Opinion
B102770 (Super. Ct. No. C709438 and SWC105049)
Filed July 21, 1998
APPEAL from a judgment of the Superior Court of Los Angeles County. Homer L. Garrott, Judge. Affirmed in part, reversed in part and remanded.
Mazur Mazur and Janice R. Mazur for Defendant, Cross-complainant, and Appellant.
Federico Castelan Sayre, Kevin M. McGuire and Steven M. Nunez for Plaintiff, Cross-defendant, and Respondent.
Richard Scott Lysle for Cross-defendants and Respondents.
Defendant, cross-complainant, and appellant Mary Ann Sipper appeals from the post-judgment order awarding contractual attorney's fees and Code of Civil Procedure section 998 expert witness costs to plaintiff, cross-defendant, and respondent John Stafford and from the order awarding contractual attorney's fees to cross-defendants and respondents Robert Murrin and Peter Logan. This action involves disputes between a landlord (Sipper), a tenant (Stafford), and guarantors (Murrin and Login) arising out of a roof repair performed by Economy Roofing. Sipper incurred repair costs and lost rents and Stafford incurred business losses. Sipper contends: (1) Stafford was not the prevailing party on the contract; (2) the attorney's fees awarded Stafford were excessive; and (3) the contractual attorney's fee provision in the lease did not apply to Murrin and Logan as guarantors. In the published portion of this opinion, we conclude an award of reasonable attorney's fees under Civil Code section 1717 cannot exceed the amount of fees actually incurred by the prevailing party under a contingent fee agreement. In the unpublished portion of the opinion, we consider Sipper's remaining contentions. We reverse the attorney's fee award and remand for a redetermination of the reasonable attorney's fees to be awarded Stafford. We also reverse the Code of Civil Procedure section 998 costs award, which is dependent on the amount of the attorney's fee award. We otherwise affirm.
FACTS
Sipper owned a two-story building. The upper floor was comprised of four residential units, and the lower floor was a beer and wine bar. On January 27, 1984, Sipper leased the entire building to Murrin and Logan for four years. The written lease included a reciprocal attorney's fee provision.
In 1985, Murrin and Logan sought to sell the bar to Stafford and assign their lease obligations to him. An oral agreement was reached, whereby Sipper would allow the assignment if the tenants would put a new roof on the building. Economy was hired, and a new layer of roofing material was put on the building.
In February 1988, when the original lease expired, the parties entered into a new agreement, entitled "Extension and Renewal of Lease Agreement." Under this agreement, which identified Stafford as lessee and Murrin and Logan as guarantors, the lease was renewed through January 31, 1990. The Extension and Renewal Agreement incorporated the original lease by reference: "The Extension and Renewal of the subject lease which is attached hereto and incorporated herein by reference shall be through and including January 31, 1990. This Extension and Renewal shall be governed by the same terms and conditions as set forth in the subject lease."
In late 1988, it became necessary to make modifications to the building's roof in order to comply with earthquake safety regulations. This work involved drilling holes in the roof and inserting bracing material. When the holes were drilled, a building inspector discovered that the roof material was too thick, thereby violating the building code. The earthquake work was not permitted to continue until the roof was torn out and replaced.
Believing that Economy had installed a noncomplying roof in 1985, Sipper held Stafford responsible and refused to replace the roof. Stafford likewise refused to replace the roof, believing it to be Sipper's responsibility under the lease. In November and December 1988, rain entered through the holes in the roof, causing significant damage to Stafford's business. Stafford closed the bar and stopped paying rent. Sipper eventually re-roofed the building.
PROCEDURAL BACKGROUND
Stafford brought an action against Sipper for the losses he incurred as a result of the defective roof, on contract and tort causes of action. Sipper cross-complained against Economy, Stafford, and Murrin and Logan for the cost to repair the roof and lost rents, also on contract and tort causes of action. Before trial, Sipper settled with Economy for $19,500. Stafford went to the jury on both tort and contract causes of action. Sipper went to the jury only on a cause of action that Stafford and Murrin and Logan had breached their contracts with her.
