WATERWOOD ENTERPRISES, LLC, Plaintiff and Appellant, v. CITY OF LONG BEACH, Defendant and Respondent.
B296830
In the Court of Appeal of the State of California, Second Appellate District, Division One
December 18, 2020
CERTIFIED FOR PUBLICATION
Filed 12/18/20
(Los Angeles County Super. Ct. No. NC060787)
APPEAL from an amended judgment of the Superior Court of Los Angeles County, Patrick T. Madden, Judge. Affirmed in part, reversed in part, and remanded with directions.
Stuart Kane, Donald J. Hamman and Eve A. Brackmann for Plaintiff and Appellant.
Amaro Baldwin, Michael L. Amaro and Sanaz Cherazaie for Defendant and
This appeal follows a 10-day trial, a $45,050 damage award in plaintiff‘s favor on a single cause of action, and the parties’ combined attorney fees of more than $500,000. The issue before us is whether the trial court erred in finding that defendant was the prevailing party pursuant to a contractual attorney fee provision.
We conclude the trial court abused its discretion in finding that defendant—who lost the only cause of action in the case—was the prevailing party. We reject both parties’ arguments based on the definition of prevailing party in the attorney fees provision in their contract. Any such definition would not trump the definition of prevailing party in
Finally, we reject defendant‘s argument that it prevailed because it admitted it owed plaintiff a portion of the contractual damages plaintiff was
On remand, the trial court‘s discretion is limited to finding either (1) plaintiff was the prevailing party; or (2) there was no prevailing party. We reverse the amended judgment only insofar as it orders plaintiff to pay defendant‘s attorney fees.
BACKGROUND
The City of Long Beach (the City) sold property to Waterwood Enterprises, LLC (Waterwood) in 2005, then leased it back for a 10-year term beginning on October 14, 2005. The City used the property as a police evidence storage facility. The lease terminated on October 31, 2015.
1. The Lease Terms
The lease provides: “Tenant [the City] at its sole cost and expense, shall maintain the Demised Premises and each part thereof, structural and nonstructural, in good order and condition, and . . . shall make any necessary Repairs thereto, interior and exterior, whether extraordinary, foreseen or unforeseen. When used in this Article VII, the term ‘Repairs’ shall mean all Alterations necessary for Tenant to properly maintain the Demised Premises in at least the same order and condition as of the date hereof, normal wear and tear excepted.” (Boldface & underscoring omitted.) The lease defines “Demised Premises” as the land and its improvements.
Article XXXV of the lease contains the following attorney fee provision: “If any legal action should be commenced in any court regarding any dispute arising between the parties hereto . . . concerning any provision of this Lease or the rights and duties of any person in relation thereto, then the prevailing party therein shall be entitled to collect its reasonable expenses, attorney fees and court costs, including the same on appeal. As used herein, the term ‘prevailing party’ means the party who, in light of the claims, causes of action, and defenses asserted, is afforded greater relief.”
On August 29, 2016, Waterwood filed its complaint against the City alleging a single cause of action for breach of a written contract. Waterwood averred that when the City left the premises, the roof had multiple leaks. “The leaks were so bad that, in the rain storm within two months of the surrender of the Premises, ceiling tiles became waterlogged and collapsed, carpet and the underlying padding were damaged, and a new tenant was unable to fully use the Premises.” Waterwood alleged that the City “has acknowledged that it should have paid for repairs to the roof, but failed to do so.”2
Waterwood further alleged that when the City left the premises, “the air conditioner was inoperable and the HVAC system had not been properly maintained or repaired. The air conditioner was operating and effective when the Lease was entered, and its failure was not the result of reasonable wear and tear.” Waterwood also alleged when the City left the premises, that “the block wall at the southeast co[rn]er of the Premises was damaged as if hit by a truck, such that concrete blocks were cracked, fence supports were tilted, and fencing was leaning.” Waterwood further averred that when the City left the premises, “grass was growing in, and causing deterioration of, asphalt at the Premises, and there were [sic] severe indentations occurred in the asphalt.” When the City left the premises, “concrete on the Premises had been broken, cracked, and subsided or shifted such that water ponds [sic] and may cause deterioration of the base under the concrete, and has allowed grass to grow in the concrete areas.” Waterwood reiterated that the foregoing conditions were not mere reasonable wear and tear.
Waterwood alleged it was informed and believed the amounts due under the lease totaled at least $150,000. Waterwood also requested its reasonable attorney fees.
3. The City‘s Answer
The City answered on October 4, 2016. The City entered a general denial, denying that “the Plaintiff sustained damages in the sum or sums alleged, or in any other sum or sums, or at all.” Although the City raised 18 affirmative defenses, it did not allege or acknowledge in those defenses any debt owed to plaintiff or that it had tendered any such debt to plaintiff.
