Estancia Coastal v. KB Home Coastal CA4/1 ( 2013 )

Filed 12/16/13 Estancia Coastal v. KB Home Coastal CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
ESTANCIA COASTAL, LLC, D062219
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2010-00054047-
CU-BC-NC)
KB HOME COASTAL INC., et al.,
Defendants and Appellants.
ESTANCIA COASTAL, LLC,
D062885
Plaintiff and Respondent,
v.
(Super. Ct. No. 37-2010-00054047-
KB HOME COASTAL INC., CU-BC-NC)
Defendant, Cross-complainant and
Appellant;
KB HOME,
Defendant and Appellant;
LO LAND ASSETS, LP.,
Cross-defendant and Respondent.
APPEAL from a judgment and orders of the Superior Court of San Diego County,
Thomas P. Nugent, Judge. Affirmed in part, reversed in part, and remanded with
directions.
Munger, Tolles & Olson, Daniel P. Collins and Daniel B. Levin for Defendant,
Cross-complainant and Appellant and for Defendant and Appellant.
Payne & Fears, Daniel M. Livingston and Thomas L. Vincent for Plaintiff and
Respondent and for Cross-defendant and Respondent.
KB Home Coastal Inc. (KB), a developer and builder, appeals the judgment
awarding Estancia Coastal, LLC (Estancia), a financing company, approximately
$6.5 million for governmental fees designed to mitigate the impact of the residential
development of Old Creek Ranch on schools, parks, roadways, and water and sewer
systems (collectively, the impact fees). Estancia's assignor, Lo Land Assets, LP
(Lo Land), bought Old Creek Ranch, granted KB an option to develop and purchase the
property in parcels, and hired KB to perform certain work needed to prepare the site for
construction of homes. After KB decided not to exercise the option, Lo Land terminated
its contracts with KB, contracted with another builder to complete the project, and sued
KB for the impact fees. A jury determined KB breached its contractual obligation to pay
the impact fees, and the trial court denied KB's motion for partial judgment
notwithstanding the verdict (partial JNOV motion), which sought to eliminate the award
of impact fees.
KB contends the judgment and the order denying its partial JNOV motion must be
reversed because the jury erroneously interpreted the applicable contracts and, under the
correct interpretation, it had no obligation to pay the impact fees. KB also appeals the
orders awarding Estancia attorney fees and costs, contending elimination of the
erroneously awarded impact fees from the judgment requires reversal of the cost and
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attorney fee orders and remand for a redetermination of who is the prevailing party
entitled to costs and fees. Agreeing with KB's contentions except as to costs, we reverse
and remand for further proceedings.
I.
FACTUAL BACKGROUND
A. Establishment of the Parties' Contractual Relationship
In early 2005, KB approached Lo Land about financing the development of Old
Creek Ranch, which is located in the City of San Marcos (the City). The parties
structured the project as a "land banking" transaction, whereby the developer identifies a
property to be developed; the financer takes title and, in exchange for a fee, grants the
developer an option to purchase and develop the property in parcels over time; and the
financer hires the developer to complete certain site improvement work even if the
developer decides not to exercise the option. The Old Creek Ranch transaction was
completed by execution of the three contracts described below.
1. The Purchase Agreement
KB entered into a purchase agreement (the Purchase Agreement) with the owner
of Old Creek Ranch, Brookfield University Commons LLC (Brookfield). KB agreed to
develop the property in accordance with certain covenants, conditions, and restrictions,
and to build a certain combination of home types according to an agreed schedule. If KB
failed to proceed with the development under these conditions, Brookfield had the option
to repurchase Old Creek Ranch.
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The Purchase Agreement imposed on KB certain "Buyer's Work Obligations,"
consisting of landscaping, construction, and other site development work. The Purchase
Agreement also required KB to pay "Buyer's Fees," which included the five impact fees
at issue.
KB later assigned its interest in the Purchase Agreement to Lo Land. Lo Land
paid the purchase price and took title to Old Creek Ranch.
2. The Option Agreement
In connection with the purchase of Old Creek Ranch, KB and Lo Land executed
an Option Agreement pursuant to which Lo Land granted KB an exclusive option to
purchase Old Creek Ranch in portions and over time. In exchange for the option, KB
agreed to pay an initial deposit and to make monthly payments to Lo Land. For the
option to remain effective, KB also had to acquire periodically a designated portion of
Old Creek Ranch by paying the scheduled price. KB had the right to terminate the
Option Agreement at any time by giving written notice to Lo Land and its designated
outside counsel, and Lo Land had the right to terminate if KB failed to acquire portions
of Old Creek Ranch in accordance with the schedule or otherwise defaulted.