The jury returned a general verdict in favor of Stafford, awarding $122,000 on his causes of action against Sipper. Sipper was awarded $19,343 on her breach of contract cause of action against Stafford. However, Sipper's prior $19,500 settlement with Economy completely offset this amount. Murrin and Logan were found not liable to Sipper.
Stafford and Murrin and Logan then moved for contractual attorney's fees as prevailing parties on the contract. They claimed a right to attorney's fees under the attorney's fee provision of the lease, which provided: "If either party named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his court costs, reasonable attorney's fees and legal expenses to be paid by the losing party as fixed by the court." Stafford was awarded fees of $312,668.50; Murrin and Logan were awarded fees of $125,864.22. Additionally, Stafford was awarded expert witness costs under Code of Civil Procedure section 998 on the theory that his recovery, including attorney's fees, exceeded his pretrial settlement offer of $175,000, which Sipper had rejected. Sipper filed a timely notice of appeal.
DISCUSSION
I. Statutory Framework
A prevailing party is entitled as a matter of right to recover costs. (Code Civ. Proc., § 1032, subd. (b).) Attorney's fees authorized by contract are allowable as recoverable costs. ( Id., § 1033.5, subd. (a)(10).) "In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded . . . to the prevailing party, then the party who is determined to be the party prevailing on the contract . . . shall be entitled to reasonable attorney's fees in addition to other costs. [¶] Reasonable attorney's fees shall be fixed by the court, and shall be an element of the costs of suit." (Civ. Code, § 1717, subd. (a).) "[T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract." ( Id., subd. (b)(1).)
II. Stafford's Entitlement to Attorney's Fees
In this case, the trial court determined that, as between Stafford and Sipper, Stafford was the party prevailing on the contract. Sipper contends the trial court erred in that, since the jury returned only a general verdict, it was impossible to determine whether Stafford actually prevailed on his breach of contract cause of action. Sipper also relies on the fact that the jury found in her favor on her breach of contract cross-complaint against Stafford.
The trial court is to make the "prevailing party" determination without reference to the success or failure of non-contractual causes of action. ( Hsu v. Abbara (1995) 9 Cal.4th 863, 873-874.) Instead, the trial court is to compare the relief awarded on the contract causes of action with the parties' demands and litigation objectives as disclosed by their pleadings, trial briefs, opening statements and similar sources. ( Id. at p. 876; Mustachio v. Great Western Bank (1996) 48 Cal.App.4th 1145, 1150.) Although a special verdict is clearly the easiest way of establishing whether damages were awarded for a particular cause of action, it is not the exclusive method of so doing. ( Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 661-662 [determining whether a jury awarded damages for personal injury].) Instead, "[f]acts and circumstances peculiar to the case, possibly including such considerations as the parties' theories of the case, uncontroverted evidence or jury instructions may permit determination of the fact and amount of . . . recovery [on a particular cause of action]." ( Morin v. ABA Recovery Service, Inc. (1987) 195 Cal.App.3d 200, 211 [same].) The trial court is better suited than the appellate court to make this determination. ( Lakin v. Watkins Associated Industries, supra, 6 Cal.4th at p. 662.)
In McKenzie v. Kaiser-Aetna (1976) 55 Cal.App.3d 84, the plaintiff had alleged contract and tort causes of action, and received a general verdict in its favor. On the plaintiff's motion for contractual attorney's fees, the trial court found that plaintiff had failed to meet its burden of establishing it prevailed on the contract, because the jury verdict could have been grounded on non-contractual theories only. ( Id. at p. 87.) The Court of Appeal affirmed, concluding that it could not ascertain the basis for the jury's award. ( Id. at pp. 88-89.) McKenzie has been impliedly overruled by Lakin.
We conclude the trial court did not abuse its discretion in determining Stafford was the prevailing party on the contract. Preliminarily, the record is insufficient to allow for review of this issue. Sipper designated only a partial reporter's transcript on appeal, including opening statements and closing arguments, but omitting much of the testimony. It is the appellant's burden to provide an adequate record on appeal. To the extent the record is inadequate, we make all reasonable inferences in favor of the judgment. ( Maria P. v. Riles (1987) 43 Cal.3d 1281, 1295-1296; Amato v. Mercury Casualty Co. (1993) 18 Cal.App.4th 1784, 1794.) For example, Sipper relies on Stafford's response to an objection during the testimony of an expert witness where Stafford argued the challenged testimony supported his negligence cause of action. We do not know whether the omitted parts of the record contain similar arguments by Sipper conceding that Stafford's claim sounded in contract. We therefore uphold the trial court's conclusion due to the incomplete record.
