Opinion
Zintеl Holdings, LLC (Zintel), sued Lilo McLean and her son, Mark Huth, to invalidate or equitably reform their allegedly fraudulent
FACTUAL AND PROCEDURAL BACKGROUND
1. McLean and Huth’s Lease Agreement with Zintel
McLean and Huth have lived in units G and H of an eight-unit apartment building at 325 North Palm Drive in Beverly Hills for more than 50 years. There is a doorway through a closet that connects the two units.
McLean and Huth have never paid more than a total of $200 per month for both units under local rent control ordinances. Robert Jonker-Fisher, who lived in New York, became the sole owner of the property in 1997. McLean served as building manager and signed leases on behalf of Fisher, who never traveled to Beverly Hills to visit the property.
The lease at issue in the litigation provided for the rental of units G and H for $200 per month from May 2007 to May 2012. McLean maintained she told Fisher about the lease and he responded, “Okay.” McLean then signed as both landlord and tenant; Huth also signed as tenant. The lease agreement includes an attorney fee provision stating in part, “In the evеnt action is brought by any party to enforce any term of this agreement or to recover possession of the premises, the prevailing party shall recover from the other party reasonable attorney fees.” Fisher terminated McLean as building manager in July 2007, but she remained a tenant, and her rent was accepted without incident.
Fisher died in August 2008. In 2010, following extended probate proceedings, Fisher’s widow took ownership of the property as the sole member of Zintel. Before that occurred, however, Zintel had instructed the new building manager to acceрt McLean’s monthly rental payments. McLean’s rent checks were consistently cashed through 2010.
From January 2009 to July 2010 Zintel served McLean with 16 inspection notices for her apartment. Additionally, the building manager and the property’s management company sent McLean letters requesting she switch parking
2. Zintel’s Complaint and McLean’s Cross-complaint
On July 23, 2010 Zintel sued McLean and Huth seeking declaratory relief and equitable reformation of the lease agreement. The complaint alleged the fair market monthly rental value of the units was approximately $2,500. As the basis for relief, Zintel alleged the lease violated the statute of frauds, was executed without Fisher’s authorization and had been fraudulently backdated so it would appear to have been signed while McLean was still managing the property. Zintel also alleged McLean had no authority to combine units G and H. The complaint requested a declаration of the parties’ respective rights under the lease and reformation of the lease, if not found to be void, to reflect a fair and equitable rental rate.
McLean cross-complained two months later, alleging causes of action for breach of the covenant of quiet enjoyment, elder abuse and intentional and negligent infliction of emotional distress. The cross-complaint alleged the inspections and 60-day notices constituted harassment and represented Zintel’s attempts to force McLean to move out. McLean sought mоnetary damages on all causes of action.
3. The Trial Court’s Orders Granting Summary Judgment in Favor of McLean and Huth on the Complaint and Zintel on the Cross-complaint
On February 17, 2011 McLean and Huth moved for summary judgment on Zintel’s complaint. Citing Zintel’s admission it had accepted $200 per month for the two units pursuant to the lease agreement for three years, McLean and Huth argued Zintel was estopped from asserting the lease agreement was void.
The following week Zintel moved for summary judgment on McLean’s cross-complaint. Zintel argued the notices it had sent were either minor inconveniences or had been withdrawn before any action was necessary and, therefore, not a basis for liability under any of the theories alleged. Zintel further contended any communications to McLean requesting she change parking spaces did not rise to a level of actionable harassment; in addition, the matter was subsequently abandoned.
After the filing of opposition and reply memoranda, the parties stipulated to adopt the court’s tentative ruling in its entirety granting both McLean and
With respect to McLean and Huth’s motion, the court ruled, even if the lease violated the statute of frauds, the doctrines of equitable estoppel and part performance precluded a finding it was void because Zintel had known of the lease and accepted rent for both units from 2007 to 2010. The court also concluded invalidating the lease would lead to an unconscionable result for McLean and Huth while only marginally benefitting Zintel since there was only one year remaining on the lease term.
With respect to the cross-complaint, the court ruled there was no evidence of constructive or actual eviction to support a cause of action for breach of the implied covenant of quiet enjoyment. The court further concluded there was no evidence McLean had been denied a property right qualifying as elder abuse or subjected to outrageous behavior constituting intentional infliction of emotional distress because Zintel’s actions were within its statutory and contractual rights as a landlord. The cоurt also found no evidence of a breach of duty to support a claim for negligent infliction of emotional distress.