The Option Agreement contained several provisions relevant to the issues raised
on appeal. Section 6.1 obligated KB to pay certain development costs, including impact
fees that accrued or became due during the term of the Option Agreement. Section 6.5
generally required KB to assume all of the obligations of the Purchase Agreement that
otherwise would have belonged to Lo Land as the "Buyer." An indemnity clause
required KB to defend and indemnify Lo Land against claims for impact fees and real
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property taxes arising during the term of the Option Agreement and for other
development-related fees required to be paid under the Purchase Agreement. A survival
clause stated that unless expressly provided to the contrary in the Option Agreement, all
obligations and indemnities would continue to be binding on the parties even after
termination of the Option Agreement. Finally, a cost provision required the losing party
in any litigation on the contract to pay the prevailing party's costs, including attorney
fees.
3. The Construction Agreement
KB and Lo Land also executed a Construction Agreement, which obligated KB to
perform certain "Work" needed to prepare the site for later construction of homes even if
KB decided not to exercise its option to buy Old Creek Ranch. The Work consisted
generally of grading the property; building roads; and installing fences, sewers, curbs,
gutters, and water and utility lines. The Construction Agreement required KB to pay all
"governmental fees" necessary to do the Work. In exchange, Lo Land agreed to
reimburse KB for all costs of performing the Work, up to a maximum amount.
B. Termination of the Parties' Contractual Relationship and Post-termination Events
On February 27, 2007, KB sent Lo Land a letter electing not to maintain its option
under the Option Agreement. Lo Land responded with a letter, dated March 7, 2007,
terminating the Option Agreement.
After termination of the Option Agreement, KB continued to perform the Work
required by the Construction Agreement. The parties disputed whether the Work
included construction of a swimming pool and a recreation center and other tasks, but
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agreed to proceed with the tasks that they did not dispute. In the fall of 2008, Lo Land
directed KB to stop all site development and advised KB it would proceed with another
builder.
Approximately one year later, Lo Land sent KB a letter asserting it was
responsible under the Construction Agreement for paying approximately $4.5 million in
impact fees that would be incurred in connection with the development of Old Creek
Ranch. Lo Land demanded payment within 10 days. KB refused the demand.
Lo Land subsequently assigned its rights and interests under the Option and
Construction Agreements to Estancia. The parties stipulated that "Estancia stands in the
shoes of [Lo Land]" and "holds all rights Lo Land had under the contracts." In addition,
KB's parent, KB Home, agreed to be held jointly and severally liable with KB on the
contracts.
II.
PROCEDURAL BACKGROUND
A. Pleadings
Estancia sued KB for breach of contract. In its complaint, Estancia alleged that
although it had performed all of its obligations under the Option and Construction
Agreements, KB breached those agreements by refusing to pay certain property taxes,
impact fees, and construction costs. To remedy these alleged breaches, Estancia sought
damages and costs, including attorney fees.
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KB filed an answer generally denying the allegations of Estancia's complaint and
asserting several affirmative defenses. KB sought a judgment dismissing the complaint
and awarding KB its costs, including attorney fees.
B. Motion in Limine
Estancia moved in limine for an order prohibiting extrinsic evidence on the
meaning of the parties' contracts from being presented to the jury, at least until the court
decided which party was contractually responsible for paying the impact fees. Estancia
argued the Court should interpret the contracts as a matter of law at the beginning of trial.
KB opposed Estancia's in limine motion. KB argued the court should deny the
motion on procedural grounds because it was a belated attempt to obtain bifurcation or
summary adjudication. KB also argued the motion should be denied on the merits
because the court and the jury needed to hear the same evidence — the court to determine
if the contracts were reasonably susceptible to differing interpretations, and the jury to
resolve any factual disputes as to when the impact fees accrued or became due or whether
the payment of the impact fees was necessary to complete the Work required by the
Construction Agreement.
The court denied Estancia's motion on the ground that it was "not an in limine
motion by any definition."
C. Conflicting Extrinsic Evidence Admitted at Trial
In accordance with the trial court's in limine ruling, the parties offered conflicting
testimony on their intent in entering into the Option and Construction Agreements.
Typical of that evidence is the following testimony.
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1. Estancia's Extrinsic Evidence
Lisa Albanez, an investment manager for Lo Land, testified about her negotiations
with KB concerning Old Creek Ranch. Albanez's understanding of the "general terms" of
the transaction was that KB would be given an option to purchase the property and would
be obligated "to design, engineer, develop, and construct finished lots on the property."
