Opinion
B159845.
11-20-2003
OGNER MOTORCARS, INC., Plaintiff and Respondent, v. VALLEY PARK FORD, INC., Defendant and Appellant.
David Lane for Defendant and Appellant Cox, Castle & Nicholson, Kenneth B. Bley, Perry S. Hughes and Alicia N. Vaz for Plaintiff and Respondent.
Defendant lessee appeals from the portion of the judgment awarding attorney fees to plaintiff lessor pursuant to the terms of the lease. We affirm.
FACTS AND PROCEEDINGS BELOW
Plaintiff Ogner Motorcars, Inc. (Ogner) brought suit against defendant Valley Park Ford (Valley Park) for breach of lease and various torts. On the eve of trial Ogner accepted Valley Parks statutory settlement offer of $250,000 not including costs and attorney fees. The parties agreed the trial court would determine if either of them was entitled to attorney fees under the lease and the amount of the award, if any. After considering the parties arguments on the issue the trial court ruled Ogner was entitled to attorney fees "whether [it] recovered based on the contract provisions or upon tort." The court awarded Ogner $300,000 in attorney fees and entered judgment accordingly.
Valley Park filed a timely appeal.
DISCUSSION
The lease contains two clauses pertaining to attorney fees.
Section 3.12 states in relevant part: "Tenant will indemnify [lessor, its agents, etcetera] and hold them harmless from and against all claims, actions, causes of action, damages, costs and expenses (including attorneys fees) which may be made against them or which they may sustain or incur by reason or arising out of the use or occupancy by tenant of the premises . . . ."
Section 5.4 states in relevant part: "If any suit or summary proceeding is brought by [lessor] to recover the premises or to recover rent or any other amount due from tenant under this lease, or because of the default by tenant in performing any of tenants other commitments or obligations under this lease, and such default is established, tenant will pay to [lessor] all expenses incurred by [lessor] in connection with such suit, including reasonable attorneys fees."
The parties did not present extrinsic evidence to interpret these attorney fee provisions. Therefore we determine de novo the extent to which the prevailing party is entitled to attorney fees under the lease. We review for abuse of discretion the trial courts determination Ogner was the prevailing party.
Reveles v. Toyota by the Bay (1997) 57 Cal.App.4th 1139, 1153.
The first clause quoted above, section 3.12, is an indemnity provision which applies in case an action is brought against Ogner by a third party "arising out of the use or occupancy by [Valley Park] of the premises . . . ." It does not apply to an action between the parties to the lease, Ogner and Valley Park.
Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 973.
The second clause, section 5.4, provides for attorney fees incurred "in connection with" a suit "to recover rent or any other amount due from tenant under this lease, or because of the default by tenant in performing any of tenants commitments or obligations under this lease . . . ." This clause clearly encompasses an action for breach of the lease but it is not broad enough to encompass Ogners tort claims which did not arise "under the lease" except in the very broad sense Valley Park would not have had the opportunity to commit the alleged torts if it had not been Ogners tenant. Because the lease does not authorize attorney fees for tort causes of action the trial court erred in determining Ogner was the prevailing party under Code of Civil Procedure section 1032.
Compare Thompson v. Miller (2003) 112 Cal.App.4th 327, 333 (clause providing for attorney fees in any dispute "under this agreement" did not cover tort causes of action).
For purposes of attorney fees in a tort action Code of Civil Procedure section 1032, subdivision (b)(4) defines a "prevailing party" as "the party with a net monetary recovery."
We must decide, then, whether the trial court correctly determined Ogner was the "prevailing party" on its contract claim.
Under Civil Code section 1717, subdivision (b)(1) the prevailing party in an action on a contract is "the party who recovered a greater relief in the action[.]" When the judgment reflects anything less than "a simple, unqualified victory" for the plaintiff or defendant "it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees." The courts exercise of discretion will not be disturbed on appeal absent a clear showing of abuse.
Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.
Jackson v. Homeowners Assn. Monte Vista Estates-East (2001) 93 Cal.App.4th 773, 789; hereafter Jackson.
