EXXESS ELECTRONIXX et al., Cross-complainants and Appellants,
v.
HEGER REALTY CORPORATION et al., Cross-defendants and Respondents.
Court of Appeal, Second District, Division One.
*379 Law Offices of Ashouri & Associates, P. Patrick Ashouri and Michael F. Frank, Los Angeles, for Cross-complainants and Appellants.
Greenberg & Creyaufmiller, Lawrence R. Greenberg and Timothy P. Creyaufmiller, Los Angeles, for Cross-defendants and Respondents.
MASTERSON, Associate Justice.
After entering into a standard commercial lease, the lessee discovered several defects in the premises that interfered with its use of the property to conduct business. The lessee sued its broker for declaratory relief, constructive fraud, breach of fiduciary duty, and equitable relief, alleging that the broker should have disclosed the defects before the lease was executed. Eventually, the action was settled and dismissed.
The broker then moved for attorneys' fees pursuant to a provision in the lease which provided that "[i]f any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party ... or Broker ... shall be entitled to reasonable attorney's fees." The trial court awarded fees to the broker. The lessee has appealed the award.
We conclude that Civil Code section 1717 precludes an award of attorneys' fees on the contract claim (declaratory relief) and that the contractual attorneys' fee provision does not authorize an award of fees on the tort claims (constructive fraud and breach of fiduciary duty) or the claims for equitable relief. Accordingly, we reverse.
BACKGROUND[1]
Masco Building Products Corporation owns a three-story building in South Gate. In 1994, Exxess Electronixx, a partnership, commenced negotiations with Masco to lease a portion of the building for the purpose of operating a business. Heger Realty Corporation acted as the broker for both parties. In July 1994, Exxess and Masco executed a "Standard Industrial/Commercial Single-Tenant Lease," a form lease prepared by the American Industrial Real Estate Association. The lease term was five years, beginning July 1, 1994. The lease acknowledged that Heger Realty was a dual agent for the lessor and lessee and required the lessor to pay a fee to Heger Realty in accordance with a separate written agreement. The lease did not describe any of Heger Realty's obligations or duties.
Paragraph 31 of the lease provided: "If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees.... The term `Prevailing Party' shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense...." (Boldface in original.)
Exxess and Masco also executed an addendum to the lease. It provided in part that "[e]lectrical service will be separately metered to Lessee's Premises, and Lessee shall be responsible for procuring, maintaining, and paying all charges and taxes in connection therewith." Further, Masco agreed that within the first 30 days of the lease, it would *380 make certain improvements to the premises (e.g., install a fire escape door, erect a fence in the yard, and repair the building's sprinkler system). With the exception of those improvements and Masco's obligation to remediate any hazardous substances, Exxess "acknowledge[d] that Lessee is leasing the Premises ... in its present `AS IS' and `WITH ALL FAULTS' condition.... Lessee further acknowledges that by its entering into this Lease it has made such legal, factual, and other inquiries and investigations as it deems necessary, desirable, or appropriate with respect to the Premises and the value thereof and the appurtenances, facilities, and equipment thereof and that in entering into this Lease, it will be relying solely thereon." (Boldface and capitals in original.)
In 1995, a dispute arose between Exxess and Masco regarding payment of the electric bill. In November 1995, Masco filed this action against Exxess for breach of contract, alleging that Exxess had not paid the electric bill as required by the lease.[2] In December 1995, Exxess answered the complaint, denying all allegations. Exxess also filed a cross-complaint against Masco and Heger Realty.[3] The cross-complaint included claims of negligent and intentional misrepresentation against all cross-defendants. It also alleged claims for contribution and equitable indemnity against Heger Realty based on Exxess's potential liability to Masco.
In January 1996, Masco dismissed its complaint against Exxess. Proceedings continued on Exxess's cross-complaint against Masco and Heger Realty. Masco filed an answer to the cross-complaint, denying all allegations. Heger Realty filed a demurrer to the cross-complaint. By order dated March 22, 1996, the trial court sustained the demurrer in part and overruled it in part. The trial court sustained the demurrer without leave to amend as to the claims against Heger Realty for intentional misrepresentation, contribution, and equitable indemnity.[4] The demurrer was sustained with leave to amend as to the negligent misrepresentation claim.
