American Master Lease v. Idanta Partners CA2/7 ( 2014 )

Filed 9/22/14 American Master Lease v. Idanta Partners CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
AMERICAN MASTER LEASE LLC, B247478
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC367987)
v.
IDANTA PARTNERS, LTD. et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los Angeles County, Ramona G.
See, Judge. Affirmed.
Mayer Brown, Donald Falk; Mayer Brown, Neil M. Soltman and Germain D.
Labat for Plaintiff and Appellant.
Lathrop & Gage, John Shaeffer, Jeffrey Grant and Emily Birdwhistell for
Defendants and Respondents.
____________________
INTRODUCTION
Plaintiff American Master Lease LLC (AML) appeals from a postjudgment order
denying its motion to recover attorneys’ fees from defendants Idanta Partners, Ltd.,
David J. Dunn, Steven B. Dunn, and the Dunn Family Trust. In defendants’ prior appeal
we affirmed the judgment as to liability but reversed as to the amount of recoverable
unjust enrichment and ordered a new trial on that issue. (American Master Lease LLC v.
Idanta Partners, Ltd. (2014) 225 Cal. App. 4th 1451 (AML I).) We now affirm the order
denying AML’s motion for attorneys’ fees.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Underlying Litigation
Neal Roberts formed AML in 1998 for the purpose of investing in real estate using
an investment vehicle known as a 1031 FORT.1 Roberts was AML’s managing member.
The other members of AML were Jim Andrews, Charles “Duke” Runnels (Runnels), and
Michael Franklin. AML was governed by an operating agreement (Operating
Agreement), paragraph 3.9 of which provided: “‘The Members agree that the business of
the LLC, either to sell AML Products . . . directly to purchasers or to sell AML Products
indirectly through an accommodator as part of a tax-exempt transaction, is unique. . . .
No Member, Principal of a Member or holder of an Economic Interest of a Member, may
have any interest, directly or indirectly, in any business that offers to sell or exchange
AML Products or is otherwise competitive with [AML], nor may any such Member,
Principal or Economic Interest holder be employed by, or act as a consultant to, any such
competitive business without the approval of a Majority In Interest of the Class A and
1 FORT stands for Fractionalized Ownership in Real estate Tax deferred, and 1031
is the section of the Internal Revenue Code applicable to real estate exchanges.
2
Class B Members, voting as a Class. . . .’” (AML I, supra, 225 Cal.App.4th at p. 1459,
fn. omitted.)
In January 2000 Roberts, Andrews, Runnels, and Franklin entered into a
management agreement with AML. Under this agreement, Roberts remained the
managing member and chairman of the board, and Andrews, Runnels, and Franklin
agreed to serve as the operational managers of AML (collectively the Operating Group).
(See AML I, supra, 225 Cal.App.4th at p. 1460.)
David J. Dunn was the founder and managing general partner of Idanta, a venture
capital firm, and trustee of the Dunn Family Trust. David Dunn’s son, Steven, worked
for Idanta for a period of time and was a partner in Idanta for some of that time. (AML I,
supra, 225 Cal.App.4th at p. 1460.)
The Operating Group was looking for funding for AML and eventually met with
David Dunn. In January 2004 David Dunn proposed that Idanta form and finance a new
company in which Idanta would own 80 percent, Runnels and Franklin would own 15
percent and manage the company, and AML would own 5 percent. Roberts rejected this
and a subsequent proposal. (AML I, supra, 225 Cal.App.4th at p. 1461.)
In approximately mid-March 2004 Runnels incorporated FORT Properties, Inc.
(FPI). David Dunn had already arranged with Runnels and Franklin for an ownership
interest in FPI for himself, the Dunn Family Trust, and Idanta. Pursuant to this
arrangement, in April 2004 defendants purchased preferred shares in FPI. The Operating
Group, on behalf of AML, then granted FPI a nonexclusive license to use AML’s
business method. (AML I, supra, 225 Cal.App.4th at pp. 1462-1463.)