In addition, even the partial record provides a sufficient basis for upholding the trial court's exercise of discretion. Sipper contends Stafford's pursuit of a breach of contract claim was half-hearted, and that the main focus of Stafford's case was in tort. Sipper is incorrect. Although Stafford pursued numerous causes of action, Stafford diligently pursued a breach of contract cause of action. Moreover, regardless of the denomination of Stafford's causes of action, his claims were fundamentally based on the lease and the duties arising therefrom.
The jury awarded Stafford $122,000. In argument to the jury, Stafford requested only $78,000 in lost profits for the remaining portion of the lease. Because the jury awarded more than this amount, it is likely that Stafford prevailed on a cause of action other than breach of contract. The fact that Stafford was awarded damages in excess of claimed contractual damages does not imply that Stafford prevailed on a tort cause of action in lieu of the breach of contract cause of action. Stafford could very well have prevailed on a tort cause of action in addition to his cause of action for breach of contract.
Sipper argues Stafford's breach of contract cause of action was a mere afterthought, arguing that Stafford did not request instructions on breach of contract until after the jury had already been instructed and Sipper had called some omitted instructions to the attention of the trial court. This argument is belied by the record. The reporter's transcript of an earlier discussion on jury instructions clearly reveals Stafford's pre-instruction request for breach of contract jury instructions.
Stafford pursued a cause of action for "deprivation of peaceful possession." The jury was instructed that, to prevail on this cause of action, Stafford had to prove "the substantial invasion by the landlord of the private use and enjoyment of the property leased by the tenant." The lease agreement itself provided the tenant had a right to quiet possession of the premises. Thus, if the jury found in favor of Stafford on this cause of action, the jury, by necessity, would have also found that Sipper breached her duties under the lease.
Likewise, Stafford pursued a cause of action for "constructive eviction." The jury was instructed that, to prevail on such a cause of action, Stafford had to prove his "possession of the premises or beneficial use and enjoyment of the premises was disturbed by the landlord or by the landord's agent" and "the disturbance is such that the premises [are] unfit for the purposes for which [they were] leased or has the effect of depriving the tenant of the beneficial enjoyment of the premises." Again, a finding in favor of Stafford on this cause of action would imply that Sipper breached her duties under the lease.
In Beeman v. Burling (1990) 216 Cal.App.3d 1586, a wrongfully evicted tenant brought numerous causes of action against his landlord, including constructive eviction and violation of city rent ordinances. The tenant, who obtained a default judgment against the landlord, sought contractual attorney's fees on appeal pursuant to the lease agreement and Civil Code section 1717 The Court of Appeal awarded attorney's fees, reasoning, "While [the tenant's] action implicated provisions of the San Francisco Rent Ordinance, in our opinion the suit fundamentally was based upon the lease, in that [the tenant] sought compensation for [the landlord's] wrongful interference with [the tenant's] occupation and enjoyment of the leased premises." ( Id. at p. 1608.) The Beeman rationale is wholly applicable here. Although tort causes of action were also implicated, Stafford's suit fundamentally was based on the lease, in that he sought compensation for Stafford's wrongful interference with his occupation of the leased premises. The trial court did not err in concluding Stafford was the party prevailing on the contract.
The fact that Sipper nominally prevailed on her contractual cross-complaint is only a factor for the trial court to consider in determining the party in the action prevailing on the contract. The fact that one party has been awarded partial relief on the contract does not foreclose the possibility that the other party recovered greater relief and is the true party prevailing on the contract. We therefore do not disturb the trial court's determination that Stafford was the prevailing party on the contract.
III. Amount of Fees Awarded to Stafford
Sipper contends the award of attorney's fees to Stafford was unreasonable as a matter of law because it exceeded the amount of fees incurred by Stafford under his contingent fee agreement with his attorney. Although the precise nature of Stafford's fee agreement is not part of the record, it is undisputed that Stafford was not obligated to pay all of the $312,668.50 which was awarded. We therefore consider whether an award of "reasonable attorney's fees" under Civil Code section 1717 can exceed the amount of fees the prevailing party actually incurred under a contingent fee agreement.