In April 1996, Exxess filed a first amended cross-complaint. Exxess alleged a breach of contract claim and related tort claims against Masco for failing to perform various obligations under the lease. Against Heger Realty, Exxess alleged three causes of action. First, in a claim for constructive fraud, Exxess alleged that Heger Realty was a fiduciary and had failed to disclose certain defects in the premises, including violations of the building code, the unfitness of the premises for occupancy, and the inability of the premises to qualify for a business license from the City of South Gate. Heger Realty allegedly withheld information about the defects in order to induce Exxess to lease the property. Had Exxess known the truth, it would not have entered into the lease.[5] Second, in a claim for declaratory relief, Exxess requested that the court determine the rights and duties of the parties under the lease.[6] Finally, in a claim for breach of fiduciary duty, Exxess alleged that it had an oral or written representation agreement with Heger Realty, that Heger Realty was a fiduciary, and that Heger Realty had breached its fiduciary duty by failing to disclose defects in the premises. Exxess sought compensatory and punitive damages on the claims for constructive fraud and breach of fiduciary duty.[7]
*381 Heger Realty filed an answer to the first amended cross-complaint. The parties engaged in discovery. On October 21, 1996, approximately one month before trial, the case settled. Masco agreed to pay Exxess a fixed sum within 30 days, and, in return, Exxess agreed to pay for certain maintenance costs. As to Heger Realty, Exxess agreed to dismiss the cross-complaint with prejudice in exchange for Heger Realty's waiver of any claim for malicious prosecution. Heger Realty was not required to pay anything to Exxess. As part of the settlement, Heger Realty retained the right to move for costs and attorneys' fees in the action. On October 22, 1996, Exxess dismissed the cross-complaint with prejudice.
On November 1, 1996, Heger Realty filed a cost memorandum listing $31,475.50 in attorneys' fees and $246.25 in other costs. Exxess responded with a motion to tax costs, challenging Heger Realty's right to attorneys' fees. In its opposition to the motion, Heger Realty argued that it was entitled to fees pursuant to the attorneys' fee provision in the lease. The trial court agreed with Heger Realty and denied Exxess's motion.
On November 20, 1996, Heger Realty filed a motion for attorneys' fees. Exxess filed papers in opposition. By order dated December 23, 1996, the trial court granted the motion and awarded Heger Realty $36,421.50 in attorneys' fees.[8] Exxess timely appealed from the trial court's orders denying its motion to tax costs and granting Heger Realty's motion for attorneys' fees.
DISCUSSION
In determining whether Heger Realty is entitled to attorneys' fees, we examine the applicable statutes and provisions of the lease. Extrinsic evidence has not been offered to interpret the lease, and the facts are not in dispute. We therefore review the trial court's decision de novo. (See Californians for Population Stabilization v. Hewlett-Packard Co. (1997)
A. Timeliness of the Motion
Exxess contends that the trial court erred in awarding attorneys' fees because Heger Realty did not file its motion for attorneys' fees in a timely manner. According to Exxess, the motion had to be filed before or at the same time Heger Realty filed its cost memorandum. Heger Realty missed that alleged deadline, having filed its motion almost three weeks after the cost memorandum was filed. Admittedly, there is case authority supporting Exxess's contention. (See Russell v. Trans Pacific Group (1993)
Effective January 1, 1994, a new rule 870.2 was adopted, which provides that "[a] notice of motion to claim attorney fees for services up to and including the rendition of judgment in the trial court shall be served and filed *382 within the time for filing a notice of appeal under rules 2 and 3." (Cal. Rules of Court, rule 870.2(b).) Arguably, because Exxess's cross-complaint was resolved by way of a settlement and dismissal, rule 870.2 did not establish any deadline for filing the motion for attorneys' fees; there was no appealable order or judgment. (See In re Tomi C. (1990)
B. Attorneys' Fees Awarded Pursuant to Contract
Civil Code section 1717, subdivision (a), provides: "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 either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." (Italics added.)
