Opinion
A165736
08-21-2023
MARIA ELISA MATUS et al., Plaintiffs and Appellants, v. FREEDOM WEST HOMES CORPORATION et al., Defendants and Respondents
NOT TO BE PUBLISHED
(San Francisco County Super. Ct. No. CGC-20-587387)
Markman, J. [*]
Plaintiffs, who are members and shareholders of Freedom West Homes Corporation (Freedom West), sued Freedom West seeking to enjoin it from selling property to a developer. They alleged the proposed sale violated Freedom West's articles of incorporation. Freedom West filed a petition to compel arbitration, which the trial court granted. The trial court stayed the action pending completion of arbitration but, more than 18 months later, plaintiffs voluntarily dismissed the case.
Freedom West moved for attorney fees as the prevailing party under the Davis-Sterling Act (Civ. Code, § 4000 et seq.). Plaintiffs opposed the motion as premature, stating they were "in the process of preparing and filing" a demand for arbitration. The trial court disagreed and awarded Freedom West $139,977 in attorney fees. Plaintiffs appeal the fee award on the basis that the case was "still pending" in arbitration. We affirm.
Further undesignated statutory references are to the Civil Code.
BACKGROUND
Plaintiffs are a group of 19 members and shareholders of Freedom West, a non-profit housing cooperative located in San Francisco. They filed this action against Freedom West in October 2020. The first amended complaint sought to enjoin Freedom West from selling property to a developer because the proposed sale allegedly violated its articles of incorporation. Plaintiffs also sought a declaratory judgment that the ballot used for a shareholder vote on the proposed sale violated certain requirements.
Freedom West moved to compel arbitration pursuant to an arbitration provision in Freedom West's bylaws. It also demurred. In July 2020, the trial court granted the motion to compel arbitration, and deemed the demurrer moot. The court stayed the action pending completion of arbitration.
Over a year later, in August 2021, plaintiffs sent a demand for arbitration to the American Arbitration Association (AAA). The AAA notified the parties that the demand did not meet its administrative filing requirements. When those defects were not cured, AAA closed the matter and advised the parties that if they decided to resubmit in the future, they should provide the requisite information and appropriate filing fee.
Six months after that, in February 2022, plaintiffs filed a request to voluntarily dismiss the court action. Specifically, plaintiffs sought dismissal of the "[e]ntire action of all parties and all causes of action" without prejudice. The trial court entered the dismissal.
Freedom West then filed a motion seeking $139,977 in attorney fees as the prevailing party under section 5975, subdivision (c) (section 5975(c)) of the Davis-Sterling Act. Freedom West's request included fees it had purportedly incurred on the demurrer, written discovery, and petition to compel arbitration.
Plaintiffs opposed the motion, calling it premature. Plaintiffs stated that they were "in the process of preparing and filing a Complaint in the arbitration with the AAA and raising funds to pay the AAA and the arbitrator's fees. [¶] As a result, this dispute has not been resolved and there is no prevailing party to award fees to." Plaintiffs did not say anything about the amount of Freedom West's fees, nor otherwise object to Freedom West's lodestar calculation.
The trial court agreed with Freedom West and issued an order awarding the full $139,977 in attorney fees. The court explained: "Defendant is entitled to reasonable attorneys' fees under [Civil Code] section 5975 because it achieved its litigation goals when Plaintiffs filed their voluntary dismissal on February 24, 2022 of its action to enforce governing documents." Plaintiffs appealed the order.
DISCUSSION
Plaintiffs present a narrow challenge in this appeal. They do not dispute the applicability of section 5975(c) to their dismissed court action, or the reasonableness of the fees awarded to Freedom West. Instead, plaintiffs simply argue that the trial court should not have awarded such fees because the case was "still pending" in arbitration.