The record on appeal does not include a reporter‘s transcript. We thus rely on the description of the trial in the trial court‘s statement of decision following the posttrial motions for attorney fees: “At trial, there was considerable testimony as to various items plaintiff contended that defendant had a duty to repair before the lease expired and that because defendant failed to repair the items, plaintiff argued it was entitled to recover as damages the cost to repair the items. The significant contested items were plaintiff‘s contention that: (a) defendant was required to remove and replace an entire roof on one of the buildings; (b) defendant was required to replace two air conditioners; and (c) defendant was required to tear up and replace all of the existing asphalt parking lot on the property and nearby concrete pads.” The City contended “that the roof did not require replacement, because any deterioration was due to reasonable wear and tear. As to the two air conditioners, defendant argued that neither air conditioner required replacement. As to the condition of the asphalt, defendant admitted that plaintiff was entitled to recover some of its claimed damages to repair the asphalt, because some of the asphalt had deteriorated based on use that was beyond any reasonable wear and tear.” The City argued it “was not liable for the replacement cost of the entire parking lot or the concrete pads.”
5. Jury Instructions
The record also contains the trial court‘s jury instructions, which demonstrate that the trial court instructed the jury: “Waterwood Enterprises LLC claims that it and The City of Long Beach entered into a written contract for the 10-year lease of the subject commercial property. Waterwood Enterprises LLC claims that The City of Long Beach breached this contract by not surrendering the premises at the end of the lease broom clean and in the same order and condition as of the premises was in [sic] on the date the lease began subject to reasonable wear and tear; by not performing repairs and maintenance during the ten-year tenancy, and by not repairing certain damage to the property that occurred during the term of the lease.
“Waterwood Enterprises LLC also claims that The City of Long Beach‘s breach of this contract caused damages to Waterwood Enterprises LLC for which the City of Long Beach should pay.”
The trial court further instructed the jury: “The City of Long Beach denies that it breached the lease agreement, and contends that it completed the repairs required under the lease agreement, except for items caused by reasonable/normal wear and tear.” (Italics added.)
Regarding damages, the trial court told the jury that it could award Waterwood damages only if Waterwood proved all of the following:
-
That Waterwood Enterprises LLC and The City of Long Beach entered into a contract; - That Waterwood Enterprises LLC did all, or substantially all, of the significant things that the contract required it to do;
- That The City of Long Beach failed to do something that the contract required it to do;
- That Waterwood Enterprises LLC was harmed; and
- That The City of Long Beach‘s breach of contract was a substantial factor in causing Waterwood Enterprises LLC‘s harm.
6. Judgment
The jury found in favor of Waterwood on the only cause of action before it. The jury found the City had breached the contract (the lease) and awarded Waterwood $45,050 in contractual damages. In a special verdict, jurors answered the following two questions affirmatively: (1) “Did Defendant, City of Long Beach, breach the written lease contract?“; and (2) “Was the breach of the written lease contract a substantial factor in causing Plaintiff‘s damages?” In its special verdict, the jury did not identify the kind of repairs for which it was awarding damages, but merely entered a lump sum.
7. Waterwood‘s Attorney Fees Motion
In a posttrial motion for attorney fees, Waterwood sought $307,068.50 in fees plus an additional $15,000 for bringing its attorney fee motion. Waterwood also sought approximately $12,000 in costs. Waterwood argued that it was the prevailing party under the contract and was entitled to its reasonable attorney fees and further argued that all its fees were reasonable.
8. The City‘s Attorney Fees Motion
The City filed a competing motion for attorney fees, arguing that it, not Waterwood, was the prevailing party. According to the City: “Although this was a breach of contract case, the history of the events which brought about the filing of this action are paramount in determining who the ‘prevailing party’ is, for purposes of attorney‘s fees under Section 1717, as the ‘crux’ of this case was about damages. The City admitted from the beginning that it should have paid for some repairs to the roof necessary to put it into working condition, as well as a few other items. However, it staunchly disputed Plaintiff‘s claim that the City should tear off and replace the entire roof, and
The City argued it achieved its main litigation objective “to pay Plaintiff for some, but not all, of the claimed repairs.” The City stated that it incurred $172,375 in attorney fees, $17,673.50 in costs, and $39,483.50 in expert fees, for a total of $229,532.
