STEPHEN HOM, as Trustee, etc. v. DENNIS PETROU et al.
A161770
COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FOUR
August 3, 2021
CERTIFIED FOR PUBLICATION; (City & County of San Francisco Super. Ct. No. CGC-13-536307)
BACKGROUND
Hom‘s parents rented out a building they owned in San Francisco to Pure Entertainment, LLC to operate a bar and restaurant. Besides addressing the rent due, the term of the lease, and similar provisions, the lease Pure Entertainment signed allowed Pure Entertainment to encumber its leasehold in favor of any of its lenders. Two of the lease‘s nine pages gave various rights and responsibilities to a lender with an encumbrance on Pure Entertainment‘s leasehold, including the rights to do anything required of Pure Entertainment under the lease, foreclose on the leasehold, receive copies of notices due to Pure Entertainmеnt, cure any breach of the lease by Pure Entertainment, and enter into a new lease at the lender‘s option following any default by Pure Entertainment. The lease also specified that Pure Entertainment and the landlord would not modify or cancel the lease without the written consent of the lender. The last sentence of the lease further stated, “Should any dispute arise from this Lease or the tenancy hereby created, and the parties cannot settle it between themselves, then the prevailing party will
A dispute arose between Pure Entertainment and Hom‘s parents that resulted in litigation. Pure Entertainment filed a complaint for breach of contract. After his parents passed away and Hom became the trustee to the trust holding title to the property, Hom filed a second amended cross-complaint against Pure Entertainment and, among others, Petrou and Utter. As relevant here, the cross-complaint alleged that Petrou and Utter became lеnders with leasehold encumbrances for the purpose of interfering with Hom‘s ability to collect rent and evict Pure Entertainment. The cross-complaint further alleged Petrou and Utter did not qualify as lenders as contemplated in the lease and their loans were a sham. The cross-complaint asserted claims against Petrou and Utter for intentional and negligent interference with contract, conspiracy, and a declaration of Hom‘s rights and obligations under the lease.
Hom and Pure Entertainment ultimately executed a settlement agreement that required Hom to dismiss the entire cross-complaint with prejudice. Thе trial court enforced the settlement by dismissing the cross-complaint with prejudice.
Petrou and Utter then moved for attorney‘s fees based on the lease‘s attorney‘s fees provision. The trial court granted their motion and awarded them approximately $150,000 in fees.
DISCUSSION
I. Legal principles and standard of review
“A party may not recover attorney fees unless expressly authorized by statute or contract. [Citations.] In the absence of a statute authorizing the recovery of attorney fees, the parties may agree on whether and how to allocate attorney fees. [Citation.] They may agree the prevailing party will be awarded all the attornеy fees incurred in any litigation between them, limit the recovery of fees only to claims arising from certain transactions or events, or award them only on certain types of claims. The parties may agree to award attorney fees on claims sounding in both contract and tort.” (Brown Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809, 818 (Brown Bark).)
When a
Because
To interpret the scope and meaning of a contractual fees provision, “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. [Citation.] Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] 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” [citation], controls judicial interpretation. [Citation.] Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning.‘” (Santisas, supra, 17 Cal.4th at p. 608.)
II. Analysis
The trial court ruled that all of Hom‘s claims against Petrou and Utter were “on the contract” and that Petrou and Utter prevailed on those claims. But the parties now agree that only Hom‘s declaratory relief claim was on the contract, so
Although Hom did not cite the specific subdivision, he did adequately raise the application of
This inquiry would normally entail examining the fees provision to see (1) if it covers non-contract claims, (2) whether Petrou and Utter may claim the benefit of it, and (3) whether Petrou and Utter are prevailing parties within its meaning. (Brown Bark, supra, 219 Cal.App.4th at pp. 827-828; Santisas, supra, 17 Cal.4th at pp. 608-609.) But we may omit the first and third of these steps because Hom does not dispute that the fees provision is broad enough to apply to his tort claims, nor does he dispute that Utter and Petrou prevailed on those claims within the meaning of the fees provision. Instead, hе contends they cannot claim the benefit of the fees provision. Hom argues primarily that nonsignatories to a contract can never collect fees relating to tort claims, except in the rare circumstance that the contract expressly identifies them as entitled to do so. For this argument, Hom relies on Topanga and Victory Partners v. Toghia (2002) 103 Cal.App.4th 775, 783-787 (Topanga); Sweat v. Hollister (1995) 37 Cal.App.4th 603, 615-616 (Sweat), disapproved of on other grounds by Santisas, supra, 17 Cal.4th at p. 609, fn. 5; Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 549-550 (Super 7); and Brown Bark, supra, 219 Cal.App.4th 809. We therefore examine each of these cases in turn to determine whether they establish a per se rule barring nonsignatories from collecting attorney‘s fees on tort claims under a contractual fees provision.