Runnels and Franklin notified Roberts of the Operating Group’s action. Roberts
told them he believed their actions violated paragraph 3.9 of the Operating Agreement
and that they had no authority to license AML’s business method without his permission.
Roberts also had his attorney convey his position to the Dunns and Idanta. FPI later
cancelled the license agreement with AML and engaged in several FORT transactions
without AML. (AML I, supra, 225 Cal.App.4th at pp. 1463-1465.)
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In March 2007 AML filed this action against Idanta, the Dunn Family Trust,
David Dunn, and Steven Dunn. AML’s fourth amended complaint alleged causes of
action for aiding and abetting breach of fiduciary duty, interference with contractual
relations, unfair competition, and unjust enrichment. (AML I, supra, 225 Cal.App.4th at
p. 1467.)
In June 2007 FPI agreed to repurchase the preferred stock it had sold to Idanta and
the Dunn Family Trust. From March 2004 through December 2009 FPI experienced a
net loss and never paid the full amount it had agreed to pay Idanta and the Dunn Family
Trust for this repurchase of stock. (AML I, supra, 225 Cal.App.4th at p. 1466.)
In the litigation the trial court ruled on demurrer that AML had stated a cause of
action for aiding and abetting a breach of fiduciary duty, rejecting defendants’ argument
that a defendant must owe an independent duty to the plaintiff in order to be liable for
aiding and abetting a breach of that duty. The trial court sustained defendants’ demurrer
to AML’s causes of action for unfair competition and unjust enrichment without leave to
amend. At trial, there were disputes over the applicable statute of limitations and what
the jury could consider in making an award based on unjust enrichment. The trial court
ruled that AML’s action was not barred by the statute of limitations and instructed the
jury in a manner that was basically favorable to AML. (AML I, supra, 225 Cal.App.4th
at pp. 1467-1469.)
On AML’s cause of action for interference with contract, the jury found that
Idanta, David Dunn, Steven Dunn, and the Dunn Family Trust knew about paragraph 3.9
of the AML Operating Agreement; they acted with the intent to disrupt the performance
of paragraph 3.9; their conduct prevented the performance of paragraph 3.9 or made its
performance more expensive or difficult; and their conduct was a substantial factor in
causing harm to AML. The jury found, however, that AML’s interference claim was
barred by the statute of limitations, because AML had actual or constructive knowledge
of the facts giving rise to the interference claim more than two years before AML filed its
complaint. On AML’s cause of action for aiding and abetting a breach of fiduciary duty,
the jury found that Andrews, Runnels, and Franklin knowingly acted against AML’s
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interests, and without AML’s informed consent, in forming FPI, and, as to Runnels and
Franklin, working for and owning shares in FPI. The jury also found that defendants
knew that Andrews, Runnels, and Franklin were going to breach their fiduciary duties to
AML; defendants gave substantial assistance to Andrews, Runnels, and Franklin; and
defendants’ conduct was a substantial factor in causing harm to AML. The jury awarded
AML restitution in the amount of $7,075,891. Defendants appealed from the judgment.
(AML I, supra, 225 Cal.App.4th at pp. 1470-1471.)
B. Motion for Attorneys’ Fees
AML then filed a motion for attorneys’ fees. AML argued that, even though
defendants were not signatories to the Operating Agreement, AML was entitled to an
award of attorneys’ fees based on the attorneys’ fees provision in the Operating
Agreement.
Paragraph 14.19 of the Operating Agreement provided: “In the event of any
litigation, arbitration or other dispute arising as a result of or by reason of this
Agreement, the prevailing party in any such litigation, arbitration or other dispute shall be
entitled to, in addition to any other damages asserted, its reasonable attorney’s fees, and
all other costs and expenses incurred in connection with settling or resolving such
dispute. . . .” AML relied on Civil Code section 1717, subdivision (a) (section 1717(a)),
which provides in pertinent part that “[i]n 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.” AML reasoned that it was the prevailing party in the litigation;
the action was “on the contract” because the fiduciary duties that defendants aided and
abetted the breach of arose out of the Operating Agreement; and the Operating
Agreement mandated an award of attorneys’ fees.
