an unambiguous written contract, and because Probate Code section 18100 protected him from any liability on the contract. For the reasons set forth below, we conclude neither the parol evidence rule nor the cited statutes are applicable here.
1. The Parol Evidence Rule
The parole evidence rule is a substantive rule of law, although it often results in the exclusion of evidence. (Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass'n (2013) 55 Cal.4th 1169, 1174 (Riverisland).) The purpose of the rule is to ensure extrinsic evidence does not alter or modify the final understanding of the parties, as set forth in a fully integrated written contract. (Ibid.) The rule thus precludes the introduction of evidence offered only to contradict the terms of such a contract; however, it does not preclude a defendant from offering evidence to establish illegality or fraud as a defense to an action based on the contract. (Ibid., Code Civ. Proc. § 1856, subd. (g).) Of particular relevance here, where a defendant offers evidence indicating the parties used a writing to conceal rather than express their true intent to violate the law, the court will consider the evidence and, if the evidence is compelling, will not enforce the written agreement. (Homami v. Iranzadi (1989) 211 Cal.App.3d 1104, 1112-1113 (Homami).) Moreover, Code of Civil Procedure section 1856, subdivision (f), establishes a broad exception to the parol evidence rule "[w]here the validity of the agreement is the fact in dispute," and the parol evidence rule thus does not bar evidence challenging the validity of the agreement itself. (Riverisland, supra, at p. 1174; see also Martindell v. Bodrero (1967) 256 Cal.App.2d 56, 62 (Martindell) ["It is well established that parol evidence may be introduced to show that the parties never intended a writing to constitute a contract."].)
Here, the Newby Trust defendants alleged in their cross-complaint that the contract was a sham executed only to cover up the tax evasion scheme orchestrated by Kelly and Newby. They then offered evidence at trial concerning the circumstances under which Kelly and Newby executed the "Straight Note" to prove that Kelly and Newby did so only to cover up their own illegal or fraudulent activity. As they did not offer this evidence in an effort to alter the terms of the written agreement, but instead to prove the illegality or invalidity of the agreement in the first instance, the parol evidence rule did not apply to bar its admission. (See Riverisland, supra, 55 Cal.4th at p. 1174; Martindell, supra, 256 Cal.App.2d at p. 61; Homami, supra, 211 Cal.App.3d at pp. 1112-1113; cf. White v. Ardzrooni (1925) 71 Cal.App. 393, 398-400 [concluding evidence is not admissible to give a construction to a term of a contract other than that which is plainly expressed].)
Kelly asserts that evidence regarding the fraud was nevertheless subject to exclusion under the parol evidence rule because there is no evidence or testimony indicating that Newby ever disputed the validity of the "Straight Note." However, whether or not Newby disputed the validity of the contract is irrelevant in light of the Newby Trust defendants' asserted theory that Newby and Kelly conspired together to avoid income taxes by entering into a false loan. Defendants were entitled to present testimony and evidence tending to prove their asserted claims and defenses, and, as discussed, the parol evidence rule did not bar evidence regarding the asserted illegality or invalidity of the alleged agreement. Furthermore, there was testimony indicating Newby had told others he was receiving $500,000 from Kelly under the table, thereby substantiating the fraud allegations, and, in any event, Kelly filed the lawsuit only after Newby passed away such that Newby was not available by the time of trial to confirm or deny the validity of the contract.
We therefore conclude parol evidence rule was not applicable and did not bar evidence concerning the validity or legality of the "Straight Note".
Section 1698 governs the modification of written contracts and provides several ways in which parties may make a valid modification to a previously executed written contract, including modifications set forth in subsequent written contract, a fully executed oral agreement, or an oral agreement supported by new consideration. (§1698; Coldwell Banker & Co. v. Pepper Tree Office Center Associates Eyeglasses (1980) 106 Cal.App.3d 272, 279.) Like the parol evidence rule, section 1698 does not preclude evidence suggesting a written contract is illegal or invalid, as the statute presupposes the existence of a valid legal contract. (See McKeon v. Giusto (1955) 44 Cal.2d 152, 156 (McKeon).)