The fees awarded to Stafford encompassed fees claimed by two different attorneys. Stafford's prior attorney, Steven Ruben, claimed a total of $188,856 in attorney's fees. The record is silent as to whether Stafford actually paid Attorney Ruben the $188,856 claimed, or if he was ever obligated to do so. Stafford's current attorney, Federico Sayre, claimed a total of $123,812.50 in attorney's fees, based on hourly rates. Stafford concedes that Attorney Sayre represented him on a contingent fee basis.
"Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties . . . ." (Code Civ. Proc., § 1021) Code of Civil Procedure section 1021 gives individuals a broad right to enter into agreements providing for the allocation of attorney's fees. ( Trope v. Katz (1995) 11 Cal.4th 274, 279.) This broad right, however, is not unrestricted. ( Ibid.) "Contractual arrangements regarding the allocation of attorney's fees `are subject to the restrictions and conditions of [Civil Code] section 1717 in cases to which that provision applies.' [Citation.]" ( San Dieguito Partnership v. San Dieguito River Valley Regional etc. Authority (1998) 61 Cal.App.4th 910, 917.) Civil Code section 1717 applies to contractual provisions authorizing recovery of attorney's fees by a prevailing party on a contract. ( Santisas v. Goodin (1998) 17 Cal.4th 599, 614.)
Civil Code section 1717 provides that a party prevailing on a contract, which contains an attorney's fee provision, is entitled to an award of "reasonable attorney's fees." The phrase "reasonable attorney's fees" means "the consideration that a litigant pays or becomes liable to pay in exchange for legal representation." ( Trope v. Katz, supra, 11 Cal. 4th at p. 282.) The consideration that a litigant pays or becomes liable to pay in exchange for legal representation is the amount of attorney's fees actually incurred by the litigant. ( San Dieguito Partnership v. San Dieguito River Valley Regional etc. Authority, supra, 61 Cal.App.4th at p. 918.) The term "reasonable attorney's fees" does not include fees which exceed the fees the litigant actually incurred. ( Id. at p. 917.) Thus, an attorney who represents himself or herself in litigation is not allowed to recover any attorney's fees as a party prevailing on a contract, because the attorney litigant has not incurred any fees. ( Trope v. Katz, supra, 11 Cal.4th at p. 292.) Similarly, a prevailing litigant who has negotiated a below-market rate with his or her attorney is not entitled to a lodestar amount based on fair market rates or the application of a multiplier. ( San Dieguito Partnership v. San Dieguito River Valley Regional etc. Authority, supra, 61 Cal.App.4th at p. 919.) "Reasonable attorney's fees" may not exceed that amount necessary "to reimburse a party for attorney fees the party has paid, or to indemnify the party for fees the party has become liable to pay . . . ." ( Id. at p. 918.)
A prevailing party who has entered into a contingent fee arrangement with an attorney is not precluded from an attorney's fee award under Civil Code section 1717 ( Gonzales v. Personal Storage, Inc. (1997) 56 Cal.App.4th 464, 479-480.) A prevailing party with a contingent fee arrangement incurs a liability for attorney's fees in the amount of the contingent fee, i.e., the applicable percentage of the judgment. ( Id. at p. 479; Vella v. Hudgins (1984) 151 Cal.App.3d 515, 520.) Once a judgment has been entered, the contingency has occurred, and the prevailing party has "incurred" an obligation to pay fees in the amount provided by the contingent fee agreement. In determining a reasonable attorney's fee award pursuant to Civil Code section 1717, the trial court must consider the terms of the contingent fee agreement. The trial court is not compelled to award reasonable attorney's fees in the amount of the contingent fee; it is simply a factor to be considered. ( Vella v. Hudgins, supra, 151 Cal.App.3d at p. 520.) The reasonable attorney's fee award may not, however, exceed the amount of the contingent fee. (See id. at pp. 519-520 [affirming an attorney's fee award that did not exceed the contingent fee].) An award of "reasonable attorney's fees" under Civil Code section 1717 may not exceed the fees the prevailing party actually pays or is liable to pay. When the attorney's fees the prevailing party is liable to pay are measured by a percentage of the recovery under a contingency agreement, the fee award cannot exceed the amount that the prevailing party is liable to pay under the agreement.