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The trial court denied AML’s motion for attorneys’ fees. The court found that,
although AML was the prevailing party, its claims were “not grounded in contract.” The
court read the authorities cited by the parties and noted that “in each of those cases where
attorney’s fees were awarded to a non-signatory, the claim was for some form of breach
of contract where the prevailing party was standing in the shoes of one of the contracting
parties.” AML appealed from this order.
C. Decision on Appeal in the Underlying Litigation
On May 5, 2014 we filed our opinion following rehearing in the underlying
litigation. On the issue whether defendants could be held liable for aiding and abetting a
breach of fiduciary duty by Andrews, Runnels, and Franklin, we explained that “there are
two different theories pursuant to which a person may be liable for aiding and abetting a
breach of fiduciary duty. One theory, like conspiracy to breach a fiduciary duty, requires
that the aider and abettor owe a fiduciary duty to the victim and requires only that the
aider and abettor provide substantial assistance to the person breaching his or her
fiduciary duty. [Citations.] . . . Courts impose liability for concerted action that violates
the aider and abettor’s fiduciary duty. [Citations.] The second theory for imposing
liability for aiding and abetting a breach of fiduciary duty arises when the aider and
abettor commits an independent tort. [Citations.] This occurs when the aider and abettor
makes ‘“a conscious decision to participate in tortious activity for the purpose of
assisting another in performing a wrongful act.”’ [Citations.]
“AML proceeded on the second theory of aiding and abetting liability. AML
pleaded and proved that defendants had actual knowledge of the fiduciary duties
Andrews, Runnels, and Franklin owed to AML, that defendants provided the three
fiduciaries with substantial assistance in breaching their duties, and that defendants’
conduct resulted in unjust enrichment. Thus, the trial court did not err in ruling, on
demurrer and in connection with the jury instructions, that defendants could be liable for
aiding and abetting a breach of fiduciary duty even though they did not owe a fiduciary
duty to AML.” (AML I, supra, 225 Cal.App.4th at pp. 1477-1478, fn. omitted.)
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On the issue whether the statute of limitations barred AML’s breach of fiduciary
duty cause of action, we stated that “[t]he fiduciary duties of Andrews, Runnels, and
Franklin . . . were not created exclusively or even primarily by the Operating Agreement
but were imposed by law on them as members and managers of AML. [Citations.]
[¶] Moreover, AML did not allege that defendants aided and abetted by interfering with a
contract. AML’s fourth amended complaint mentioned a contractual provision,
paragraph 3.9 of the Operating Agreement, and alleged that it formed the basis for
AML’s (ultimately unsuccessful) cause of action for interference with contract, but AML
did not allege that the Operating Agreement was the basis of the aiding and abetting
claim. Instead, the gravamen of AML’s cause of action for aiding and abetting breach of
fiduciary duty was that defendants provided substantial assistance for Andrews, Runnels,
and Franklin in breaching their duties of loyalty as members and managers of AML.
AML alleged that defendants acted with Andrews, Runnels, and Franklin ‘to: a).
wrongfully acquire rights to the AML patent for less than full value; b). hire Runnels and
Franklin to execute the AML Business Method; and c). otherwise cause Runnels and
Franklin to breach their fiduciary duties to AML without seeking or obtaining the
requested permission of AML and Roberts, its majority owner and manager.’ AML
alleged that in February 2004 Andrews, Runnels, and Franklin ‘were secretly aligned
with the Defendants and had already commenced negotiating with Defendants,’
‘surreptitiously forwarded [AML’s] strategic negotiating points’ to defendants, received
financial incentives from defendants ‘to breach their duties of loyalty to AML and its
other member,’ and ‘incorporate[d] [FPI] for the unlawful purpose of using [FPI] as an
operating company to exploit the patented AML Business Method without receiving
valid authorization from AML and without adequately compensating AML.’ AML also
alleged that Runnels engaged in a classic example of a breach of the duty of loyalty by
signing an unauthorized and undervalued licensing agreement on behalf of both
contracting parties, AML and FPI. The fact that one of the breaches of fiduciary duty
may also have been a breach of a provision of the Operating Agreement does not mean
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the three defalcating fiduciaries only breached a provision of the Operating Agreement.”
