I. INTRODUCTION
This case tests the limits of a trial court’s discretionary authority to determine that there is no “prevailing party” under Civil Code section 1717. Here, a landlord brought an unlawful detainer action and sought unpaid rent. The tenant asserted she owed the landlord nothing because there were leaks in the premises. The day before the trial the tenant vacated the premises, so the case went to trial only on the landlord’s money claims. The landlord recovered 70 percent of what he claimed was owing. Nevertheless, the trial court ruled that there was no “prevailing party” for purposes of the attorney fee clause in the lease agreement.
We reverse. The result was so lopsided that, even under an abuse of discretion standard, it was unreasonable to say the landlord was not the prevailing party.
II. FACTS
Reginald de la Cuesta, the landlord, rented out a set of five suites in Laguna Hills to Esther Benham, the tenant, and her company, Suits 4 U, under a lease agreement requiring the tenant to pay $15,000 a month (later increased to about $15,800). By November 2008 the tenant had stopped making rent payments, and in mid-December 2008 the landlord had served a three-day notice to pay rent or quit. In a complaint for unlawful detainer filed in early January 2009, the landlord claimed $34,000 in unpaid rent through December 31, 2008. The landlord also claimed other damages of about $32,600.
The tenant quickly answered the unlawful detainer complaint, asserting that she owed nothing: The landlord had breached the warranty of habitability, and refused to repair certain water and sewage leaks. Thus the answer asserted (without further specification) that “The rental value is currently zero
The case was scheduled to go to trial on Monday, February 23, 2009. However, since the tenant vacated the premises the previous weekend— indeed, the day before—the court converted the case to an ordinary civil action (see Civ. Code, § 1952.3), and, as such, the case did not come to trial until November 30, 2009. The trial court squarely rejected the tenant’s fraud allegations, finding that the tenant was both an attorney and a real estate broker and was represented by a realtor in entering into the transaction, and in any event the property was in good condition when the lease was signed.
As to rent, the landlord had sought $103,000 in total monetary damages in an amended trial brief. The trial court awarded $69,500. The calculations were as follows: The rent due without any deductions was $61,200, but, because there were 84 days when “the tenancy was affected by water leaks,” and “the affected area” was about 25 percent of the premises, the court decided that a reduction of $11,100 was in order. The trial court also found that the common area maintenance charges should be limited to what they were estimated to be in the lease ($1,600) a month, which meant that the total common area maintenance charges due were about $12,400. With late charges stipulated to be $7,000, the judgment came in at about $69,500.
Costs were to be determined by posttrial motion, and, in February 2010, the landlord made a motion for about $42,200 in attorney fees. The motion was denied. We quote the entirety of the minute order denying the request: “Motion by plaintiff for an award of attorney’s fees in the amount of $42,163 against defendant Esther Benham is denied. The court finds that there is no prevailing party for purposes of awarding attorneys fees. While plaintiff did obtain possession that was due to defendant surrendering the property. The amended trial brief filed by plaintiff on 12/01/09 requested total monetary damages of $103,015 which was reduced significantly. The plaintiff’s statement of decision filed 01/22/10 notes that the court reduced the [common area maintenance] charges requested and the award was reduced due to water damage. This appears to be a good news bad news situation and under Nasser [v. Superior Court] (1984)
From that postjudgment order the landlord has filed this appeal.
A. Entitlement and Discretion
Under the rule of stare decisis, the governing case for “prevailing party” determinations under section 1717 of the Civil Code
It is important to look at what Hsu actually held: There, after a flurry of offers and counteroffers that had not resulted in a deal to sell a house, the would-be buyers sued the erstwhile sellers, claiming that the buyers had indeed accepted a particular counteroffer to buy the house for $297,000. The buyers lost when the trial court ruled that a new offer made by the prospective buyers after the purported acceptance extinguished the previous counteroffer for $297,000; even so, the trial court denied the winning (but now absolved of any obligation to perform) “sellers” their attorney fees, albeit not giving any explanation. On appeal, the intermediate appellate court affirmed, reasoning that under an abuse of discretion standard the erstwhile sellers had failed to discuss “ ‘all of the pertinent facts in the record’ ” which would bear on the “ ‘issue of abuse of discretion.’ ” (Hsu, supra, 9 Cal.4th at p. 870.) But the Supreme Court reversed, holding that the sellers were entitled to their fees because they had obtained a “ ‘simple, unqualified win.’ ” (Id. at pp. 876, 877.)