1. Contract Claim
If a cause of action is "on a contract," and the contract provides that the prevailing party shall recover attorneys' fees incurred to enforce the contract, then attorneys' fees must be awarded on the contract claim in accordance with Civil Code section 1717. (Santisas v. Goodin (1998)
Section 1717, subdivision (b)(2), states that "[w]here an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no party prevailing on the contract for purposes of this section." Consequently, an award of attorneys' fees is not permitted where an action "on a contract" has been dismissed as part of a settlement. (See Santisas v. Goodin, supra,
We realize that the lease defined "prevailing party" to include "a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense...." (Italics added.) Thus, the lease contemplated an award of attorneys' fees to a cross-defendant who is dismissed as a result of a settlement. Nevertheless, the definition of "prevailing party" in Civil Code section 1717 is mandatory *383 and cannot be altered or avoided by contract. (Santisas v. Goodin, supra, 17 Cal.4th at pp. 615-617,
2. Tort Claims
Civil Code section 1717 does not apply to tort claims; it determines which party, if any, is entitled to attorneys' fees on a contract claim only. (Santisas v. Goodin, supra, 17 Cal.4th at pp. 615, 617, 619,
In this case, Exxess's claims for constructive fraud and breach of fiduciary duty sound in tort. (See Tyler v. Children's Home Society (1994)
"If a contractual attorney fee provision is phrased broadly enough, ... it may support an award of attorney fees to the prevailing party in an action alleging both contract and tort claims: `[P]arties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract.'" (Santisas v. Goodin, supra,
"To answer this question, we apply the ordinary rules of contract interpretation. `Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation.... Such intent is to be inferred, if possible, solely from the written provisions of the contract.... The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage" ..., controls judicial interpretation.... Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning...."' (Santisas v. Goodin, supra,
*384 a. Action to Enforce the Terms of the Lease
We conclude that Exxess's claims for constructive fraud and breach of fiduciary duty were not brought to "enforce the terms" of the lease. Civil Code section 1717, subdivision (a), makes clear that a tort claim does not "enforce" a contract. That statute expressly refers to, and therefore governs, "attorney's fees ... which are incurred to enforce th[e] contract." Because section 1717 does not encompass tort claims (Santisas v. Goodin, supra, 17 Cal.4th at pp. 615, 617, 619,
As our Supreme Court has indicated, where a lease authorizes an award of attorneys' fees in an action to "enforce any... provision ... of this [contract]," tort claims are not covered. (Santisas v. Goodin, supra,
In short, the award of attorneys' fees cannot be sustained on the theory that the tort claims were brought to "enforce the terms" of the lease.
b. Action to Declare Rights Under the Lease
Although Exxess's tort claims did not "enforce the terms" of the lease, our inquiry is not at an end. The lease also authorizes attorneys' fees in an action to "declare rights hereunder." For several reasons, we conclude that the tort claims do not fall within this second category.
First, we observe that the few reported decisions applying the attorneys' fee provision in a standard industrial/commercial lease have all involved contract claims. In Roth v. Morton's Chefs Services, Inc. (1985)
Second, the contractual phrase "declare rights hereunder" is substantially similar to the language used in the declaratory relief statute, which permits a person to obtain a judicial declaration of his rights under a contract.[13] "A complaint for declaratory *385 relief ... sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties under a written instrument and requests that these rights and duties be adjudged by the court." (Maguire v. Hibernia S. & L. Soc. (1944)
Third, Exxess's tort claims are premised on a dutyspecifically, a duty to disclose defects in the premisesthat was not created by the lease. As stated, the lease did not set forth any obligations or duties of Heger Realty. It is well settled that while a contract action protects a party's interest in having promises performed, "[a] tort action ... redresses the breach of the general duty to society which the law imposes without regard to the substance of the contractual obligation." (Careau & Co. v. Security Pacific Business Credit, Inc. (1990)
Moreover, the duty to disclose defects in the premises arose before the lease even existed. "An action premised on fraud in the inducement seeks to avoid the contract rather than to enforce it; the essential claim is `I would not have entered into this contract had I known the truth.' The duty not to commit such fraud is precontractual[;] it is not an obligation undertaken by the entry into the contractual relationship." (Perry v. Robertson (1988)
Finally, Heger Realty argues that it is entitled to fees because its defense to the cross-complaint was based on a provision of the lease, in particular, the "as is" clause. According to Heger Realty, all of Exxess's claims were meritless because Exxess had expressly agreed in the lease to take the property "as is" and "with all faults" and had further agreed to rely solely on its own investigation of the property. The "as is" clause, so the argument goes, negated any duty on Heger Realty's part to disclose defects in the property. (See Shapiro v. Hu (1986)
Leaving aside the merits of the "as is" defense, the question remains whether it comes within the attorneys' fee provision of the lease. Assuming that Heger Realty is the prevailing party in the case, the lease authorizes attorneys' fees "[i]f any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder." (Italics added.) While the "as is" defense may have had the effect of "enforc[ing] the terms" of the lease or "declaring] rights [there]under," Heger Realty did not "bring[] an action or proceeding" to *386 accomplish those goals. Under any reasonable interpretation of the attorneys' fee provision, we cannot equate raising a "defense" with bringing an "action" or "proceeding."[15] By asserting a defense to the cross-complaint, Heger Realty did not bring an action or proceeding to enforce the lease or to declare rights under it.