According to Albanez, payment of government fees is "always the responsibility of the
builder in this type of transaction"; Lo Land never agreed to finance any of the
government fees that would be due on the property; and she informed several individuals
at KB that payment of the government fees would be KB's responsibility. Albanez
further testified that KB's assumption of all of the Buyer's obligations under the Purchase
Agreement, including payment of all government fees and the finishing of the lots, "was
a very material part of [the] negotiations"; indeed, "if KB was not willing to agree to this,
then [Lo Land] could not move forward with the deal."
Albanez was the "lead negotiator" for Lo Land as to the Option Agreement.
According to Albanez, section 6.1 was a "standard provision" regarding payment of taxes
and fees, but section 6.5 was not a "typical provision" and was included so that "it was
very clear" the obligations of the Buyer under the Purchase Agreement "stay[ed] with the
builder." It was Albanez's "understanding that KB had the obligation under the [Purchase
Agreement] to pay [impact] fees whenever they were due." Albanez also testified it was
"very important" to her that "KB's obligations under the [Purchase Agreement] would
survive any termination of the option." In that regard, Albanez explained that the
indemnity and survival clauses were included in the Option Agreement because Lo Land
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"wanted to be sure that KB was going to be responsible for all of the obligations . . .
regardless of whether or not [KB] terminated the option to purchase the property."
Without these "protections," Albanez testified, Lo Land would not have entered into the
deal.
Albanez was also the "lead negotiator" for Lo Land as to the Construction
Agreement. Albanez testified the description of the Work contained in the Construction
Agreement was a "standard provision" that she "intended to be very broad . . . to make
sure that all of the obligations, not just finishing the lots, were included." According to
Albanez, a lot is "finished" when the site is complete, all government fees are paid, and
the City approves it.1 During the negotiations, Albanez told KB representatives that
impact fees "would be [KB's] obligation and contribution to the cost of the finished lots."
Estancia also called Erica Bose, an attorney who represented Lo Land in the Old
Creek Ranch transaction, to testify about her involvement in drafting the contracts. Bose
testified Lo Land's "policy" was to "make sure [it] did not have to assume any obligations
under the [P]urchase [A]greement short of, obviously, paying the purchase price."
According to Bose, she had conversations with representatives of KB "about the fact that
[the parties] were going to need to make significant modifications to the provisions of the
1 Estancia's expert "real estate professional," Michael Ryan, gave a more extensive
definition of the phrase "finished lot" at trial. Ryan testified that a finished lot is one
"that you can start to build a complete house on. In the industry, a finished lot is a lot in a
subdivision where all entitlements have been received, impact fees have been paid, all
on- and off-site construction has been completed, the conditions of approval as they relate
to the site improvements have been satisfied, including common area, and all that work
. . . has been inspected and accepted by the City."
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Option Agreement for Old Creek Ranch to make sure that it was clear where the
allocation of responsibility with respect to [the Purchase Agreement] fell."
With respect to the Option Agreement, Bose testified that because Lo Land was
not in the business of building homes or developing lots, she was "cautious" in drafting
section 6.5 "to make it very clear" that KB had all the obligations of the Buyer under the
Purchase Agreement. According to Bose, it was Lo Land's "intention for [section] 6.5 to
survive the termination of the Option Agreement." She also explained that section 6.1
was a "general provision" that Lo Land included in its form option agreement; that
section 6.5 was drafted specifically for the Old Creek Ranch deal; and that section 6.1
"was not intended to limit" the scope of section 6.5.
Bose also testified about her involvement in drafting the Construction Agreement.
According to Bose, the description of the Work contained in the Construction Agreement
was synonymous with construction of "finished lots," a phrase Bose acknowledged had
been used in other documents forming a part of the Old Creek Ranch negotiations but not
in the Construction Agreement itself.
2. KB's Extrinsic Evidence
Greg Gallagher, KB's former executive vice president, testified about his
involvement in the Old Creek Ranch transaction. Gallagher signed the Purchase
Agreement. He also acted as "the primary point of contact" for KB in negotiations with
Lo Land concerning Old Creek Ranch, and later signed the Option and Construction
Agreements.
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Gallagher testified his "understanding" of section 6.1 of the Option Agreement
was that KB had to pay any impact fees that became due and payable during the period
KB was exercising its option rights. He further testified that he "underst[oo]d"
section 6.5 to require KB to perform the obligations therein mentioned "[t]o the extent
[KB was] the builder and [it] incur[red] those obligations."
Gallagher testified his "understanding" of the Construction Agreement was that it
was "another financing opportunity for Lo Land to lend more money" for "infrastructure
improvements to keep the process moving along for the home building effort." He did
not recall any discussion that the description of the Work included the construction of
"finished lots." Gallagher also testified that his "understanding" of section 2.6 of the
Construction Agreement was that KB would have to pay whatever fees were required for
it to perform the site development work. According to Gallagher, not all of KB's
obligations under the Construction Agreement "remained" if KB decided not to exercise
its option.