Much of the Hsu opinion represents the effort of the high court to reconcile what we might call the “discretion clause” of section 1717 with the “entitlement clause” of section 1717. (See Hsu, supra, 9 Cal.4th at pp. 871-876.) Both clauses are set forth in subdivision (b)(1) of the statute. Structurally, the entitlement clause comes first, with the statute first declaring that (a) the trial court must determine who is the “prevailing party,” and then (b) defining the “prevailing party” as the party who recovered a greater relief in the action on the contract. (“The court, upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section,
As shown by the facts in the Hsu case itself, the court’s reconciliation yielded this rule: A “simple, unqualified win” (on the contract, of course) takes a case out of the discretion clause and puts it into the entitlement clause. (See Hsu, supra, 9 Cal.4th at pp. 876-S77.)
The Hsu court, however, left the distance between, on the one extreme, a “simple, unqualified win” entitling the winner to fees—and, on the other, a split decision, clearly leaving no party entitled to fees—unexplored. The relevant language, however, is worth cataloging:
On the split decision (no entitlement) end, the court’s phrases were: “so equivocal” (Hsu, supra,
On the simple unqualified win (entitlement) end, the formulations were: “not mixed” (Hsu, supra, 9 Cal.4th at pp. 875-876, original italics), “purely good news for one party and bad news for the other” (id. at p. 876), obtaining “all relief requested” (ibid.), and “litigation success is not fairly disputable . . .” (ibid.).
To the degree that Hsu left any room to wonder whether anything short of total victory by one party might still entitle that party to fees (clearly “equivocal” “mixed” and “partial” results would not so entitle), an answer was supplied four years later in Scott: No. In section 1717 entitlement matters, said Scott, there is no substitute for “complete victory.” Commenting on Hsu, the Scott court said: “When a party obtains a simple, unqualified victory by completely prevailing on or defeating all contract claims in the action and the contract contains a provision for attorney fees, section 1717 entitles the successful party to recover reasonable attorney fees incurred in prosecution or defense of those claims. [(Citing Hsu, supra, 9 Cal.4th at p. 877.)] If neither party achieves a complete victory on all the contract claims, 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.” (Scott, supra,
In the present case, we must agree with the trial court that landlord de la Cuesta’s result falls short of a “complete victory.” A portion of the unpaid rent (roughly a fifth) was deducted from what the landlord was otherwise entitled to, plus claims for unpaid common area maintenance charges were reduced by capping them to the time of the lease. Thus the landlord here cannot claim legal error in the trial court’s decision.
B. Abuse of Discretion
But just because a litigant is not entitled to its fees as a matter of the entitlement clause of section 1717 does not mean that discretion cannot be abused. If the law were: Unless you win a complete victory, the trial court has unfettered discretion to declare you a nonwinner, then Hsu’s “comparison of the extent” language and the actual text of section 1717 could readily be thwarted.
On top of that, there is the actual language of section 1717 itself, which expressly contemplates some sort of comparison of respective results: Otherwise the Legislature would not have defined “prevailing party” as the party obtaining “a greater relief’ (italics added)—a comparative term. As noted in Sears v. Baccaglio (1998)
And then there is the reality of litigation, almost universally recognized: Attorneys tend to err on the side of overstating the extent of the claims being presented on their client's behalves. If anything short of “complete victory” allows the trial court unrestricted freedom to ignore the substance of a result, then trial courts have the freedom to nullify the normal expectations of parties who enter into contracts with prevailing party attorney fee clauses. As Hsu said: “We agree that in determining litigation success, courts should respect substance rather than form, and to this extent should be guided by ‘equitable considerations.’ For example, a party who is denied direct relief on a claim may nonetheless be found to be a prevailing party if it is clear that the party has otherwise achieved its main litigation objective.” (Hsu, supra, 9 Cal.4th at p. 877, italics added & omitted.)
Our point is: If the results in a case are lopsided in terms of one party obtaining “greater relief’ than the other in comparative terms, it may be an abuse of discretion for the trial court not to recognize that the party obtaining the “greater” relief was indeed the prevailing party. (Silver Creek, LLC v. BlackRock Realty Advisors, Inc. (2009)
The next question obviously is: How lopsided must the results be before it is an abuse of discretion not to acknowledge that one party has clearly
Of greatest significance here is the relative extent of the success of each party in comparison to its basic litigation position: The tenant, Benham, asserted the extreme position that she owed nothing by way of back rent because of the water and sewage leaks; she ended up with a judgment of about $70,000 against her. By contrast, at his most exuberant (and that in an amended trial brief), the landlord, de la Cuesta, asserted he was owed $103,000 but that was cut back to $70,000. The landlord, in short, got about 70 percent of the most of what he sought going into trial; the tenant got zero percent.
On top of those basic disparities, there are Hsu’s “ ‘equitable considerations’ ” to consider: The tenant vacated the premises the day before trial was initially scheduled to begin, which, in equitable terms, was a clear victory for the landlord.