9. Postjudgment Attorney Fee Award
The trial court awarded Waterwood costs in the amount of $19,905.04. The trial court found that Waterwood was the prevailing party for purposes of a costs award under
In its statement of decision, the trial court explained its reasoning for awarding attorney fees to the City: Waterwood‘s complaint “asserted a single cause of action for breach of contract.” “The sole defendant was the City.” “After the lease expired, the parties engaged in discussions regarding the condition of the property both before commencement of the lease and at the end of the lease. Waterwood claimed that during the lease, the City damaged the Property and sought compensation from the City for the claimed damage. On the other hand, the City argued that most of the claimed damage by Waterwood was caused by normal wear and tear and, on that basis, the City was not responsible for most of the damage claimed by Waterwood.” Each party made various settlement offers, including Waterwood‘s
Citing Hsu v. Abbara (1995) 9 Cal.4th 863, 876 (Hsu), the trial court reasoned that to determine the prevailing party, it had to consider the parties’ demands as disclosed by their pleadings, trial briefs, and opening statements. The trial court did not discuss the parties’ pleadings, trial briefs, or opening statements, but instead recounted the parties’ settlement offers in determining that the City‘s settlement offer was closer to the jury‘s award than was Waterwood‘s settlement offer. “The jury‘s verdict was $5,050 greater than the City‘s statutory [
Based upon the settlement offers, the trial court concluded that “the City clearly succeeded on its claims and Waterwood did not. The jury did not require the City to pay Waterwood the cost of a new roof, the cost of new air conditioners or the cost to remove and replace the entire parking area, plus the concrete pads. Instead, the jury required the City to pay the cost to repair a portion of the parking lot, which was exactly the relief the City acknowledged to the jury that it should pay to Waterwood.”
The trial court did not explain its rationale for concluding the jury‘s damage award was based on the cost to repair a portion of the parking lot. The award itself included only a lump sum and did not distinguish among the various items that Waterwood argued needed repair or replacement. The trial court concluded: “Simply stated, the jury‘s verdict was very good news to the City and terrible new[s] for Waterwood. Based on the litigation objectives of the parties, defendant is clearly the prevailing party.”
10. Amended Judgment
The amended judgment provides: (1) The City shall pay Waterwood damages of $45,050 with interest amounting to $1,987.06; (2) the City shall pay Waterwood costs of $19,905.04; and (3) Waterwood shall pay the City attorney fees in the amount of $172,375. Thus, under the amended judgment, Waterwood owed the City a total of $105,432.90.
DISCUSSION
A. Section 1717 Governs the Determination of the Prevailing Party
On the other hand, if a party achieves a “‘simple, unqualified win‘” on the only contract claim between the parties, then the trial court has no discretion to find no party prevailed. (Hsu, supra, 9 Cal.4th at p. 876 [trial court erred in finding no prevailing party when defendant won the only contract claim in the case].) Thus, “a plaintiff who obtains all relief requested on the only contract claim in the action must be regarded as the party prevailing on the contract for purposes of attorney fees under section 1717.” (Ibid.) The case before us is not such a case because Waterwood did not recover all its damages on its contract claim against the City and thus did not achieve an unqualified win.
Both sides argue that Article XXXV of the lease commands a finding that it was the prevailing party. Article XXXV defines prevailing party as “the party who, in light of the claims, causes of action, and defenses asserted, is afforded greater relief.” Waterwood argues that unlike
The City, on the other hand, argues that Waterwood has failed to satisfy its burden of demonstrating the trial court erred in interpreting the lease. The City argues the trial court‘s statement of decision was supported by substantial evidence and that the trial court properly applied the lease‘s definition of prevailing party to determine that the City prevailed.
Both parties’ arguments miss the mark. To the extent arguendo Article XXXV‘s definition of prevailing party conflicts with that in
We also reject the City‘s argument that the trial court “specifically analyzed the contractual terms defining a prevailing party“; the trial court‘s statement of decision is devoid of any analysis of the definition of prevailing party in Article XXXV. (Boldface, underscoring, & capitalization omitted.)
B. Standard of Review
Under
” ’ “The scope of discretion always resides in the particular law being applied, i.e., in the ‘legal principles governing the subject of [the] action . . . .’ Action that transgresses the confines of the applicable principles of law is outside the scope of discretion and we call such action an ‘abuse’ of discretion.” ’ ” (Hypertouch, Inc. v. Superior Court (2005) 128 Cal.App.4th 1527, 1537.)
C. The Trial Court Abused Its Discretion in Finding the City Was the Prevailing Party
1. The trial court relied on wholly unsupported facts
As just noted above, a trial court abuses its discretion when it relies on facts wholly unsupported by the record. (In re Marriage of Pasco, supra, 42
The record also does not support the trial court‘s finding that “the jury required the City to pay the cost to repair a portion of the parking lot . . . .” The special verdict form did not itemize by location the damages Waterwood was claiming. Instead, it provided a single line on which the jury was to place a damage award if it found the City had breached the lease. Although it is possible the jury awarded damages based on repairing the parking lot, the jury could have instead awarded damages based on repairing the roof, which the City admitted before trial and on appeal it should have fixed,3 or on a combination of items. The
special verdict does not elucidate the basis for the damage award and does not support the finding that the award was based solely on the cost of repairing the parking lot.