Valley Park argues Ogner is not entitled to attorney fees on its contract claim for several reasons:
Ogner did not achieve "a simple, unqualified victory" because it demanded $1.5 million in mediation but settled for $250,000.
Because Ogner did not score an unqualified victory the trial court was required to exercise its discretion in deciding whether Ogner or Valley Park or neither was the prevailing party. The trial court did not do so. Instead, it erroneously awarded attorney fees to Ogner under Code of Civil Procedure section 1032.
Even if the trial court did exercise its discretion in awarding attorney fees to Ogner the court abused its discretion. Under section 1717, subdivision (b)(1) the party seeking attorney fees must have prevailed "on the contract," i.e., "recovered a greater relief." The sum paid by Valley Park did not relate specifically to the contract cause of action and the parties submitted no extrinsic evidence to show how the sum should be allocated between the contract and tort causes of action. Consequently there is no way to determine from the settlement agreement whether the $250,000 Valley Park paid was for Ogners single contract claim or its seven tort claims or some combination of contract and tort claims. Under these circumstances, Valley Park contends, the only legally sustainable result is to rule neither party prevailed on the contract cause of action.
Finally, under section 5.4 of the lease quoted above Ogner can only recover attorney fees for breach of the lease if Valley Parks "default is established." Neither the settlement agreement nor any ruling by the trial court established Valley Park was in default under the lease.
See supra, page 3.
None of these arguments convince us we should reverse the trial courts award to Ogner.
The result in this case could reasonably be characterized as an unqualified victory for Ogner. It received a $250,000 settlement from Valley Park, an amount too large to be brushed off as a nuisance value payment. Valley Park obtained nothing, not even a "moral victory," such as a declaration some portion of the lease was invalid.
But even assuming this is a case in which the trial court was required to exercise its discretion in determining the prevailing party under Civil Code section 1717, the record shows it did so.
It is true the trial court based its decision in part on the definition of a prevailing party contained in Code of Civil Procedure section 1032, applicable to tort claims. The court, however, went on to state: "Even though [$250,000] was not the full amount that plaintiff wished for, considering that the defendant was not willing to concede any liability, it is hard for this court to grasp the concept that the plaintiff is not the prevailing party." In our view this statement is clearly a reference to the "greater relief" test of Civil Code section 1717, subdivision (b)(1). There would be no reason for the trial court to make this comparison if it was applying only Code of Civil Procedure section 1032 because under that section the mere fact Ogner recovered $250,000 and Valley Park took nothing would make Ogner the prevailing party.
The trial court did not abuse its discretion in awarding attorney fees to Ogner.
Initially we reject Valley Parks contention Ogner cannot recover attorney fees under section 5.4 of the lease because it did not "establish" Valley Park was in default of a provision of the lease.
A similar argument was made and rejected in Wong v. Thrifty Corp. There, as here, the plaintiff landlord sued the defendant tenant for breach of contract after the tenant moved out leaving substantial damage to the premises. And, as here, the tenant served an offer to compromise under Code of Civil Procedure section 998 which the landlord accepted. When the landlord sought attorney fees under the lease the tenant opposed the motion on the ground the lease only allowed the landlord attorney fees in an action "in which it shall be determined that Lessee was in default." The tenant argued the landlord had no right to attorney fees because the section 998 judgment did not constitute a "determination" it was in default under the lease. The trial court agreed with the tenant and denied attorney fees but the Court of Appeal reversed. The appellate court held confining attorney fees under the lease to the party who prevailed on a determination of liability would unlawfully conflict with the statutory definition of a prevailing party in Civil Code section 1717 as the party recovering the "greatest relief." "This definition is mandatory," the court stated, "and cannot be avoided or altered by contract; contractual provisions conflicting with it are void."
Wong v. Thrifty Corp. (2002) 97 Cal.App.4th 261.
Wong v. Thrifty Corp., supra, 97 Cal.App.4th at page 263.
Wong v. Thrifty Corp., supra, 97 Cal.App.4th at page 264; citing cases.
We see no meaningful distinction between the contract provision in Wong, which required the landlord obtain a "determination" the tenant was in default under the lease and the contract provision in the present case which required the landlord "establish" the tenant was in default under the lease. Both provisions conflict with the statutory definition of a prevailing party in Civil Code section 1717 and therefore are void.