Here, there is no allegation Kelly and Newby altered or modified the "Straight Note." As discussed, the Newby Trust defendants argued the contract was a sham and presented evidence to support that theory. In accordance with the evidence presented, the jury found that Kelly and Newby had not entered into a valid contract regarding repayment of the $250,000 despite the execution of the "Straight Note", or, in other words, that the written agreement was indeed a sham.
Kelly relies on Keeler v. Murphy (1931) 117 Cal.App. 386 (Keeler) to assert that section 1698 precludes oral testimony in conflict with the terms of a written agreement, but the court in Keeler did not address the admissibility of evidence indicating the written agreement was illegal or invalid in the first instance. (Id. at pp. 390-391.) Similarly, Pearsall v. Henry (1908) 153 Cal. 314, which Kelly also cites, is inapplicable as it too involved evidence offered to alter the terms of a written contract, as opposed to allegations the contract was illegal or invalid. (Id., at p. 325.) Section 1698 does not preclude evidence offered to prove there was not a valid contract in the first instance (see McKeon, supra, 44 Cal.2d at p. 156.) and Kelly offers no legal authority indicating that it does.
We therefore conclude section 1698 did not bar evidence concerning the validity or legality of the "Straight Note" and was not applicable here.
Probate Code section 18100 is, likewise, a substantive statute that protects innocent third parties from liability arising from a transaction with a trustee, so long as the third party acted in good faith and without actual knowledge that the trustee is improperly exercising powers under the trust. (Alder v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1114-1115.) The primary purpose of the statute is to give innocent purchasers of trust property bona fide status, as the prior law placed such individuals on constructive notice of possible breaches of trust. (Id. at pp. 1115-1116.)
Here, the Newby Trust defendants asserted Kelly conspired with Newby to defraud the trust and evade taxes by selling the commercial property for less than fair market value and providing an "under the table" payment of $250,000 via the loan referenced in the "Straight Note." Evidence supporting this theory was admissible as proof of the fraud and Kelly's lack of good faith, and, based on that evidence, the jury expressly found that Kelly had knowledge of and willingly conspired with Newby to perpetrate the fraud. Thus, Kelly was not an innocent party, did not act in good faith, and Probate Code section 18100 does not apply to exclude evidence or to protect Kelly from liability.
B. The Court Did Not Err By Allowing Testimony Regarding The Terms of The Newby Trust Or By Disallowing Evidence Regarding The Value Of The Newby Trust
Next, Kelly asserts the court erred by allowing expert testimony from the Newby's lawyer, G. Reyes (Reyes), regarding the terms of the Newby Trust because the testimony contained improper legal opinions and was not relevant, and by refusing to permit testimony regarding the present value and holdings of the Newby Trust.
An expert witness may provide testimony that speaks to the ultimate factual issue in the case, such as what caused an injury at issue, but cannot provide an opinion as to a legal conclusion, such as whether there was sufficient causation between an alleged breach of duty and resulting injuries. (See Summers, supra, 69 Cal.App.4th at p. 1178.) A witness testifies to a legal conclusion when he or she addresses the manner in which the law should apply to a particular set of facts and, therefore, an expert, particularly when the expert is a lawyer, may not offer testimony in which he or she reaches a conclusion by applying the law to the facts of the case. (Id. at p. 1179.) To allow such testimony would improperly usurp the duty of the court or jury. (Ibid.)
Here, the court correctly ruled, in response to a motion in limine, that Reyes could testify as to the terms of the trust, but that Reyes could not opine on questions of law that would invade the province of the jury. Reyes then provided factual testimony regarding the terms of the Newby Trust, as well as expert testimony regarding some basic law surrounding trusts in order to help the jury understand the terms, but did not offer a legal conclusion as to how the law applied to the facts in this particular case. Kelly does not point us to any instance in which Reyes offered a legal conclusion as to the application of the law to the terms of the trust or any other factual issue and instead cites the entirety of Reyes' testimony in a single block citation. As discussed, we are under no obligation to comb the record looking for error. (See ComputerXpress, supra, 93 Cal.App.4th at p. 1011.)