Section 5975(c) provides: "In an action to enforce governing documents, the prevailing party shall be awarded reasonable attorney's fees and costs." As a general rule, a determination of the prevailing party entitled to fees under section 5975(c) is reviewed for abuse of discretion. (Artus v. Gramercy Towers Condominium Assn. (2022) 76 Cal.App.5th 1043, 1051; see also Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568, 1574 (Heather Farms) [applying abuse of discretion standard under predecessor statute].) Plaintiffs, however, contend that de novo review applies here because the issue presented-whether the trial court made the prevailing party determination prematurely-is a question of law. (See Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 752 [explaining that" 'a determination of the legal basis for an attorney fee award is a question of law to be reviewed de novo' "].) We need not resolve any debate because, as described below, we conclude there was no error under either standard.
A fatal flaw in plaintiffs' challenge here is that they elected to voluntarily dismiss their own action after the trial court had stayed the case pending arbitration. The record lacks an explanation as to why plaintiffs did not rely on the stay and wait to obtain (if not confirm) an arbitration award before dismissing the complaint.
The parties agree that a voluntary dismissal can support a prevailing party determination under section 5975(c). In Parrott v. Mooring Townhomes Assn., Inc. (2003) 112 Cal.App.4th 873 (Parrott), for example, members filed suit against a homeowners' association for injunctive and declaratory relief. (Id. at p. 875.) The trial court granted a preliminary restraining order, but then denied a preliminary injunction and dissolved the restraining order. (Ibid.) The association filed an answer to the complaint. (Ibid.) After the members voluntarily requested dismissal without prejudice, the association sought fees incurred in defending the action under the predecessor statute to section 5975. (Parrott, at p. 875.) The appellate court affirmed the determination that the association was the prevailing party. (Id. at p. 880.)
Similarly, in Salehi v. Surfside III Condominium Owners Assn. (2011) 200 Cal.App.4th 1146, an owner filed a complaint against a homeowners' association alleging 10 causes of action. (Id. at pp. 1150-1151.) On the eve of trial, the owner voluntarily dismissed eight of those causes of action, purportedly due to an expert's illness. (Id. at pp. 1151-1152.) The association moved to recover fees incurred in defending against those eight causes of action, but the trial court determined that the association was not the prevailing party. (Id. at p. 1152.) The appellate court reversed, concluding the determination was an abuse of discretion because the association "was ready to defend on the merits and cannot be faulted because [the owner] dismissed these causes of action." (Id. at p. 1155.)
We do not suggest any rigid rule that a defendant who receives a voluntary dismissal without prejudice must be deemed the prevailing party entitled to fees under section 5975(c). Such a rule would strip the trial court of valuable discretion to take the context of a case into account and would also be contrary to case law. For example, in Heather Farms, a homeowners' association sued an owner alleging he had made unauthorized modifications to his units. (Heather Farms, supra, 21 Cal.App.4th at p. 1570.) The complaint "spawned a complex series of cross-complaints and subsidiary actions," which were ultimately resolved through a negotiated settlement that required the association to dismiss its suit against the owner. (Id. at pp. 1570-1571.) The settlement judge had explained:" 'This dismissal is part of an overall complex piece of litigation . . . that's been resolved by a negotiated settlement. There are no winners. There are no favorable parties in this case.'" (Id. at p. 1571.) The appellate court affirmed the determination that the owner was not a prevailing party under the predecessor statute to section 5975. (Heather Farms, at p. 1571.) In this case, unlike Heather Farms, we see nothing in the record describing why the context of the case might suggest that the trial court's prevailing party determination here was complicated or incorrect. Rather, approximately 18 months after the trial court ordered the dispute to arbitration and stayed the lawsuit, plaintiffs voluntarily dismissed the lawsuit without commencing an arbitration.