Topanga
In Topanga, supra, 103 Cal.App.4th at p. 778, a landlord sued a tenant corporation and a shareholder/officer of the corporation as its alter ego for breach of contract and tort claims. After the landlord settled the case with the corporation and voluntarily dismissed the shareholder with prejudice, the shareholder moved to collect his attorney‘s fees related to the landlord‘s tort claims based on the contract‘s attorney‘s fees provision. (Ibid.) The provision allowed the prevailing party to collect attorney‘s fees “‘[i]f either Landlord . . . or Tenant . . . commences or engages in any action or litigation or arbitration against the other party arising out of or in connection with thе Lease, the Premises or the Building or the Property.‘” (Id. at pp. 778-779.) The provision further specified, “‘If Landlord becomes involved in any litigation or dispute, threatened or actual, by or against anyone not a party to the Lease, but arising by reason of or related to any act or omission of Tenant or Tenant‘s Employees, Tenant agrees to pay Landlord‘s reasonable attorneys’ fees and other costs incurred in connection with the litigation or dispute.‘” (Id. at p. 779.) The Court of Appeal held that because
Unlike Hom, we do not read Topanga as establishing a blanket rule that a nonsignatory is barred in every instance from recovering attorney‘s fees on tort claims pursuant to a contractual fees provision. The court‘s conclusion that the shareholder could not collect fees because he was not a party to the contract is not surprising, given that the contract‘s attorney‘s fees provision was limited to the expressly named landlord and tenant. The shareholder relied primarily on
Super 7 and Sweat
In Super 7, supra, 16 Cal.App.4th at page 544, a buyer of real estate sued the seller and the seller‘s broker for fraud and rescission of the sale. The purchase agreement included a fees provision that read, “‘In any action or proceeding arising out of this agreement, the prevailing party shall be entitled to reasonable attorney‘s fees and costs.‘” (Ibid.) The document included a separate section titled “Acceptance,” which the seller had signed to indicate his acceptance and which stated that the seller would pay the broker a commission. (Ibid.) The broker signed on another line in the “Acceptance” sectiоn. (Ibid.) The “Acceptance” section included its own fees provision, stating that the prevailing party could recover attorney‘s fees in any action between the broker and seller arising out the agreement. (Ibid.)
The Court of Appeal held that the broker could not collect his attorney‘s fees from the buyer under the purchase agreement. (Super 7, supra, 16 Cal.App.4th at p. 544.) The court reasoned that the broker was not a party to the purchase contract because, even though the contract referred to him in one clause, the broker had no contractual obligations or interest in the sale of the property. (Id. at p. 545.) The сourt rejected the broker‘s argument that he was a party based on his signature in the “Acceptance” section. (Id. at p. 546.) The court found that the “Acceptance” section containing the broker‘s commission agreement was a separate agreement from the buy-sell agreement, and that the broker was a stranger to the latter agreement. (Ibid.) The buyer‘s suit did not arise from the broker‘s commission agreement. (Ibid.) Applying the rules for interpreting contracts, the court further reasoned that allowing the broker to collect fees under the buy-sell agreement would render the separate fees provision in the broker‘s commission agreement redundant and unnecessary. (Ibid.)
Super 7 also rejected the broker‘s theory that he was a third party beneficiary of the buy-sell agreement, for two reasons. (Super 7, supra, 16 Cal.App.4th at pp. 546-547.) First, the court found the broker cited no authority allowing a third party beneficiary to do anything other than collect the benefits due under the contract. (Id. at p. 546.) The court further noted that “the basic premise underlying attorney fee clauses, i.e., a party is not
The third case Hom cites, Sweat, supra, 37 Cal.App.4th at pages 605-606, involved essentially the same fact pattern as Super 7: A buyer of property sued the sellers and the sellers’ brokers for misrepresentation and nondisclosure. The purchase agreement‘s fees provision was similar, if not identical, to the one at issue in Super 7, and the facts were no different. (Id. at pp. 615-616.) Sweat followed Super 7 and held that the brokers could not collect fees based on the purchase agreement because they were not parties to that contract. (Id. at p. 616.)