Kelly also asserts Reyes' testimony was not relevant. We disagree. The Newby Trust defendants alleged that Newby and the Kellys conspired to breach the terms of the trust by selling the property for less than fair market value and Reyes' testimony as to the terms of the trust was at least probative of that claim. (See Evid. Code, § 210 [evidence is relevant if it has any tendency to prove or disprove any disputed fact of consequence in the action].)
Moreover, the Kellys waived any arguments regarding Reyes' testimony and any error that resulted from it was harmless. Apart from the motion in limine, the Kellys did not object during the Newby Trust defendants' direct or redirect examination of Reyes, even when they asked questions regarding the duties of the trustee under the trust, but did ask questions on cross-examination regarding Newby's duties and restrictions under the trust. Thus, the Kellys are estopped from presenting this argument on appeal. (See Evid. Code, § 353, subd. (a); Coit Drapery Cleaners, Inc. v. Sequoia Ins. Co. (1993) 14 Cal.App.4th 1595, 1611 (Coit) [failure to object to testimony waives any claim of error on appeal]; Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403 [a party is estopped from asserting error the party invited].) In any event, Reyes' testimony was primarily relevant to cross-claims and Kelly ultimately prevailed on those claims because of the statutes of limitation, such that any error was harmless. (Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1069 [appellant had burden of demonstrating prejudicial error].)
Kelly also asserts that, despite allowing Reyes' testimony, the court erroneously refused to allow the Kellys to ask any questions regarding the trust. This assertion is both unsupported by citation and incorrect as the court did allow the Kellys to question at least Reyes regarding the terms of the trust on cross-examination. However, as Kelly points out, the court granted a motion in limine precluding questions concerning the assets or administration of the trust aimed at proving the trustees mismanaged the trust to the detriment of the Kellys. Any such testimony was irrelevant because the complaint did not allege mismanagement of the trust and the ability of the trust to pay any damages awarded was not relevant during the trial on the merits of the asserted claims. (Hoffman v. Brandt (1966) 65 Cal.2d 549, 552-553 [concluding financial condition not relevant where there are no claims for exemplary damages].) Thus, we conclude the court did not err by granting the motion in limine or by preventing the Kellys from obtaining testimony related to the assets or administration of the Newby Trust.
C. The Court Did Not Err With Respect To The Remaining Evidentiary Ruling
Kelly argues the court erred in allowing the testimony, or portions thereof, of numerous other witnesses because the testimony was irrelevant, prejudicial or hearsay.
Evidence is relevant if it has any tendency to prove or disprove any disputed fact of consequence in the action. (Evid. Code, § 210.) However, the court may exclude evidence when the prejudicial effect of the evidence substantially outweighs the probative value. (Evid. Code, § 352.) Evidence is prejudicial if it has a unique tendency to evoke an emotional bias against the defendant, but evidence that is merely damaging to one's case is not prejudicial in the context of Evidence Code section 352. (People v. Karis (1988) 46 Cal.3d 612, 638.) The trial court has broad discretion when deciding whether to admit or exclude evidence pursuant to Evidence Code section 352. (People v. Hall (1980) 112 Cal.App.3d 123, 127.)
As an initial matter, Kelly did not object at trial to much of the testimony he now complains of on appeal and, as a result, waived his arguments regarding that testimony. (See Coit, supra, 14 Cal.App.4th at p. 1611 [failure to object to testimony waives any claim of error on appeal].) Similarly, Kelly argues the court erred in allowing testimony that he hired a team of lawyers to put a competitor out of business, but the court sustained Kelly's only objection to this line of testimony. Further, he does not provide appropriate citation or present sufficient argument in many instances, instead offering only conclusory statements that the testimony is irrelevant and prejudicial under Evidence Code section 352 without any explanation or argument as to why. (See Cal. Rules of Court, rule 8.204(a)(1)(B), (C); Aguilar, supra, 21 Cal.4th at p. 132.) Based on the failure to object and the failure to provide adequate citation or legal argument on appeal, we conclude Kelly either waived or has not met his burden of demonstrating the trial court erred in its evidentiary rulings regarding his own testimony about putting his competitor out of business and the testimony of Paul G. H., Noble T., Melvin M., Laura M., Edwin R. F., and Adam T.