D. Verdict
The jury returned a special verdict in which it found KB breached the Option and
Construction Agreements. Under the Option Agreement, the jury awarded Estancia the
following damages: $622,229.25 for property taxes, $6,464,071.84 for impact fees, and
$2,706,074 for costs to complete site development work. Under the Construction
Agreement, the jury awarded the same damages for impact fees and costs to complete site
development work.
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E. Partial JNOV Motion
KB filed a partial JNOV motion (Code Civ. Proc., § 629) to exclude from the
judgment the amount the jury had awarded Estancia for impact fees on the grounds that
the award was contrary to the language of the contracts and was unsupported by
substantial evidence. Specifically, KB argued (1) the extrinsic evidence introduced at
trial could not be considered in interpreting the contracts, because it consisted of
improper opinion and statements of undisclosed subjective intent; (2) the interpretation of
the contracts raised a question of law for the trial court; (3) under the proper
interpretation of section 6.1 of the Option Agreement, KB had to pay only those impact
fees that accrued or became due during the term of the Option Agreement; and (4) there
was no substantial evidence that any of the impact fees awarded by the jury had accrued
or become due before termination of the Option Agreement.
Estancia opposed the motion on multiple grounds. Estancia asserted that by
demanding the jury decide the breach of contract claims, KB forfeited its argument that
the trial court must interpret the contracts. Estancia also argued various contractual
provisions, other documents, and witnesses' testimony constituted substantial evidence
that it was the intent of the parties that KB build "finished lots," and substantial evidence
showed that the impact fees were included in the cost to deliver such lots.
The trial court denied KB's partial JNOV motion, "find[ing] that there was
sufficient evidence to support the verdict."
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F. Judgment
KB paid the award of property taxes, and the court entered judgment for Estancia
in the amount of $9,170,145.84. The judgment included an award of pre- and
postjudgment interest.
G. Orders Awarding Attorney Fees and Costs
Estancia moved for an award of attorney fees under the Option Agreement. KB
opposed the motion on the grounds, among others, that attorney fees were not
recoverable for breach of the Construction Agreement and Estancia sought fees for tasks
that were not reasonably necessary. The court awarded the full amount of fees Estancia
requested. By separate order, the court awarded Estancia its claimed costs.
H. Appeals
KB filed a notice of appeal from the judgment and the order denying its partial
JNOV motion, and a separate notice of appeal from the orders awarding attorney fees and
costs. (Code Civ. Proc., § 904.1, subd. (a)(1), (2), (4).) We consolidated the appeals.
III.
DISCUSSION
KB contends the judgment and the order denying its partial JNOV motion must be
reversed because the trial court erroneously submitted the issue of who was contractually
obligated to pay impact fees to the jury, and the jury's award of impact fees to Estancia
was based on a legally incorrect interpretation of the parties' contracts. According to KB,
remand for entry of a new judgment deleting the award of impact fees is required. KB
also contends reversal of the judgment requires reversal of the orders awarding costs and
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attorney fees. For reasons discussed below, we conclude KB is correct as to impact fees
and attorney fees, but not as to costs.
A. The Award of Impact Fees Must Be Eliminated from the Judgment
KB complains the jury improperly awarded Estancia nearly $6.5 million in impact
fees because KB had no contractual obligation to pay them. To resolve this complaint,
we must determine the scope of KB's contractual obligation to pay impact fees and
whether KB breached that obligation, issues we take up in turn below.
1. KB Was Not Contractually Obligated to Pay the Impact Fees Awarded by
the Jury
a. The Proper Standard of Review Is De Novo
We must first decide a threshold matter the parties vigorously dispute: What
standard of review applies to interpretation of the parties' contracts? Estancia argues
review for substantial evidence is the correct standard because at trial the parties
presented conflicting extrinsic evidence on the meaning of the contracts. KB counters
that de novo review is the proper standard because no conflicting competent extrinsic
evidence was presented at trial. We agree with KB.
Appellate review of an interpretation of a written contract "is governed by the
settled rule that where extrinsic evidence has been properly admitted as an aid to the
interpretation of a contract and the evidence conflicts, a reasonable construction of the
agreement . . . which is supported by substantial evidence will be upheld." (In re
Marriage of Fonstein (1976) 17 Cal.3d 738, 746-747.) This rule applies only when
competent extrinsic evidence is in conflict and interpretation turns on the credibility of
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that evidence. (City of Hope Nat. Medical Center v. Genentech, Inc. (2008) 43 Cal.4th
375, 395 (City of Hope); Winet v. Price (1992) 4 Cal.App.4th 1159, 1166 (Winet).) Thus,
an appellate court is not bound by an interpretation of a contract by a jury or a trial court
if no extrinsic evidence was introduced, there was no conflict in the extrinsic evidence, or
the interpretation was based on incompetent extrinsic evidence. (Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 865; accord, City of Hope, at p. 395; see Rilovich
v. Raymond (1937) 20 Cal.App.2d 630, 639-640.) "Under these circumstances, there is
no issue of fact, and it is the duty of an appellate court to make the final determination in
accordance with the applicable principles of law." (Estate of Platt (1942) 21 Cal.2d 343,
352; accord, Canaan Taiwanese Christian Church v. All World Mission Ministries (2012)