Super 7 and Sweat do not establish a blanket rule against allowing nonsignatories to collect fees any more than does Topanga. To the contrary, those decisions’ focus on the specific language in the contracts at issue demonstrates that the relevant question is simply whether the language of the attorney‘s fees provision covers nonsignatories. The purchase agreements at issue in Super 7 and Sweat did not, because the brokers were not parties to the agreements and could not be considered third party beneficiaries in light of the side agreements providing for the broker‘s commissions.
Super 7‘s remarks about the incompatibility of a third party beneficiary theory and an attorney‘s fees provision appear to be dicta, since the court concluded that the purchase agreement did not confer third party beneficiary status on the broker in that case. (Super 7, supra, 16 Cal.App.4th at p. 546.) But even if those remarks were not dicta, we find them unpersuasive. The court found no authority indicating that a third party beneficiary “has any right other than to collect the benefits the contracting parties agreеd to confer on him.” (Ibid.) This begs the question, however, because the issue at hand is whether one of the benefits the contracting parties agreed to confer on a third party beneficiary is the right to recover attorney‘s fees in litigation arising from the contract. Super 7‘s remark about it being inconsistent to allow a third party beneficiary to collect attorney‘s fees under a contract which the beneficiary did not negotiate or to which the beneficiary did not consent (ibid.) is puzzling, because, by definition, a third party beneficiary is not a party to the agreement whose benefits the beneficiary seeks to enforce. Mоreover, attorney‘s fees provisions need not be reciprocal with regard to
Brown Bark
Hom claims, based on a remark in Brown Bark, that the only exception to the blanket rule prohibiting nonsignatories from collecting attorney‘s fees is when the fees provision “expressly identifies that party as a party entitled to its benefits.” (Brown Bark, supra, 219 Cal.App.4th at p. 828.) Although Brown Bark dealt with a claim for fеes by a successor in interest to a contracting party, the passage Hom quotes was not referring to nonsignatories or third parties. The court there was merely describing the principle that
The language of the attorney‘s fees provision in the lease
The absence of a blanket rule regarding fees for nonsignatories in these authorities should not be surprising. Santisas makes clear that the scope of a contractual right to attorney‘s fees on non-contract claims is a question of contractual intent. (17 Cal.4th at p. 617 [for non-contract claims not covered by
The parties have not pointed to any extrinsic evidence оn the question, so our analysis focuses solely on with the language of the lease, which we interpret as a question of law. (Khan v. Shim, supra, 7 Cal.App.5th at p. 55.) Because Petrou and Utter seek the benefits of the lease even though they did not sign it, we begin with the law concerning third party beneficiaries.2 A nonsignatory is entitled to bring an action to enforce a contract as a third party beneficiary if the nonsignatory establishes that it was likely to benefit from the contract, that a motivating purpose of the contracting parties was to provide a benefit to the third party, and that permitting the third party to enforce the contract against a cоntracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 821.)
There can be little doubt that Petrou and Utter qualify as third party beneficiaries of the lease as a whole. They were lenders to Pure Entertainment with encumbrances on its leasehold, and two of the lease‘s nine pages specify the rights such lenders would have with respect to the lease. Those rights include the right to receive copies of notices due to Pure Entertainment; prevent the parties to the lease from modifying the lease without the lenders’ consent; do anything required of Pure Entertainment under the lease; foreclose on the leasehold; cure any breach of the lease by Pure Entertainment; and enter into a new lease at the lenders’ option following any default by Pure Entertainment. Given the detail with which the lease specified the lenders’ rights, one of the contracting parties’ motivating purposes was evidently to allow Pure Entertainment to use its leasehold as collateral for loans from future lenders such as Petrou and Utter, and to permit Petrou and Utter to protect the value of their encumbrance on the leasehold. Permitting Petrou and Utter to оbtain benefits under the lease is therefore consistent with the parties’ expectations.