Although we sympathize with Heger Realty's position,[16] we cannot rewrite the attorneys' fee provision in the lease. We note, however, that the provision before us appears to be quite narrow. In that regard, courts have interpreted broader provisions to permit an award of attorneys' fees on a tort claim. (See, e.g., Santisas v. Goodin, supra,
In sum, because Exxess's tort claims did not enforce the terms of the lease or declare rights under the lease, Heger Realty cannot recover attorneys' fees on those claims.[18]
3. Other Noncontract Claims
"If an action asserts both contract and tort or other noncontract claims, [Civil *387 Code] section 1717 applies only to attorney fees incurred to litigate the contract claims." (Santisas v. Goodin, supra,
The trial court sustained Heger Realty's demurrer without leave to amend as to Exxess's claims for contribution and equitable indemnity. Assuming that Heger Realty is the prevailing party in the case, we must determine whether those claims are covered by the attorneys' fee provision in the lease. We begin by examining the nature of contribution and equitable indemnity in general.[19]
"In California, as in most other American jurisdictions, the allocation of damages among multiple tortfeasors has historically been analyzed in terms of two, ostensibly mutually exclusive, doctrines: contribution and indemnification. In traditional terms, the apportionment of loss between multiple tortfeasors has been thought to present a question of contribution; indemnity, by contrast, has traditionally been viewed as concerned solely with whether a loss should be entirely shifted from one tortfeasor to another, rather than whether the loss should be shared between the two.... [T]he dichotomy between the two concepts is more formalistic than substantive, and the common goal of both doctrines[ is] the equitable distribution of loss among multiple tortfeasors...." (American Motorcycle Assn. v. Superior Court (1978)
The right to contribution or indemnity is rooted in principles of equity. "In the absence of a contractual provision for indemnity, the right of one party to seek indemnity or contribution from another has always been considered equitable in origin.... Indeed, noncontractual indemnity and contribution have historically been `based on equitable considerations of unjust enrichment and restitution.'" (Miller v. American Honda Motor Co. (1986)
By way of example, where one judgment debtor seeks contribution from another in an action involving the breach of a promissory note, "[t]he right of contribution, although necessarily related to some former transaction or obligation, exists as an entirely separate contract implied by law.... [¶] ... [The] claim for contribution thus arises solely from [a] right imposed by operation of law and principles of equity. Although technically related to the underlying obligation, [the] claim for contribution neither arises nor is contingent upon the promissory note...." (Borba Farms, Inc. v. Acheson (1988)
Consistent with the foregoing analysis, we conclude that Exxess's claims for contribution and indemnity do not fall within the scope of the attorneys' fee provision in the lease. Exxess's rights to contribution and indemnity, if any, were created solely by operation of law and principles of equity, not by the parties' underlying obligation (i.e., the lease). (See Borba Farms, supra,
In conclusion, Civil Code section 1717 precludes an award of attorneys' fees on Exxess's declaratory relief claim, and the attorneys' fee provision in the lease does not encompass any of the other claims. The trial court therefore erred in granting Heger Realty's motion for attorneys' fees.
DISPOSITION
The order denying Exxess Electronixx's motion to tax costs and the order awarding attorneys' fees to Heger Realty Corporation are reversed. Appellants are entitled to costs on appeal.
SPENCER, P.J., and ORTEGA, J., concur.
NOTES
Notes
[1] Because the action was dismissed before trial, we rely on the pleadings in stating the "facts" of the case. For purposes of appeal, we will assume that the allegations are true.
[2] The two general partners of Exxess were also named as defendants. For convenience, we will refer to all three defendants as "Exxess."
[3] Also named as cross-defendants were two individuals employed by Heger Realty. For convenience, we will refer to these cross-defendants as "Heger Realty."
[4] The trial court concluded that the intentional misrepresentation claim was duplicative of the constructive fraud claim. The claims for contribution and indemnity were moot because Masco had dismissed its complaint against Exxess.
[5] We note that the constructive fraud claim is essentially one for fraud in the inducement. (See 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, §§ 392-405, pp. 356-365 [discussing types of fraud].)
[6] Exxess alleged that it and Masco were "direct parties" to the lease and that Heger Realty claimed to be a third party beneficiary under the lease.
[7] As stated, the trial court sustained Heger Realty's demurrer with leave to amend as to the negligent misrepresentation claim in the original cross-complaint. Nevertheless, Exxess did not replead that claim against Heger Realty in the amended cross-complaint.
[8] The fee amount listed on the cost memorandum was lower than the actual award because the memorandum did not include the fees subsequently incurred by Heger Realty in opposing Exxess's motion to tax costs and in bringing the motion for attorneys' fees.