4. The Trial Court’s Orders and Judgment Awarding McLean and Huth Costs as Prevailing Parties but Denying Their Motion for Attorney Fees
After filing the stipulation to adopt the court’s tentative rulings on the summary judgment motions, counsel for McLean and Huth submitted a proposed judgment that included provisions for an award to them of costs and recovery of their reasonable attorney fees. Zintel objected to these two portions of the proposed judgment, noting it was the prevailing party on the cross-complaint. Accordingly, Zintel argued McLean and Huth were entitled only to an award of costs under section 1032 with respect to the complaint; Zintel was entitled to costs relating to the cross-complaint. Zintel provided authority for the court’s discretion to apportion costs between the parties. As to attorney fees, Zintel argued McLean and Huth were required to file a formal motion before any recovery of fees was permissible.
The court prepared and filed its own form of judgment in favor of McLean and Huth and against Zintel on thе complaint and in favor of Zintel and against McLean on the cross-complaint. In its judgment, filed May 23, 2011, the court provided McLean and Huth were to recover costs in an amount to be determined following the filing of a memorandum of costs pursuant to California Rules of Court, rule 3.1700. The court explained, “When relief is denied on both plaintiff’s complaint and defendant’s cross-complaint, defendant is deemed the prevailing party pursuant to CCP section 1032(a)(4).” With
McLean and Huth moved to vacate the May 23, 2011 judgment, contending it was entitled to have the issue of attorney fees under section 1717 resolved following a noticed motion and hearing. Shortly thereafter McLean and Huth moved for an award of attorney fees, arguing McLean was a prevailing party even though her cross-complaint had been unsuccessful because she achieved her main litigation objective—remaining in the apartment pursuant to the сhallenged lease—and Huth, who was not a party to the cross-complaint, had been fully successful in the lawsuit as it related to him. They asserted a total of $79,585 in fees had been incurred on behalf of both McLean and Huth (that is, in defending against the complaint and prosecuting the cross-complaint) with either $64,789.80 (based on the proportion of fees) or $70,965 (based on itemization of billing entries) incurred in the defense against Zintel’s complaint.
In its opposition to the attorney fee motion Zintel argued the trial court had discretion to find McLean was not a prevailing party bеcause she did not achieve a complete victory and the outcome was a draw. Zintel also argued Huth’s rights under the lease were derivative of his mother’s and, given their close relationship, the court properly found he was not a prevailing party. Additionally, Zintel contended if Huth was a prevailing party, the amount of fees requested—the full amount attributable to defending against the complaint—was arbitrary and unreasonable.
The trial court granted the motion to vacate entry of judgment to the extent the judgment had determined the parties’ rights to attorney fees pursuant to section 1717 and denied the motion for attorney fees. As to McLean, the court found she was not a prevailing party because she did not attain her primary litigation objectives as no decision had been made regarding the substantive validity of her lease. In addition, her unsuccessful cross-complaint sought substantially more than vindication of her tenancy under the lease and, therefore, was not simply defensive. The court also decided, given the “identical defenses asserted and identical counsel[,] ... the unity of interest between Mr. Huth and Ms. McLean” prеvented a finding that Huth was a prevailing party. The court further stated, even if Huth were determined to be the prevailing party, “a ruling that he is entitled to recover all fees defending against the complaint would be to elevate form over substance. . . . Defense counsel has failed to specifically apportion those fees spent solely defending Mr. Huth against plaintiff’s claims, versus Ms. McLean.”