(AML I, supra, 225 Cal.App.4th at pp. 1480-1481, fns. omitted.)
We noted that the limitations period for aiding and abetting breach of fiduciary
duty is either three years, where the breach of fiduciary duty is based on fraud or deceit,
or four years, under the “catchall provision” in Code of Civil Procedure section 343.
(AML I, supra, 225 Cal.App.4th at pp. 1478-1479.) We concluded that we did not need
to decide which limitations period applied because “the gravamen of AML’s aiding and
abetting breach of fiduciary duty claim was not interference with a provision of the
Operating Agreement,” and therefore the “two-year statute of limitations for interference
with contract did not apply.” (Id. at p. 1481.)
With respect to remedies, “[w]e agree[d] with AML that the restitutionary
remedies of unjust enrichment and disgorgement are available for aiding and abetting
breach of fiduciary duty.” (AML I, supra, 225 Cal.App.4th at p. 1481.) We concluded,
however, that the trial court gave erroneous instructions on the amount of restitution the
jury could award. (Id. at p. 1486.) We reversed the judgment as to the amount of
defendants’ unjust enrichment and directed the trial court to grant a new trial on the issue
of the amount of defendants’ unjust enrichment only. (Id. at p. 1494.)
DISCUSSION
AML argues that it is entitled to attorneys’ fees under section 1717(a) because its
aiding and abetting fiduciary duty claims arise out of the non-competition provisions of
paragraph 3.9 of the Operating Agreement and therefore are “on the contract.”2 AML
2 This issue is ripe for adjudication. Because we reversed the judgment as to the
amount of defendants’ unjust enrichment only, AML is still the prevailing party in the
litigation and its entitlement to attorneys’ fees is still at issue. “‘Ripeness’ refers to the
requirements of a current controversy. . . . A controversy becomes ‘ripe’ once it reaches,
‘but has not passed, the point that the facts have sufficiently congealed to permit an
intelligent and useful decision to be made.’ [Citation.]” (City of Santa Monica v. Stewart
(2005) 126 Cal. App. 4th 43, 59; accord, Lockaway Storage v. County of Alameda (2013)
8
argues that “[t]he claims on which [it] prevailed involve, arise from, and have their
genesis in the AML Operating Agreement,” that “the fiduciary duties underlying the
aiding and abetting fiduciary breach claims arose as a result of the Operating
Agreement,” and that “[e]xecution of the Operating Agreement was necessary to create
AML as a valid limited liability company.” AML also contends that it is entitled to
attorneys’ fees because defendants requested attorneys’ fees in their answer to the
complaint and would have been entitled to attorneys’ fees under section 1717(a) had they
prevailed, even though they were not parties to the Operating Agreement. We conclude
that, even if its claims were on or arose as a result of or by reason of the Operating
Agreement, AML is not entitled to recover its attorneys’ fees under section 1717(a) from
defendants as nonsignatories to the Operating Agreement.
A. Standard of Review
“‘“On review of an award of attorney fees after trial, the normal standard of
review is abuse of discretion. However, de novo review of such a trial court order is
warranted where the determination of whether the criteria for an award of attorney fees
and costs in this context have been satisfied amounts to statutory construction and a
question of law.”’ [Citation.]” (Conservatorship of Whitley (2010) 50 Cal. 4th 1206,
1213; accord, Serrano v. Stefan Merli Plastering Co., Inc. (2011) 52 Cal. 4th 1018, 1025-
1026; see Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162
Cal. App. 4th 858, 894 [“the ‘determination of the legal basis for an award of attorney
fees’ is a ‘question of law’ which the reviewing court will examine de novo”].)