California Rules of Court, rule 8.90(b), requires appellate courts to "consider referring to" certain individuals "by first name and last initial" to protect those individuals' privacy. Accordingly, we refer to certain witnesses in this case by their first name and last initial, and thereafter by first name only. Our use of first names is not intended as a sign of disrespect.
Kelly also asserts the testimony of Laura and Edwin was a mix of percipient witness and expert testimony but does not present any argument as to why such testimony was improper or prejudicial.
In other instances where Kelly did object to the relevance of certain testimony at trial, he does not explain why the court was incorrect in overruling the objections. For example, with respect to testimony regarding the Kellys' taxes and certain tax liens, the Kellys objected only once as to relevance in the cited pages, the court overruled the objection after opposing counsel explained the question went to alter ego, and Kelly does not assert or explain why that ruling was in error. With respect to the testimony of Donald K. regarding a separate commercial development project he was involved in with Newby, referred to as Alessandro 11, the court overruled the relevancy objection after opposing counsel asserted he was offering the testimony in response to prior testimony regarding Newby's finances, and again, Kelly does not explain why the court's ruling was incorrect. Similarly, although Kelly objected to the introduction of certain tax returns during the trial, the trial court found he had waived the objection by failing to object to the subpoena that sought the documents in the first instance and, again, Kelly fails to explain why the court erred in finding he had already waived the objection. In these instances as well, Kelly has not provided adequate argument or citation to meet his burden on appeal. (See Cal. Rules of Court, rule 8.204(a)(1)(B), (C); ComputerXpress, supra, 93 Cal.App.4th at p. 1011.)
In those instances where Kelly objected at trial and does provide adequate citation and argument on appeal, we conclude the court did not abuse its discretion in allowing the testimony. First, Kelly argues the court erred in precluding him from admitting into evidence and asking questions based on portions of a publicly available letter from Sharon Gilbert to Congress. The letter described the impact on Newby when a bank that had lent him a significant amount of money for a condominium project went out of business and was taken over by the Federal Deposit Insurance Corporation (FDIC), and Kelly argued it was relevant because it established why Newby needed, but could not pay back, the loan from Kelly. The court found any such inference was improper and excluded portions of the letter regarding the financial situation of the bank and project, particularly in 2009 and beyond, but permitted introduction of portions of the letter as well as other, more direct, inquiries into Newby's financial condition at the relevant times. As the court expressly found the inference Kelly wished to assert was too speculative and allowed other inquiries into Newby's finances, we are not persuaded that the trial court abused its discretion by redacting the irrelevant portion of the letter, or that the redactions were prejudicial to the Kellys.
Next, Kelly asserts it was prejudicial to allow testimony regarding the 31-plus properties he owned while excluding evidence of the value of the Newby Trust. However, the testimony regarding Kelly's experience with property ownership was relevant in establishing his knowledge of how property taxes are assessed, and thus how a lower sale price would likely result in lower taxes, which was relevant to the defendants' theory of the case. And, as discussed, the value of the trust was irrelevant at this stage of the litigation in light of the claims in the complaint. (Hoffman v. Brandt, supra, 65 Cal.2d at pp. 552-553 [concluding financial condition not relevant where there are no claims for exemplary damages].)
Kelly also asserts the testimony indicating Newby admitted to receiving $500,000 under the table from Kelly was hearsay and improper under Evidence Code section 352, but the testimony was undoubtedly relevant to the main assertion of the defense and cross-complaint that the contract was a sham to cover up the additional payment. Further, Kelly did not object to the testimony on the grounds of hearsay but, even if he had, the testimony was admissible as an admission by a party opponent or a statement against interest. (See Evid. Code, §§ 1220, 1230.)