Plus, the trial court unequivocally rejected all of the tenant’s fraud claims, choosing instead simply to offset about 20 percent of the back rent otherwise due to account for leaks that the landlord simply had not fixed and cap the common area maintenance arrearages to those contemplated by the contract.
Nasser v. Superior Court, supra,
Kytasty v. Godwin (1980)
Hilltop, supra,
Finally, Jackson v. Homeowners Assn. Monte Vista Estates-East (2001)
In contrast with Nasser, Kytasty, Hilltop and Jackson, there is the remarkable case of Ajaxo Inc. v. E*Trade Group Inc. (2005)
Ajaxo involved tripartite litigation between three companies: One which had breached a nondisclosure agreement (the breacher), one whose trade secret had been aired by the breaching company (the victim), and one which actually received the trade secret (the recipient). The victim company sought lost profits of $6 million per year from the date of disclosure, which by the time of trial amounted to $19.2 million. (Ajaxo, supra,
And finally, there is Silver Creek, a case which followed Hsu’s equitable consideration language in terms of the relative litigation success of the parties to conclude that the trial court had indeed abused its discretion in refusing to declare a would-be seller the prevailing party, even though the seller lost one of the two issues contested: Silver Creek was another real-estate-deal-fallen-through case, in which the seller struck first, seeking a declaration that it had validly terminated the transaction and was entitled to retain the buyer’s deposit. It won on the termination issue, but lost on the deposit issue, and the trial court determined there was no winner, “essentially declaring a tie because each party won one of the claims presented for resolution.” (Silver Creek, supra,
But the trial court’s approach “oversimplified its duties” simply by “counting the number of contract claims presented.” (Silver Creek, supra,
To be sure, the landlord’s win here was not “unqualified” as in Ajaxo (we recognize a total reduction of the maximum amount sought by about 31 percent), and the disparity in positions (zero versus nearly 70 percent) not quite as extreme as in Silver Creek. Even so, it is hard to square either Ajaxo or Silver Creek with the trial court’s decision, even tested under an abuse of discretion standard. Clearly, the landlord here obtained the “greater” part of its two litigation objectives: repossession and compensation for the tenant’s occupation. It is not enough to hide the difference under the cover of an abuse of discretion standard: As Hsu and the text of section 1717 show, discretion must be reasonable given the totality of the case and all the facts and circumstances.
The order determining that there was no prevailing party is reversed. The matter is remanded with directions to enter a new order declaring plaintiff de la Cuesta to be the prevailing party, and for further proceedings to determine reasonable attorney fees.pursuant to section 1717.
Aronson, J., and Ikola, J., concurred.
Notes
All figures in this opinion are to the nearest round number.
The $32,600 figure consisted of alleged underpayments of common area maintenance charges of some $13,000 from 2007, $9,600 from 2008, and late fees of about $10,000.
All further statutory references in this opinion are to the Civil Code.
Other Supreme Court cases in the section 1717 area have had no occasion to parse the “prevailing party” provision of section 1717 in the context of how much a litigant must win before the litigant can recover fees under section 1717 (either as a matter of discretion or by right). Santisas v. Goodin (1998)
The phrase was taken from Justice Wallin’s opinion for this court in Deane Gardenhome Assn. v. Denktas (1993)
Deane Gardenhome adumbrated the Hsu decision by holding that a certain result was clearly governed by the entitlement clause, not the discretionary clause. The dispute involved a family who had painted their home particular shades of pink and green after obtaining permission from the homeowners association president to do so. The homeowners association denied its president’s representation, sued, and lost when the trial court ruled the president had indeed “approved the color choice.” (Deane Gardenhome, supra,
Another reason trial courts cannot have unfettered discretion to make a “no prevailing party” determination in a case of lopsided results is to avoid a potential anomaly inherent in the “complete victory” standard. Consider: Most of the time, attorneys have an incentive to assert the maximal claims possible on behalf of their clients. (Sometimes they get sued themselves if they don’t!) But if anything less than complete victory means that a client loses what would otherwise have been “prevailing party” status under section 1717, the attorney is crunched into a dilemma. Risk a malpractice suit by not asserting maximal claims, or risk a malpractice suit by forfeiting “prevailing party” status under section 1717 by asserting maximal claims.
Subdivision (b)(2) of section 1717 says there is to be no prevailing party where the action “has been voluntarily dismissed or dismissed pursuant to a settlement of the case.” By the statute’s own terms, neither situation (there was no voluntary dismissal and the possession claim was only rendered moot, it wasn’t settled) applies here.
Tenant Benham offers no authority for the idea that the offset was for “constructive fraud,” and in fact the express finding of the trial court rejecting fraud in the inducement belies any such thought.
Certain images have a way of dominating certain areas of the law. Refrigeration figures often in free speech jurisprudence, eggshells in tort damages, baseball stadiums in the law of good faith settlement offers.