We also disagree with Valley Parks argument there can be no prevailing party in a contract action which ends in a settlement unless the settlement agreement, or some extrinsic evidence of the settlors intent, shows which party is to be considered the prevailing party.
This same issue was before the court in Jackson. There the settlement agreement, like the one before us, left the prevailing party determination to the trial court. The agreement included a payment to the plaintiffs but did not specifically relate the payment to the plaintiffs breach of contract cause of action. As in the present case both parties had cogent arguments why they should be declared to have prevailed on the contract. The trial court determined the plaintiffs were the prevailing parties and the Court of Appeal affirmed. In doing so, the appellate court relied on our Supreme Courts observation "`in determining litigation success, courts should respect substance rather than form, and to this extent should be guided by `equitable considerations." The court found the trial court had adequately considered the equities of the case and had not abused its discretion in deciding the plaintiffs were the prevailing parties.
Jackson, supra, 93 Cal.App.4th at page 788.
Jackson, supra, 93 Cal.App.4th at page 788.
Jackson, supra, 93 Cal.App.4th at page 788.
Jackson, supra, 93 Cal.App.4th at pages 787-788, quoting Hsu v. Abbara (1995) 9 Cal.4th 863, 877; italics in original.
The equitable consideration most frequently relied on by the courts is which party has best achieved it main litigation objective. In Santisas v Goodin, for example, the Supreme Court stated a court should base its prevailing party decision under Civil Code section 1717 "on a pragmatic definition of the extent to which each party has realized its litigation objectives, whether by judgment, settlement, or otherwise."
In addition to Hsu and Jackson discussed above, see also Scott Co. v. Blount, Inc., supra, 20 Cal.4th at page 1109; Santisas v. Goodin (1998) 17 Cal.4th 599, 622; Mustachio v. Great Western Bank (1996) 48 Cal.App.4th 1145, 1150.
Santisas v. Goodin, supra, 17 Cal.4th at page 622; italics added.
The trial court considered the parties litigation objectives in the present case. It noted even though the settlement amount "was not the full amount that the plaintiff wished for, . . . the defendant was not willing to concede any liability[.]" Ogners litigation objective in the breach of contract cause of action was to recover damages for the clean-up after Valley Park vacated the premises. Valley Parks litigation objectives were to defeat liability (it still maintains it had "substantial defenses against the breach of lease claim" or, failing that, to settle the case at the lowest feasible amount including attorney fees and obtain a stipulation the judgment could only be enforced against its insurers. In the settlement Ogner received a judgment for $250,000 in damages, Valley Park dropped its demand the judgment not be enforceable against it and it accepted the risk of being ordered to pay an additional sum as Ogners reasonable attorney fees. The trial court could reasonably conclude Ogner best achieved its litigation objectives.
Valley Park makes much of the fact the $250,000 settlement represented only a fraction of the $1.5 million Ogner claimed as damages in mediation. Courts have consistently held, however, a plaintiff may be determined the prevailing party under Civil Code section 1717 even if it recovers substantially less than it sought in its pleadings or negotiations. In Scott Co. v. Blount, Inc., for example, the plaintiff sought more than $2 million in damages and rejected a settlement offer of $900,000. The trial court ultimately awarded plaintiff $442, 054. Nevertheless, the Supreme Court held: "Although plaintiff here did not achieve all of its litigation objectives . . . the trial court did not abuse its discretion in implicitly concluding that on balance plaintiff prevailed on the contract for purposes of section 1717."
Scott Co. v. Blount, Inc., supra, 20 Cal.4th at page 1107.
Scott Co. v. Blount, Inc., supra, 20 Cal.4th at page 1109.
In summary, we find the issue of which party prevailed on the contract fell within the trial courts broad equitable discretion and Valley Park has failed to show the court abused its discretion.
DISPOSITION
The judgment is affirmed. Respondent is awarded its costs on appeal including reasonable attorney fees, the latter to be determined by the trial court following issuance of the remittitur.
We concur, PERLUSS, P.J., WOODS, J.