Finally, Kelly asserts defense counsel's questions to him pointing out that he changed his answers during his deposition with respect to questions about online complaints alleging his pawnshop business engaged in fraudulent practices was prejudicial, irrelevant and hearsay. However, Kelly had previously testified that he was an "honest pawnbroker" and his attorney argued the same during opening statements and thus testimony rebutting that assertion was neither irrelevant nor unduly prejudicial. Further, the statements were not hearsay because they were not offered for the truth of the matter asserted, but rather to point out inconsistencies in Kelly's prior testimony.
Therefore, we concluded that Kelly has not met his burden on appeal to prove that the trial court erred in any of the evidentiary rulings he disputes, or that any such error was prejudicial to the Kellys. III. Attorney's Fees
The Newby Trust defendants challenge the attorney's fees award on cross-appeal, and allege the court erred by awarding attorney's fees to the Kellys based on the usury cross-claim and that the court's reduction of the amount of fees awarded to them was arbitrary and not supported by the record. For the reasons set forth below, we conclude substantial evidence supports the award of attorney's fees to the Newby Trust defendants and the court did not abuse its discretion in reducing the hourly rate or the total number of hours they claimed, but that the court did err in awarding fees to the Kellys.
A. The Newby Trust Defendants Were The Only Prevailing Party
In an action on a contract that specifically provides for an award of attorney's fees and costs incurred to enforce the contract, the party that is determined to be the party prevailing on the contract is entitled to reasonable attorney's fees in addition to other costs, regardless of whether that party sought to enforce or escape enforcement of the contract. (§ 1717, subd. (a).) The trial court determines who the prevailing party is in an action on a contract by determining who recovered a greater relief in the action. (§ 1717, subd. (b)(1).) Although the statute is reciprocal in nature, there can be only one prevailing party "on the contract" pursuant to section 1717, and where cross-claims are brought as a defense to affirmative contract claims, both parties cannot prevail based on the outcome of the individual claims. (See Hsu v. Abbara (1995) 9 Cal.4th 863, 873-874; Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515, 539-540, 543 (Frog Creek).) A defendant that defeats the only contract claim in the action, preventing the plaintiff from taking anything on the contract, is the party prevailing on the contract as a matter of law. (Hsu, supra, at pp. 875-876.)
Here, the Newby Trust defendants defeated the breach of contract and other related claims asserted in the complaint based on the jury's finding that Kelly and Newby had not entered into a valid contract. Thus, as the court correctly stated in its tentative ruling, the Newby's were the prevailing party on the contract pursuant to section 1717. (Hsu, supra, 9 Cal.4th at pp. 875-876.)
The Kellys assert they were also a prevailing party based on the usury claim in the cross-complaint because the jury found the claim was barred by the statute of limitations. However, the usury claim was a defensive claim also based on the contract. The Newby Trust defendants primarily asserted that the "Straight Note" was not a valid contract, but also alleged in the cross-complaint that, if it was valid, the interest rate was usurious. The jury found the interest rate did exceed the statutory maximum but that Newby was not supposed to repay the loan and interest amount, presumably because there was no contract in the first instance, and that the claim was barred by the statute of limitations. Because there can be only one prevailing party on the contract, and the Newby Trust defendants prevailed on the primary claim, thereby defeating the existence of the contract in the first instance, we conclude the trial court erred in finding that the Kellys were also a prevailing party pursuant to section 1717. (See Hsu, supra, 9 Cal.4th at pp. 873-874; Frog Creek, supra, 206 Cal.App.4th at pp. 539-540, 543.) We therefore reverse the order awarding the Kellys attorney's fees based on the usury counter-claim.
C. The Court Did Not Err In Determining The Amount Of Fees Awarded To The Newby Trust Defendants
Finally, we consider whether the court erred in reducing the attorney's fees awarded to the Newby Trust defendants.