“‘Whether section 1717 applies is a legal question . . . rather than a factual question’
216 Cal. App. 4th 161, 174.) That the issue of the amount of restitution must be retried
does not preclude us from issuing “a meaningful and realistically enforceable decision”
(Vandermost v. Bowen (2012) 53 Cal. 4th 421, 456) on the attorneys’ fees issue. (See
Otay Land Co. v. Royal Indemnity Co. (2008) 169 Cal. App. 4th 556, 562 [controversy
ripe for adjudication where court can provide “‘“‘specific relief through a decree of
conclusive character’”’”].)
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[citation], which ‘“we review de novo. [Citation.]” [Citations.]’ [Citation.]” (Plotnik v.
Meihaus (2012) 208 Cal. App. 4th 1590, 1615.)
B. AML Is Not Entitled to Attorneys’ Fees
As a general rule, only parties to a contract containing an attorneys’ fees provision
are entitled to fees. “However, under some circumstances, the Civil Code section 1717
reciprocity principles will be applied in actions involving signatory and nonsignatory
parties. [Citation.]” (Cargill, Inc. v. Souza (2011) 201 Cal. App. 4th 962, 966; accord,
Mepco Services, Inc. v. Saddleback Valley Unified School Dist. (2010) 189 Cal. App. 4th
1027, 1046.) “‘“[I]n cases involving nonsignatories to a contract with an attorney fee
provision, the following rule may be distilled from the applicable cases: A party is
entitled to recover its attorney fees pursuant to a contractual provision only when the
party would have been liable for the fees of the opposing party if the opposing party had
prevailed.” [Citation.]’ [Citation.]” (Loduca v. Polyzos (2007) 153 Cal. App. 4th 334,
341; see Hsu v. Abbara (1995) 9 Cal. 4th 863, 870; Reynolds Metals Co. v. Alperson
(1979) 25 Cal. 3d 124, 128.) This is because section 1717 “is meant to prevent
‘oppressive use of one-sided attorney’s fees provisions’ [citation], not to abolish the
general rule that each party pay its own attorney fees.” (Diamond Heights Village Assn.,
Inc. v. Financial Freedom Senior Funding Corp. (2011) 196 Cal. App. 4th 290, 308.)
Therefore, under section 1717 AML can recover attorneys’ fees from defendants, as
nonsignatories to the Operating Agreement, only if defendants could have recovered
attorneys fees from AML. (See Reynolds Metals Co., supra, at pp. 128-129; Sessions
Payroll Management, Inc. v. Noble Construction Co. (2000) 84 Cal. App. 4th 671, 679
[signatory cannot recover fees from nonsignatory unless nonsignatory could recover fees
from signatory].)
“Two situations may entitle a nonsignatory party to attorney fees. First is where
the nonsignatory party ‘stands in the shoes of a party to the contract.’ [Citation.] Second
is where the nonsignatory party is a third party beneficiary of the contract.” (Cargill, Inc.
v. Souza, supra, 201 Cal.App.4th at p. 966; see Apex LLC v. Korusfood.com (2013) 222
10
Cal. App. 4th 1010, 1017-1018 [“[a] nonsignatory will be bound by an attorney fees
provision in a contract when the nonsignatory party ‘“stands in the shoes of a party to the
contract”’”]; Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162
Cal.App.4th at p. 897 [“where a nonsignatory is sued on the ground that he stands in the
shoes of a party to the contract, and where he would be liable for fees if that claim
succeeded, he may recover fees under section 1717 if he defeats the claim”].) Defendants
were not third party beneficiaries of the Operating Agreement. (See Blickman Turkus,
LP, supra, at p. 897 [“a nonsignatory seeking relief as a third party beneficiary may
recover fees under a fee provision only if it appears that the contracting parties intended
to extend such a right to one in his position”]; Souza v. Westlands Water Dist. (2006) 135
Cal. App. 4th 879, 891 [third party beneficiary must show the contracting parties intended
to benefit the third party, and “it is not enough that the third party would incidentally
have benefited from performance” of the contract].) Thus, defendants could have
recovered attorneys’ fees from AML (and therefore AML can recover attorneys’ fees
from defendants under section 1717(a)) only if defendants “stand in the shoes” of other
parties to the Operating Agreement, Andrews, Runnels, and Franklin.