Instead of a rigid rule, the trial court's analysis and discretion is critical. "The analysis of who is a prevailing party under the fee-shifting provisions of the [Davis-Sterling] Act focuses on who prevailed 'on a practical level' by achieving its main litigation objectives." (Rancho Mirage Country Club Homeowners Assn. v. Hazelbaker (2016) 2 Cal.App.5th 252, 260, quoting Heather Farms, supra, 21 Cal.App.4th at p. 1574.) "[T]he test for [determining the] prevailing party is a pragmatic one, namely whether a party prevailed on a practical level by achieving its main litigation objectives." (Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761, 773.)
Here, the record supports the trial court's determination that Freedom West prevailed on a practical level: it achieved its litigation goals when plaintiffs voluntarily dismissed their action without having first obtained an arbitration award. Again, when they chose to dismiss the lawsuit, plaintiffs had not yet even successfully initiated an arbitration. Indeed, the record itself lacks evidence that plaintiffs ever successfully commenced an arbitration; Freedom West's brief contains the first reference confirming that an arbitration has in fact started.
None of plaintiffs' arguments persuades us otherwise. First, plaintiffs contend that the determination was premature because the case was "pending" in arbitration. As a preliminary matter, this characterization appears incorrect. In their opposition to the fees motion, plaintiffs represented only that they were still "in the process of preparing and filing a Complaint in the arbitration with the AAA and raising funds to pay the AAA and the arbitrator's fees." There is no indication that any arbitration was actually pending when the trial court awarded fees. Even if plaintiffs had successfully filed their arbitration demand before the fee award, they offer no authority for the position that such filing would preclude Freedom West from obtaining fees it incurred in the dismissed court action. The record provides no indication concerning why plaintiffs would not simply wait to obtain an arbitration award before voluntarily dismissing their complaint.
Second, plaintiffs argue that attorney fees incurred on a petition to compel arbitration (a category of fees included in Freedom West's request) cannot be awarded until the causes of action are "finally resolved." Plaintiffs' argument lacks support. They cite only authority related to the award of contractual attorney fees under section 1717, which is a different statute and analytical context. (E.g., Roberts v. Packard, Packard &Johnson (2013) 217 Cal.App.4th 822, 830 (Roberts); Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515, 520.) California courts have cautioned that section 1717 "has no application where, as here, attorney fees were not sought under a contract, but pursuant to [section 5975]." (Parrott, supra, 112 Cal.App.4th at p. 878.) The contrast between the statutes is significant and they are not easily harmonized even though both use the concept of a "prevailing party." Section 5975 is an "independent fee-shifting statute, and a prevailing party would be entitled to its fees under this statute even without a contractual fee provision." (Parrott, at pp. 879-880, citing Heather Farms, supra, 65 Cal.App.4th at p. 1572.) Indeed, fees would not be available under section 1717 precisely because plaintiffs filed a voluntary dismissal. (§ 1717, subd. (b)(2) ["[w]here an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section"].)
Even if section 1717 somehow applied, the cited authority does not demand a different result. In Roberts, for example, the trial court granted the defendants' petition to compel arbitration, stayed the lawsuit, and then granted the defendants' request for attorney fees incurred on the petition. (Roberts, supra, 217 Cal.App.4th at pp. 829-830.) The appellate court concluded that defendants' success on the petition did not make them the prevailing party on the contractual action because the petition "was merely a procedural step in ongoing litigation"-a determination of who was the prevailing party must await resolution of the underlying causes of action. (Id. at p. 833.) Here, unlike Roberts, it was appropriate for the trial court to make a prevailing party determination after plaintiffs voluntarily dismissed their court action without first getting an arbitration award: there was no longer any "ongoing litigation" and the causes of action had been resolved by the dismissal. (Ibid.)
In sum, we conclude that the trial court did not err in making a prevailing party determination after plaintiffs had voluntarily dismissed their action, and the court acted within its discretion in determining that Freedom West was the prevailing party under section 5975(c).
DISPOSITION
The order is affirmed. Freedom West is entitled to its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
We concur: Richman, Acting P.J. Miller, J.
[*] Judge of the Alameda Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.