2. The trial court relied on improper legal criteria
The trial court also abused its discretion in relying on improper legal criteria—specifically the parties’ settlement offers—to conclude that the City was the prevailing party. The trial court concluded that “[b]ased on the parties’ respective [
In determining the prevailing party under
We are cognizant that certain circumstances may permit an attorney fee award under
3. The trial court did not consider the controlling legal standard
A trial court abuses its discretion when it applies the wrong legal standard. (Miyamoto v. Department of Motor Vehicles (2009) 176 Cal.App.4th 1210, 1219.) Even if the City admitted that it owed Waterwood money to repair the parking lot, and assuming arguendo the jury based its damage award on repairing the parking lot, the trial court abused its discretion in relying on that purported admission to conclude the City was a prevailing party. To achieve prevailing party status under this theory,
As the legislative history reveals,
In Joseph Magnin Co. v. Schmidt (1978) 89 Cal.App.3d. Supp. 7 (Schmidt), the court applied
In Schmidt, the plaintiff was a prevailing party because the defendant did not timely tender the amount it owed the plaintiff. Here, the City never tendered any debt owed Waterwood relating to the lease. The trial court overlooked the import of
4. Under the correct legal standard, the City was not a prevailing party
Although the City argues that “from the very beginning [it] admitted breach, as it had not completed all the repairs,” an “admitted breach” is not the same as a tender. (Underscoring omitted.) “A tender is an offer of performance made with the intent to extinguish the obligation.” (Still v. Plaza Marina Commercial Corp. (1971) 21 Cal.App.3d 378, 385; see also Crossroads Investors, L.P. v. Federal National Mortgage Assn. (2017) 13 Cal.App.5th 757, 783.) When properly made, a tender puts the other party in default if he or she refuses to accept it. (Still, supra, at p. 385.)
Applying
Here, there was only one contract claim, and Waterwood was the only party that obtained relief. The jury found against the City on the sole cause of action for breach of contract and rejected all its affirmative defenses. The City failed to tender any admitted cost of repair to Waterwood at any time before or during the trial of this case. Thus the record does not reveal any circumstance under which the City could be the prevailing party under
The City counters with de la Cuesta v. Benham (2011) 193 Cal.App.4th 1287 (de la Cuesta), but to no avail. There, the plaintiff-landlord filed an unlawful detainer complaint seeking unpaid rent and other damages. (Id. at pp. 1290-1291.) The defendant-tenant answered alleging she owed nothing and that the landlord had breached the warranty of habitability. (Id. at p. 1291.) After the tenant vacated the premises, the court converted the case from an unlawful detainer to an ordinary civil action. (Id. at p. 1291.) Ultimately the landlord recovered approximately 70 percent of the monetary damages he had requested. (Ibid.) The trial court denied the landlord‘s motion for attorney fees and found neither party prevailed because the landlord recovered possession before the civil action commenced and recovered only a portion of its damages. (Ibid.)
Applying
We fail to discern how this case supports the trial court‘s finding that the City was the prevailing party here.
D. Instructions on Remand
Upon remand the trial court shall determine whether Waterwood was the prevailing party or whether there was no prevailing party. As discussed earlier, when “deciding whether there is a ‘party prevailing on the contract,’ the trial court is to compare the relief awarded on the contract claim or claims with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.” (Hsu, supra, 9 Cal.4th at p. 876; de la Cuesta, supra, 193 Cal.App. 4th at p. 1296.) The trial court may not consider the parties’ settlement discussions. (Marina Pacifica, supra, 20 Cal.App.5th at p. 204.)
If the trial court concludes that Waterwood is the prevailing party, it shall calculate the amount of reasonable fees the City owes Waterwood under Article XXXV. If the trial court finds there was no prevailing party, neither party is entitled to its attorney fees.
DISPOSITION
The amended judgment is reversed in so far as it requires Waterwood Enterprises, LLC to pay the City of Long Beach‘s attorney fees. In all other respects the amended judgment is affirmed. The case is remanded to the trial court for further proceedings consistent with this opinion. Waterwood Enterprises, LLC is entitled to its costs on appeal.
CERTIFIED FOR PUBLICATION.
BENDIX, J.
We concur:
ROTHSCHILD, P. J.
FEDERMAN, J.*
* Judge of the San Luis Obispo County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.