A nonsignatory may stand in the shoes of a party to an agreement “either by virtue
of a preexisting relationship, or as an assignee or successor in interest.” (JSM Tuscany,
LLC v. Superior Court (2011) 193 Cal. App. 4th 1222, 1240, fn. 20; cf. Diamond Heights
Village Assn. v. Financial Freedom Senior Funding Corp., supra, 196 Cal.App.4th at
p. 308 [third party not entitled to recover attorneys’ fees under section 1717 where third
party and contracting party were “complete strangers to each other”].) Examples of
preexisting relationships justifying the enforcement of contractual provisions against a
nonsignatory defendant include employer and employee, principal and agent (DMS
Services, LLC v. Superior Court (2012) 205 Cal. App. 4th 1346, 1357 [enforcing
arbitration agreement]), general partner and limited partnership (Crowley Maritime Corp.
v. Boston Old Colony Ins. Co. (2008) 158 Cal. App. 4th 1061, 1070 [enforcing arbitration
agreement]), successor in interest (Exarhos v. Exarhos (2008) 159 Cal. App. 4th 898, 906-
907 [successor in interest to decedent who had signed a contract containing an attorneys’
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fees provision], and surety (National Technical Systems v. Superior Court (2002) 97
Cal. App. 4th 415, 425). A nonsignatory may also be liable for attorneys’ fees on an alter
ego theory or where the nonsignatory has assumed the obligations of a party to the
contract. (See Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d at pp. 128-129
[plaintiff would have been entitled to attorneys’ fees from nonsignatory defendants had
the plaintiff been able to prove the defendants were alter egos of defendant corporation];
Brown Bark III, L.P. v. Haver (2013) 219 Cal. App. 4th 809, 823 [“[i]t is well settled a
breach of contract claim based on alter ego theory is still a claim on the contract and a
nonsignatory that successfully defends against the claim may recover its attorney fees
under section 1717”]; see also Apex LLC v. Korusfood.com, supra, 222 Cal.App.4th at
pp. 1017-1018 [nonsignatory defendant liable for attorneys’ fees under a credit
application submitted under its former name].
Here, there was no preexisting relationship between defendants and the Operating
Group that would have allowed defendants to recover attorneys’ fees under the Operating
Agreement. It was not until six years after Roberts and the Operating Group had
executed the Operating Agreement that defendants entered into a business relationship
with the Operating Group. Nor were defendants alter egos or successors in interest of the
Operating Group. Defendants did not assume the Operating Group’s obligations under
the Operating Agreement. Rather, defendants entered into an arm’s length business
transaction with the Operating Group by purchasing shares in FPI. The relationship
between defendants and the Operating Group was not the type of relationship that courts
have found justifies imposing contractual liability for attorneys’ fees on a nonsignatory.
Because defendants did not stand in the Operating Group’s shoes with respect to the
Operating Agreement, they would not have been entitled to an award of attorneys’ fees
had they prevailed.
Lewis v. Alpha Beta Co. (1983) 141 Cal. App. 3d 29, cited by AML, is
distinguishable. In that case, both the Lewises and Alpha Beta entered into written leases
with the owner of a shopping center, and both of the leases contained attorneys’ fees
provisions. The Lewises’ lease granted them the exclusive right to sell alcoholic
12
beverages in the shopping center. When Alpha Beta posted a notice of intention to sell
alcoholic beverages, the Lewises sued Alpha Beta and the landlord. The trial court issued
an injunction in favor of the Lewises and allowed them to recover attorneys’ fees from
Alpha Beta. (Id. at pp. 31-32.) The Court of Appeal stated, “We believe [section 1717’s]
provisions should also provide a remedy to individuals, such as the Lewises, who on the
basis of their own lease, sue their landlord and a cotenant to enforce a restrictive covenant
assumed by the cotenant for their benefit in its lease, when each such lease specifically
provides for attorney’s fees.” (Id. at p. 33.) While the Lewis court did not specify the
basis on which it upheld the award of attorneys’ fees, it appears that the Court of Appeal
relied on the existence of a preexisting relationship between the parties or the Lewises’
status as third party beneficiaries of Alpha Beta’s contract with the landlord. (See ibid.)