211 Cal.App.4th 1115, 1124.)
Applying these rules, we must interpret the parties' contracts de novo because
there was no conflict in competent extrinsic evidence as to their meaning. The testimony
of Albanez, Bose, and Gallagher as to what obligations each of them intended or
understood the Option and Construction Agreements to impose regarding payment of
impact fees exemplifies the conflicting extrinsic evidence introduced at trial. (See
pt. II.C., ante.) Although Albanez and Bose testified they communicated some of their
intents and understandings to KB representatives, there was no testimony that the KB
representatives shared or agreed with those intents or understandings — in fact,
Gallagher testified he had contrary intents and understandings. The extrinsic evidence
thus "amount[ed] to nothing more than a statement of what [each witness] personally
believed the agreement of the parties to be," which is "immaterial" to the proper
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interpretation of their agreement. (Brant v. California Dairies, Inc. (1935) 4 Cal.2d 128,
133 (Brant); see Morrow v. Los Angeles Unified School Dist. (2007) 149 Cal.App.4th
1424, 1444 [witness's "opinion as to the meaning and legal effect of a contract" was
inadmissible as to interpretation of contract]; Achen v. Pepsi-Cola Bottling Co. (1951)
105 Cal.App.2d 113, 123 [interpretation of contract is "not controlled in any sense by
what either of the parties intended or thought its meaning to be"].) In other words,
although the extrinsic evidence was conflicting, it was not competent extrinsic evidence.
(See, e.g., PV Little Italy, LLC v. MetroWork Condominium Assn. (2012) 210
Cal.App.4th 132, 157 [a party's "subjective statements of 'understanding' are
irrelevant . . . , particularly where there is no evidence that [the other party] had the same
understanding"]; Winet, supra, 4 Cal.App.4th at p. 1166, fn. 3 ["While this 'subjective
intent' evidence was conflicting, it was not competent extrinsic evidence, because
evidence of the undisclosed subjective intent of the parties is irrelevant to determining the
meaning of contractual language."]; Merced County Sheriff's Employee's Assn. v. County
of Merced (1987) 188 Cal.App.3d 662, 672, fn. 1 [a "party's subjective 'understanding' of
the meaning of the written contract . . . does not present a credibility question"].) Where,
as here, there is no conflict in competent extrinsic evidence, the interpretation of a
contract "becomes solely a judicial function" (City of Hope, supra, 43 Cal.4th at p. 395),
and "is subject to independent review on appeal" (Scheenstra v. California Dairies, Inc.
(2013) 213 Cal.App.4th 370, 390 (Scheenstra); see Winet, at p. 1166 & fn. 3 [interpreting
contract de novo when only conflict was in extrinsic evidence that was not competent]).
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b. KB Did Not Lose Its Right to Urge De Novo Review on Appeal
Estancia contends KB is "estopped" to argue we should interpret the contracts de
novo because in the trial court KB: (1) contended the contractual provisions concerning
impact fees were "ambiguous," and "demanded" the jury hear extrinsic evidence about
those provisions; (2) "vigorously opposed" Estancia's in limine motion requesting the
trial court decide who was contractually obligated to pay the impact fees without
considering any extrinsic evidence; and (3) requested a jury instruction on ambiguity, and
never sought a preverdict ruling from the court on any contract interpretation issues.
These contentions have no merit.
First, KB never contended the jury needed to resolve any ambiguity regarding
who had the contractual obligation to pay impact fees. To the contrary, KB repeatedly
argued that issue presented a legal question for the court to decide. For example:
— In discovery responses cited by Estancia, KB stated certain terms and phrases
used in the parties' contracts (e.g., "Work," "fees," and "governmental fees") were
ambiguous. KB did not state the contracts were ambiguous as to who bore the
obligation to pay impact fees.
— In opposing Estancia's motion in limine, KB stated its belief the contracts were
not ambiguous as to its obligation to pay impact fees, and section 6.1 of the Option
Agreement limited its obligation to fees that accrued or became due during the
term of the Option Agreement. KB also stated it was "confident" that after the
evidence was presented, the court would agree KB only had to pay impact fees
that accrued or became due during the option term, and the jury would agree no
such fees accrued or became due until after the option expired.