The “any dispute” phrase is also more expansive than other phrases that courts have held extend only to contracting parties, such as “‘[i]n the event it becomes necessary for either party to enforce the provisions of this Agreement‘” (Sessions, supra, 84 Cal.App.4th at p. 681) or in “‘any litigation between the parties hereto to enforce any provision of this Agreement‘” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 896, italiсs removed). For the same reason, it is distinguishable from the fees provision at issue in in the lease in Topanga, supra, 103 Cal.App.4th at pp. 778-779, which specifically named the landlord and tenant as the parties entitled to collect attorney‘s fees. In comparison with these decisions, the fees provision‘s expansive language is broad enough to encompass claims by third party beneficiaries like Petrou and Utter.3
The parties spar over the proper interpretation of the fees provision‘s clause allowing fees for any dispute if “the parties cannot settle it between themselves.” Hom maintains that this reference to “parties” indicates that the provision was intended to apply solely to the contracting parties. Petrou and Utter counter that the clause relates to the “any dispute” phrase, since the “it” in the
Hom notes that the lease elsewhere uses “party” or “parties” to refer to the landlord and Pure Entertainment, and he cites the rule that a word used multiple times in a contract is generally given the same meaning, unless the contract indicates otherwise. (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 475.) We conclude the lease here does indicate otherwise. “Landlord” and “Tenant” are both specifically defined terms in the lease, while “parties” is not. This shows the term was intended to be context-dependent, rather than have a fixed and unchanging meaning. A comparison of the various uses of “parties” in the lease confirms this and demonstrates why the term in the fees provision is more reasonably read to include lenders.
In one paragraph, the lease defines the acts that will constitute a default and breach of the lease to include the making “by either party” of a general assignment for the benefit of creditors, the filing “by either party” of a petition for bankruptcy or reorganization, or the assignment of a receiver to take possession of substantially all of the assets of “either party.” The use of “either” denotes one of two things and refers to the original parties to the lease. Reаding “party” in this clause to include lenders would also be unreasonable because it would make the tenant‘s default under the Lease contingent on actions by its lenders, who are beyond the tenant‘s control.
In another paragraph, the lease states that the “parties” agreed the tenant would prepay a fixed amount for the last month‘s rent due under the lease. Similarly, earlier in same paragraph containing the attorney‘s fees provision, the lease contains an integration clause stating that the lease “encompasses the entire understanding of the parties with respect to the subject matter covered herein.” Because there were no Lenders with rights under the Lease when the Lease was first executed and the tenant had to prepay the last month‘s rent, “parties” in these two instances naturally refers only to the Landlord and Tenant.
The fees provision is different. As described above, the lease confers extensive rights on lenders. Because the lease goes into such detail regarding lenders’ rights, it was reasonably foreseeable that disputes involving lenders would arise over those rights. It is natural, then, to conclude that the landlord and tenant intended to give lenders the same rights to attorney‘s fees as the
In sum, we conclude Petrou and Utter are entitled to collect their attorney‘s fees related to Hom‘s non-contract claims as third party beneficiariеs to the lease and its broad attorney‘s fees provision. Because Hom does not seek apportionment of the fees award, this means Petrou and Utter are also entitled to their fees related to Hom‘s declaratory relief claim.
DISPOSITION
The trial court‘s order is affirmed. Petrou and Utter are entitled to their attorney‘s fees and costs on appeal. “““Although this court has the power to fix attorney fees on appeal, the better practice is to have the trial court determine such fees.““” (SASCO v. Rosendin Electric, Inc. (2012) 207 Cal.App.4th 837, 849.) We therefore remand for the trial court to determine the total amount of fees to which Petrou and Utter are entitled.
BROWN, J.
WE CONCUR:
STREETER, ACTING P. J.
TUCHER, J.
Hom v. Petrou et al. (A161770)
Trial Court: San Mateo County Superior Court
Trial Judge: Hon. Harold Khan
Counsel:
Law Office of Jocelyn Sperling, Jocelyn Sperling; Rencher Law Group, D.L. Rencher for Cross-complainant and Appellant.
Kilpatrick Townsend & Stockton, James A. Smith for Cross-defendants and Respondents.