In this case, Stafford was represented sequentially by two attorneys. Stafford's fee agreement with his first attorney is not ascertainable from the record. Stafford entered into a contingent fee agreement with his second attorney, the precise nature of which is also not ascertainable from the record. It is unquestioned, however, that the fees awarded by the trial court are in excess of the fees which Stafford has paid or is obligated to pay to his attorneys. To this extent, the attorney's fee award to Stafford is unreasonable as a matter of law. Accordingly, the attorney's fee award must be reversed and the matter remanded to the trial court for a redetermination of a reasonable fee award not to exceed the amount of fees actually incurred by Stafford.
IV. Expert Witness Costs
Sipper also challenges the award of expert witness costs under Code of Civil Procedure section 998 The trial court's determination that Stafford obtained a more favorable judgment than the amount of Stafford's rejected settlement offer depended, in part, on the amount of the attorney's fees awarded Stafford. Because we reverse the award of attorney's fees, the award of expert witness costs must also be reversed and reconsidered by the trial court.
V. Entitlement of Murrin and Logan to Attorney's Fees
Sipper contends the trial court erred in awarding attorney's fees to Murrin and Logan because they did not prevail on a contract which contained an attorney's fee provision.
Sipper sued Murrin and Logan for breach of contract; the jury verdict was in favor of Murrin and Logan. It is apparent that Murrin and Logan were the parties prevailing on the contract. The sole issue raised by Sipper is that the contract on which Murrin and Logan prevailed did not contain an attorney's fee clause.
Sipper does not dispute that a party can be considered the prevailing party on the contract if it prevails on the theory that the contract was inapplicable or unenforceable. ( Santisas v. Goodin (1998) 17 Cal.4th 599, 611.)
Sipper contends she sued Murrin and Logan on "the guarantee agreement" and not the lease. There was, however, no separate "guarantee agreement." Murrin and Logan's obligation to guarantee Stafford's performance was a part of the Extension and Renewal of Lease Agreement, which incorporated the provisions of the lease by reference.
"The phrase `incorporation by reference' makes the document referred to part of the contract as if it were recited verbatim." ( Republic Bank v. Marine Nat. Bank (1996) 45 Cal.App.4th 919, 921, original italics.) The lease terms, including the attorney's fee clause, were thus a part of the Extension and Renewal agreement as if set forth verbatim.
Sipper attempts to limit the operation of the attorney's fee clause to the "lessor" and "lessee" as identified in the Extension and Renewal Agreement. The clause is not so limited by its terms. It refers to the "part[ies]" to the agreement. The Extension and Renewal Agreement is a single agreement including the lease and the guarantee. The attorney's fee clause unambiguously applies to all parties to any action on the Extension and Renewal Agreement. Because Murrin and Logan were sued for breaching an agreement with an attorney's fee clause, they were entitled to recover their reasonable attorney's fees as prevailing parties.
We note, however, that since Murrin and Logan were the original lessees, they were one of the parties to whom the provision originally referred.
DISPOSITION
The award of attorney's fees in favor of Stafford is reversed and the matter is remanded to the trial court for a redetermination of the reasonable attorney's fees to be awarded Stafford, not to exceed the fees Stafford actually incurred. As the award of Code of Civil Procedure section 998 expert witness costs to Stafford depended, in part, on the amount of the attorney's fees awarded, the expert witness costs award is also reversed, subject to redetermination following the reasonable attorney's fees redetermination. The award of attorney's fees in favor of Murrin and Logan is affirmed. Murrin and Logan are to recover their costs and attorney's fees on appeal from Sipper. Sipper and Stafford are to bear their own costs on appeal.
CERTIFIED FOR PARTIAL PUBLICATION.
Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of the Facts and parts II, IV, and V of the Discussion.
______________________________ GRIGNON, J.
We concur:
_______________________________ TURNER, P.J.
_______________________________ GODOY PEREZ, J.