— During trial, when Estancia sought testimony from Bose and Albanez about
their subjective intents and understandings as to whom the Option and
Construction Agreements required to pay the impact fees, KB repeatedly objected
on the ground such testimony was irrelevant to the proper legal interpretation of
the contracts.
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— After the jury returned its verdict, KB filed its partial JNOV motion, arguing
Estancia's extrinsic evidence could not properly be considered in interpreting the
contracts; interpretation raised a question of law for the court to decide; and under
the correct interpretation, KB was not liable for the impact fees.
Second, KB did not lose its right to urge de novo review on appeal by opposing
the in limine motion Estancia filed to preclude presentation of extrinsic evidence to the
jury until after the trial court ruled on who was contractually obligated to pay the impact
fees. In its opposition, KB asserted section 6.1 of the Option Agreement "clearly limited
[its] obligation to pay only those fees that accrued or became due during the term of the
Option Agreement," but because Estancia contended otherwise, the trial court
provisionally had to hear extrinsic evidence to determine whether the contracts were
reasonably susceptible to the different interpretations. In making this argument, KB
simply urged the court to follow correct procedure.
"Where the meaning of the words used in a contract is disputed, the trial
court must provisionally receive any proffered extrinsic evidence which is
relevant to show whether the contract is reasonably susceptible of a
particular meaning. [Citations.] Indeed, it is reversible error for a trial
court to refuse to consider such extrinsic evidence on the basis of the trial
court's own conclusion that the language of the contract appears to be
clear and unambiguous on its face. Even if a contract appears
unambiguous on its face, a latent ambiguity may be exposed by extrinsic
evidence which reveals more than one possible meaning to which the
language of the contract is yet reasonably susceptible." (Morey v. Vannucci
(1998) 64 Cal.App.4th 904, 912, italics added.)
Although the court typically hears extrinsic evidence outside the presence of the jury
(Equitable Life Assurance Society v. Berry (1989) 212 Cal.App.3d 832, 838), KB
reasonably argued that for reasons of witness convenience and judicial economy, the
court should not hold a separate hearing regarding extrinsic evidence because the jury
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needed to hear that evidence and other testimony from the same witnesses in order to
decide factual questions related to the issue of breach (e.g., when impact fees accrued or
became due, and whether payment of impact fees was necessary to complete the Work).
But, KB made very clear in its opposition that the contracts were not ambiguous as to the
allocation of responsibility for payment of impact fees, it had no obligation to pay those
fees, and it was "confident" the trial court would agree after hearing the extrinsic
evidence.
Third, by agreeing to a jury instruction on ambiguity and by not moving for
summary judgment, nonsuit, or directed verdict, KB did not lose its right to argue that we
must interpret the contracts de novo. Estancia's contrary assertion is not supported by the
case on which it exclusively relies, Mozzetti v. City of Brisbane (1977) 67 Cal.App.3d
565. Unlike the defendant in Mozzetti, KB did not request a jury instruction that was
"tantamount to submitting the legal questions in dispute to the jury." (Id. at p. 573, italics
added.) The jury instruction quoted by Estancia neither informed the jury that the parties
had a dispute over who bore the contractual obligation to pay impact fees nor advised the
jury how to resolve that dispute. Rather, the instruction informed the jury that the parties
had a factual dispute over what physical tasks were included in the "Work" KB agreed to
do and what types of associated expenses constituted the "fees" KB had to pay, and
advised the jury of some factors to consider to resolve that dispute.2 Further, unlike the
2 The instruction, based on CACI No. 314, stated: "Estancia and KB dispute the
meaning of terms contained in their contracts regarding the scope of work to be
performed by KB and the fees that it would pay. [¶] In deciding what the terms of a
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defendant in Mozzetti, KB did not fail to seek a determination of the legal issues by the
trial court. (Ibid.) As Mozzetti recognized, a party may preserve a claim that the court
should have decided disputed legal issues if it moves for summary judgment, nonsuit, or
directed verdict, or "seek[s] a court determination on the legal issues in any other way."
(Ibid., italics added.) KB satisfied this preservation requirement by filing a partial JNOV
motion. (See Stevenson v. Oceanic Bank (1990) 223 Cal.App.3d 306, 313, 318 [JNOV
motion properly granted when jury awarded damages based on erroneous contract
interpretation supported by incompetent extrinsic evidence]; Hansen v. Sunnyside
Products, Inc. (1997) 55 Cal.App.4th 1497, 1510 ["Where appropriate a partial JNOV
may be granted."].)