The final form of judgment entered by the court on July 20, 2011 awarded McLean and Huth costs pursuant to section 1032, subdivision (a)(4), in the
DISCUSSION
1. The Trial Court Did Not Abuse Its Discretion in Determining McLean Was Not a Prevailing Party
Section 1032, subdivision (a)(4), expressly defines “prevailing party” for purposes of a statutory award of costs to include “a defendant where neither plaintiff nor defendant obtains any relief.” In Building Maintenance Service Co. v. AIL Systems, Inc. (1997)
Although McLean was properly found to be the prevailing party under section 1032, “[c]ourts have consistently held the prevailing party for the award of costs under seсtion 1032 is not necessarily the prevailing party for the award of attorney’s fees in contract actions under section 1717.” (Sears v. Baccaglio (1998)
Both Zintel’s complaint and McLean’s cross-complaint for breach of the covenant of quiet enjoyment involved claims expressly based on the leаse agreement. There was no absolute or complete winner between those two litigants. Accordingly, the court was obligated to determine whether there was a prevailing party under section 1717: “[I]n 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. The prevailing party determination is to be made only upon final resolution of the contract claims and only by ‘a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.’ ” (Hsu, supra, 9 Cal.4th at p. 876.) Where neither party achieves a complete victory, the trial court has discretion to determine “which party prevailed on the contract or whether, on balance, neither party
McLean contends the trial court abused its discretion in finding no prevailing party because, while she may have recovered nothing on her cross-complaint, she successfully defeated the two contract claims in Zintel’s complaint and therefore attained greater relief. She also insists her cross-complaint was essentially defensive, a tactical aspect of her response to Zintel’s contract claims, which she defeated at summary judgment. (See Hsu, supra, 9 Cal.4th at p. 875, fn. 10 [“When there are cross-actions on a contract containing an attorney fees provision, and no relief is awarded in either action, a trial court is not obligated to find that there is no prevailing party on the contract for purposes of section 1717. If the court concludes that the defendant’s cross-action against the plaintiff was essentially defensive in nature, it may properly find the defendant to be the party prevailing on the contract.”].) McLean’s cross-complaint sought monetary damages unrelated to the complaint, expanded discovery and led to substantial briefing. Given the nature of the cross-complaint and the affirmative relief it sought and the mixed results obtained by McLean in the litigation, the trial court did not abuse its disсretion in determining McLean was not a prevailing party. (See McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn., supra,
2. The Trial Court Erred in Determining Huth Was Not a Prevailing Party Entitled to an Award of Contractual Attorney Fees
“[W]hen a defendant defeats recovery by the plaintiff on the only contract claim in the action, the defendant is the party prevailing on the contract under section 1717 as a matter of law.” (Hsu, supra, 9 Cal.4th at p. 876.) Huth contends his complete defeat of Zintel’s complaint entitled him to a prevailing party designation and the trial court had no discretion to determine he was not the prevailing party and deny his request for attorney fees based on “the unity of interest” between him and his mother.
The 1986 legislation repealed Code of Civil Procedure former section 1032 in its entirety and replaced it with a new version of the statute, (iGoodman v. Lozano, supra,
If the unity of interest principle survived the 1986 revision of the cost recovery statutes and was properly applied in this case, the trial court would have discretion to deny entirely or to apportion all allowable items of costs otherwise recoverable by Huth, including attorney fees pursuant to section 1717 and Code of Civil Procedure section 1033.5, subdivision (a)(10). (See Code Civ. Proc., § 1033.5, subd. (c)(5), 2d par. [attorney fees awarded pursuant to § 1717 “are allowable costs under Section 1032 of this code”]; cf. Goodman v. Lozano, supra,
Because the award of costs to Huth under section 1032 was mandatory, the trial court had no discretion to deny his request for attorney fees under the
That Huth was entitled to recover some portion of his attorney fees, however, does not mean the trial court’s concern regarding the complete overlap of his defense with that of McLean, who was not so entitled, is irrelevant to its ultimate award. Huth may recover only reasonable attorney fees incurred in his defense of the action by Zintel. To the extent his shared counsel engaged in litigаtion activity on behalf of McLean for which fees are not recoverable, the court has broad discretion to apportion fees. (See Reynolds Metals Co. v. Alperson (1979)
Huth and McLean’s counsel submitted their billing records to the trial court and, recognizing the claim for an award of fees to Huth was stronger thаn the argument all fees incurred on behalf of both clients were properly awarded, presented two approaches to apportioning the fees (either $64,789.80 or $70,965 of the total of $79,585). Counsel for Zintel suggested
DISPOSITION
The judgment, including the order denying attorney fees, is affirmed as to McLean. The judgment as to Huth is reversed insofar as it denied his recovery of any attorney fees, and the matter is remanded for a determination of the reasonable amount of attorney fees to which he is entitled. The parties are to bear their own costs on appeal.
Zelon, J., and Jackson, J., concurred.
Notes
As discussed, appellate decisions have repeatedly recognized in a contract action the prevailing party for the award of costs under section 1032 is not nеcessarily also the prevailing
Because Huth’s argument on appeal involves the interpretation of a statute, a question of law, we review the issue de novo. (Goodman v. Lozano, supra, Al Cal.4th at p. 1332; Bruns v. E-Commerce Exchange, Inc. (2011)
The Goodman court explained, “The purpose of the 1986 legislation, which was sponsored by the California Judges Association (CJA), was to streamline the rules and procedures on the award of litigation costs, which were deemed ‘hard to find and hard to follow.’ ” (Goodman v. Lozano, supra,
Zintel argued 70 percent of McLean and Huth’s counsel’s time was spent on the unsuccessful cross-complaint. Because of Huth’s minor role in the litigation, Zintel also argued only 25 percent of the remaining 30 percent (7.5 percent) should be attributed to his defense of the complaint.