Unlike the Lewises, defendants here were not third party beneficiaries of the Operating
Agreement and they had no preexisting relationship with either AML or the Operating
Group.
Walsh v. New West Federal Savings & Loan Assn. (1991) 234 Cal. App. 3d 1539 is
also distinguishable. In that case the Walshes entered into a real estate contract
containing an attorneys’ fees provision with Gallegos, who was supposed to arrange a
transaction in which State Savings was going to transfer property to the Walshes. The
transaction fell through, and the Walshes sued Gallegos and State Savings, which became
insolvent and had its assets and liabilities acquired by New West. (Id. at pp. 1541-1542.)
After New West prevailed, the trial court denied New West’s request for attorneys’ fees.
(Id. at p. 1546.) In reversing, the Court of Appeal held that “the predicate of New West’s
liability as alleged in the Walshes’ complaint is that State Savings acted as a
coconspirator or in a principal/agency relationship with Gallegos. Assuming these
allegations are true, the lack of a direct relationship is irrelevant. A coconspirator is
liable as a joint tortfeasor ‘irrespective of whether or not he was a direct actor and
regardless of the degree of his activity.’ [Citation.] Likewise a principal is liable to all
persons who have relied upon an agent’s ostensible authority, regardless of the lack of
contact between the third party and the principal. [Citation.] The Walshes’ attempts to
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recover for Gallegos’s failure to fulfill his promise to transfer certain of the bank’s
properties to them, . . . and for fraudulent representations allegedly made by Gallegos are
unquestionably derived from the property exchange agreement between the Walshes and
Gallegos, for which New West is alleged to be liable as a principal or coconspirator.”
(Id. at pp. 1545-1546, fn. omitted.) The court concluded that the “Walshes’ breach of
contract cause of action against New West falls within the purview of section 1717.” (Id.
at p. 1547.) Here, as explained in AML I, defendants were not liable as joint tortfeasors
with or conspirators of the Operating Group but were independently liable for their
tortious conduct. (AML I, supra, 225 Cal.App.4th at pp. 1477-1478.) Nor was there any
liability based on a principal/agent relationship. Walsh does not support AML’s assertion
that defendants could have been liable for attorneys’ fees and thus had a reciprocal right
to attorneys’ fees from AML under section 1717.
Finally, contrary to AML’s assertion, the mere fact that defendants sought
attorneys’ fees in their answer to AML’s fourth amended complaint does not compel
application of the reciprocal remedy provision of section 1717(a). The “‘bare
allegation’” that a party is entitled to attorneys’ fees under a contract provision is not
sufficient to prove an entitlement to attorneys’ fees; proof is required. (Bear Creek
Planning Committee v. Ferwerda (2011) 193 Cal. App. 4th 1178, 1188; accord, Mepco
Services, Inc. v. Saddleback Valley Unified School Dist., supra, 189 Cal.App.4th at
p. 1047; see Hyduke’s Valley Motors v. Lobel Financial Corp (2010) 189 Cal. App. 4th
430, 436 [“mere fact [a party] pleaded a breach of contract cause of action is not
dispositive” of the attorneys’ fees issue]; Myers Building Industries, Ltd v. Interface
Technology, Inc. (1993) 13 Cal. App. 4th 949, 962, fn. 12 [“[w]hile it is true that [the
appellant] requested attorney fees under the contract in its cross-complaint against [the
respondent], mere allegation of a contractual right to attorney fees is not sufficient to
create an estoppel where [the appellant] would not actually have been entitled to attorney
fees under the contract if [the appellant] had prevailed”].) Defendants’ request for
attorneys’ fees in their answer does not establish AML’s right to attorneys’ fees.
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DISPOSITION
The order is affirmed. Defendants are to recover their costs on appeal.
SEGAL, J.*
We concur:
PERLUSS, P. J.
ZELON, J.
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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