In sum, we reject Estancia's argument that KB invited the error in the jury's
determination of disputed contractual interpretation issues based upon incompetent
extrinsic evidence. We hold KB did not lose its right to pursue its claim on appeal that
we must interpret the contracts de novo.
c. The Option Agreement Expressly Limits KB's Obligation to Pay
Impact Fees to Those That Accrued or Became Due During the Term
of the Option Agreement
Applying the de novo standard of review, we now must determine the scope of
KB's contractual obligation to pay impact fees. Our primary goal in interpreting a
contract is to effectuate the mutual intention of the parties as it existed at the time the
contract mean, you must decide what the parties intended at the time the contract was
created. You may consider the usual and ordinary meaning of the language used in the
contract as well as the circumstances surrounding the making of the contract."
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contract was made. (Civ. Code, § 1636; State of California v. Continental Ins. Co.
(2012) 55 Cal.4th 186, 195.) We ascertain such intention solely from the words of a
written contract, if possible. (Civ. Code, § 1639; Continental Ins. Co., at p. 195.) The
words used in a contract, taken in their ordinary and popular sense unless used in a
technical sense, govern interpretation of the contract as long as the words are clear and
explicit and do not involve an absurdity. (Civ. Code, §§ 1638, 1644; Code Civ. Proc.,
§ 1861; Continental Ins. Co., at p. 195.) In short, to decide whether KB must pay the
impact fees, "[w]e look to the contract itself and interpret it so as to give effect to the
intent of the parties." (Sayble v. Feinman (1978) 76 Cal.App.3d 509, 513 (Sayble).)
The parties explicitly set forth their intent concerning the payment of impact fees
in section 6.1 of the Option Agreement, which states in pertinent part:
"It is the parties' intention that [Estancia] shall not be required, during the
term of this Agreement, to incur any expense or other charge applicable to
[Old Creek Ranch] except as expressly set forth herein, so that all
impositions, . . . utility expenses, construction costs, . . . development fees,
community facility district fees or costs, storm water pollution prevention
fees or costs, . . . and all other costs and expenses (but excluding income
taxes and franchise taxes) of whatsoever character or kind, general or
special, ordinary or extraordinary, foreseen or unforeseen, and of every
kind and nature whatsoever related to [Old Creek Ranch] (collectively,
'Expenses'), shall be paid or discharged by [KB] . . . . The Expenses are
additional Option consideration and are nonrefundable to [KB] and not
applicable to the purchase price of the Condominiums. Without limiting
the foregoing, [KB] shall . . . pay prior to delinquency all real estate taxes,
special taxes, assessments and other charges, including . . . fees or costs
pertaining to roadway, water, wastewater, impact or other fees payable to
the City or any other Approving Authority, or otherwise payable by
[Estancia] and attributable to [Old Creek Ranch], which accrue or become
due during the term of this Agreement (but regardless of whether such
taxes . . . , assessments, fees or charges relate to periods prior to the term of
this Agreement) . . . . After termination of this Agreement, [KB] shall have
no further obligation to pay the Expenses as they relate to Condominiums
21
or Real Property not previously acquired by [KB]; provided, however,
nothing herein shall limit [KB's] obligations under Section 9.1 below."
(Italics added.)
Section 9.1, the indemnity clause of the Option Agreement, requires KB to indemnify
Estancia against "any loss, liability, claim, action or proceeding made against [Estancia]
or [Old Creek Ranch] relating to impact fees . . . arising for any time periods during and
before the term of this Agreement." (Italics added.)
As the italicized language above indicates, section 6.1 of the Option Agreement
allocates the duty to pay impact fees based on the date the fees "accrue" or "become due"
relative to the date the Option Agreement terminates. An impact fee accrues when it
"come[s] into existence as an enforceable claim" or "vest[s] as a right." (Webster's 3d
New Internat. Dict. (2002) p. 13, col. 2; accord, Black's Law Dict. (9th ed. 2009) p. 23,
col. 2; see Webster's, p. 13, col. 3 [defining "accrued liability" as "the portion of an
accruing liability that has become definitely ascertainable and chargeable though actual
payment thereof is not yet due"].)3 An impact fee becomes due when it "come[s] to
exist" and "reache[s] the date at which payment is required." (Webster's, p. 195, col. 1
[defining "become"], p. 699, col. 2 [defining "due"]; see Black's, p. 574, col. 1 [defining
"due" as "[i]mmediately enforceable" or "[o]wing or payable"].) Thus, under the plain
meaning of section 6.1, KB had to pay an impact fee if the governmental entity's right to
3 We must interpret the words "accrue" and "become due" in their ordinary and
popular sense because the parties did not give them a special or technical meaning. (Civ.
Code, § 1644; Code Civ. Proc., § 1861.) In doing so, we may consult dictionaries, where
the ordinary and popular sense of a word is found. (People ex rel. Lockyer v.