The trial court has broad discretion in determining the amount of reasonable attorney's fees to award pursuant to section 1717, as it is in the best position to judge the value of the legal services provided in the matter over which it presided. (PLCM Group, Inc. v. Drexter (2000) 22 Cal.4th 1084, 1094-1095.) The court typically determines the amount of reasonable attorney's fees to award using a lodestar calculation, multiplying the time spent by the reasonable hourly compensation for each attorney, which it determines based on the prevailing rate in the community for similar work by a similarly skilled attorney. (Id. at pp. 1095-1096.) The court may then adjust the lodestar figure by taking into account additional factors such as the nature and difficulty of the litigation, the amount in controversy in the case, the skill required and employed in handling the case, and the success or failure of counsel. (Ibid.)
Here, the court reduced both the hourly rate and the number of hours claimed by the Newby Trust defendants. With respect to the hourly rate, the Newby Trust defendants submitted invoices reflecting a blended rate of $450 per hour, but did not provide the hourly rates of the individual timekeepers reflected therein or any evidence regarding the reasonableness of those rates, such as the level of expertise or experience of the individuals, or any evidence regarding the prevailing market rates for this type of case in the region. In their opposition, the Kellys argued the hourly rate was excessive but also did not provide evidence of the prevailing market rates. The Kellys did, however, file their own motion for attorney's fees in which they requested a blended rate of $172 per hour, and the court heard that motion at the same time as the Newby Trust defendants' motion.
In its tentative ruling, the court found the blended rate of $450 per hour the Newby Trust defendants submitted was excessive for the geographic area and indicated it would apply a reduced rate of $250 per hour. During argument, the lead attorney for the Newby Trust defendants defended his own rate based on his experience, but did not address the rates of the other attorneys, effectively conceded the blended rate was high for the region, and asked the court to raise the hourly rate from the $250 in the tentative ruling to $300 per hour. The court ultimately awarded the Newby Trust defendants attorney's fees based on a blended rate of $275. As the Newby Trust defendants did not provide evidence supporting the reasonableness of the $450 per hour rate or the prevailing market rate, the court's decision to set the final rate at $275 per hour—within the range of the rates submitted by the different attorneys for work on the same case—was both reasonable and supported by substantial evidence.
With respect to the time spent on the case, the Newby Trust defendants submitted their billing invoices, which included detailed time entries for the 1675 hours they claimed. The Kellys asserted the bills demonstrated duplicative work and an excessive number of hours spent on certain tasks, including over 100 hours purportedly spent on the proposed jury instructions, and the court informed the parties it was going to take a closer look at the bills before making its final ruling. The court was not bound by the hours claimed by the defendants in the bills, and after presiding over the trial, had an understanding of the scope and complexity of the case, such that it could reasonably determine whether the hours reflected therein were justified. (See Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 625.) It was, therefore, within the court's discretion to reduce the total number of hours to 1000 based on its review of the invoices.
The Newby Trust defendants assert the Kellys filed their opposition late and thus there is no evidence the trial court considered it but, regardless, the court could have determined there was duplicative work or excessive hours from the bills themselves. --------
The Newby Trust defendants also argue the court did not explain how it arrived at the round number of 1000 hours. However, the court is not required to do so, the Newby Trust defendants did not seek a statement of decision, and, in the absence of a more detailed statement from the court, we indulge all intendments and presumptions to support the order. (Melnyk v. Robledo, supra, 64 Cal.App.3d at p. 625; Ketchum v. Moses (2001) 24 Cal.4th 1122, 1140-1141.)
Based on the foregoing, we conclude substantial evidence supports the trial court's reduction of the hourly rate and number of hours submitted by the Newby Trust defendants, and the court did not abuse its discretion in awarding $275,000 in attorney's fees to the Newby Trust defendants.
DISPOSITION
The judgment and the order awarding attorney's fees to the Newby Trust defendants are affirmed. The order awarding attorney's fees to the Kellys is reversed. The parties shall bear their respective costs on appeal.
/s/_________
O'ROURKE, J. WE CONCUR: /s/_________
HUFFMAN, Acting P. J. /s/_________
DATO, J.