[9] Some Courts of Appeal have reviewed the awarding of attorneys' fees for an abuse of discretion. (See, e.g., Reveles v. Toyota by the Bay (1997)
[10] There is no dispute that the language of the lease brings it within the reach of section 1717.
[11] The general cost provisions define "prevailing party" to include "a defendant in whose favor a dismissal is entered." (Code Civ. Proc., § 1032, subd. (a)(4).) Section 1021 of the Code of Civil Procedure provides: "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; but parties to actions or proceedings are entitled to their costs, as hereinafter provided."
[12] Section 1161.1, subdivision (a), of the Code of Civil Procedure addresses the determination of the "prevailing party" in an unlawful detainer action where the tenant has defaulted in the payment of rent under a commercial lease. Because the parties do not contend that this statute is applicable, we do not discuss its effect, if any, on the "prevailing party" definition in the lease before us.
[13] The declaratory relief statute provides: "Any person interested under a written instrument, excluding a will or a trust, or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, ... may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court... for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract...." (Code Civ. Proc., § 1060.)
[14] We express no opinion on the ability of a broker to recover attorneys' fees under a contract between it and its client (e.g., listing agreement, brokerage agreement). Here, the pertinent contract is a lease between Masco, as lessor, and Exxess, as lessee. Although the attorneys' fee provision includes the broker, Heger Realty was not a signatory to the lease, and the lease did not describe any "rights" of Masco or Exxess as against Heger Realty.
[15] An "action" is "a lawsuit brought in a court; a formal complaint within the jurisdiction of a court of law[;] ... [a]n ordinary proceeding in a court of justice by which one party prosecutes another for the enforcement or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense." (Black's Law Diet. (6th ed.1990) p. 28, col. 1; accord. Code Civ. Proc., §§ 20-22.) "A `proceeding' includes action and special proceedings before judicial tribunals as well as proceedings pending before quasi-judicial officers and boards." (Black's Law Diet., supra, p. 1204, col. 1.) "The word [`proceeding'] may be used synonymously with `action' or `suit' to describe the entire course of an action at law or suit in equity from the ... filing of the complaint until the entry of final judgment...." (Ibid.; see also Code Civ. Proc., §§ 20-23.) In contrast, a "defense" is "[t]hat which is offered and alleged by the party proceeded against in an action or suit, as a reason in law or fact why the plaintiff should not recover or establish what he seeks[; ... [¶] it is a] response to the claims of the other party, setting forth reasons why the claims should not be granted." (Black's Law Diet., supra, p. 419, col. 2, italics added.)
[16] During the litigation, Heger Realty repeatedly informed Exxess that the cross-complaint was frivolous. Moreover, the terms of the settlement were very favorable to Heger Realty: The cross-complaint was dismissed with prejudice in exchange for Heger Realty's waiver of any malicious prosecution claim; no money was paid; and Heger Realty reserved the right to seek attorneys' fees.
[17] Among secondary authorities, one recommends that contracting parties use an attorneys' fee clause virtually identical to the provision in this case. (See Greenwald et al., Cal. Practice Guide: Real Property Transactions 1 (The Rutter Group 1998) 8 Form 4:H, Purchase and Sale Agreement and joint Escrow Instructions, p. 4-193 (rev. 1, 1998) [suggesting provision in purchase and sale agreement awarding fees "[i]f either party named herein brings an action or proceeding to enforce the terms hereof or declare rights hereunder"].) Another authority recommends a broader clause. (See Commercial Real Property Lease Form (Cont.Ed.Bar. Supp.1990) § 3.160, p. 104 [suggesting provision in commercial lease awarding fees "[i]f either party commences an action against the other party arising out of or in connection with this lease"].)
[18] Our analysis of Exxess's claims for constructive fraud and breach of fiduciary duty would also apply to its claims for negligent and intentional misrepresentation, which appeared in the original cross-complaint and were dismissed as a result of Heger Realty's demurrer. (See Bily v. Arthur Young & Co. (1992)
[19] Because Exxess brought a claim for equitable indemnity, we do not discuss express indemnity. (See Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co. (1991)
[20] In California, a right of contribution among joint tortfeasors did not exist at common law but was conferred by statute in 1957. (See Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994)
[21] Heger Realty argues that it is entitled to attorneys' fees merely because Exxess requested them in its cross-complaint. We reject this argument for two reasons. First, an examination of each cause of action in the amended cross-complaint indicates that Exxess did not seek fees against Heger Realty. Instead, it sought them against Masco for allegedly breaching the lease. Second, the court in Sweat v. Hollister (1995)