R.J. Reynolds Tobacco Co. (2004) 116 Cal.App.4th 1253, 1263; Scott v. Continental Ins.
Co. (1996) 44 Cal.App.4th 24, 30.)
22
collect the fee arose or came into existence during the time period the Option Agreement
was in effect, regardless of whether the governmental entity could demand payment of
the fee immediately or only at a future time. Once the Option Agreement terminated and
KB had acquired no portion of Old Creek Ranch, however, KB had no obligation to pay
any new impact fees that arose going forward; but KB did retain a duty to indemnify
Estancia against claims for payment of impact fees that a governmental entity previously
had acquired a right to collect. Since these temporal limitations on KB's duty to pay
impact fees are clear and explicit and do not involve an absurdity, they govern. (Civ.
Code, §§ 1638, 1639; County of San Diego v. Ace Property & Casualty Ins. Co. (2005)
37 Cal.4th 406, 415; Valencia v. Smyth (2010) 185 Cal.App.4th 153, 177.)
2. KB Did Not Breach Its Contractual Obligation to Pay Impact Fees
Next, we must determine whether KB breached its contractual duty by refusing to
pay impact fees that accrued or became due during the time the Option Agreement was in
effect. The parties agree that whether a party breached a contract is a question of fact
(Moresco v. Foppiano (1936) 7 Cal.2d 242, 245; Kotler v. PacifiCare of California
(2005) 126 Cal.App.4th 950, 956), to which we apply the substantial evidence standard
of review (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429; Fariba v. Dealer
Services Corp. (2009) 178 Cal.App.4th 156, 170). The record here contains no
substantial evidence of any breach by KB. The parties agree the Option Agreement
23
terminated no later than March 7, 2007, and undisputed evidence shows that none of the
impact fees awarded by the jury accrued or became due by then.4
The impact fees awarded by the jury included those for schools, parks, roadways,
and water and sewer facilities. The City had no legal right to collect school impact fees
until it had approved and issued a building permit. (Ed. Code, § 17620, subd. (b); Gov.
Code, § 65974, subd. (c); San Marcos Mun. Code, § 17.52.050, subd. (i).) Park and
roadway impact fees likewise were "due and payable upon issuance of a building permit
by the City." (San Marcos Mun. Code, §§ 17.36.040, 17.44.070.)5 According to
Estancia, building permits were issued at various times from June 2009 through April
2011, more than two years after termination of the Option Agreement. Water and sewer
impact fees did not become "owing, due, and payable" until applications for service were
submitted to the Vallecitos Water District (the District). (Vallecitos Water Dist. Ord.
Nos. 122, § 9, 138, § 9, 139, § 8.)6 Those applications were not submitted until
August 4, 2009, and fees were not paid until the following December.
4 Because the operative facts concerning breach of contract are not in dispute, the de
novo standard of review would appear to be more appropriate. (See, e.g., Sweatman v.
Department of Veterans Affairs (2001) 25 Cal.4th 62, 68; Ghirardo v. Antonioli (1994) 8
Cal.4th 791, 799 (Ghirardo); Scheenstra, supra, 213 Cal.App.4th at p. 391.) As
explained in the text, however, even under the more deferential substantial evidence
standard urged by the parties, KB is not liable for breach.
5 Estancia's expert witnesses agreed school, park, and roadway impact fees had to be
paid to obtain a building permit.
6 The District's engineer, Kenneth Gerdes, whom Estancia called as a witness,
agreed water and sewer impact fees must be paid when a customer requests service.
24
In sum, the evidence shows that all of the impact fees KB challenges on appeal
accrued or became due after termination of the Option Agreement. Hence, under the
plain terms of section 6.1, KB had no contractual obligation to pay any of them.
3. None of Estancia's Arguments in Support of the Award of Impact Fees Has
Merit
Estancia advances several arguments in defense of the jury's award of impact fees.
As we explain below, none is persuasive.
a. KB Did Not Waive Its Right to Appeal by Failing to Discuss All
Material Evidence in Its Opening Brief
Estancia contends KB waived its right to appeal under the rule that unless an
appellant challenging the sufficiency of the evidence to support a verdict sets forth in its
brief all material evidence — not just the evidence supporting the appellant's position, but
also that supporting the respondent's position — the challenge is deemed waived.
(Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) Although in its briefs KB
did not cite so much of the evidence supporting Estancia's position as did Estancia in its
brief, KB did discuss the contract provisions, documents, and testimony relevant to our
resolution of the issues raised on appeal. There has been no waiver.
b. Section 6.1 of the Option Agreement Does Not Require KB to Pay
the Impact Fees
Estancia next argues section 6.1 of the Option Agreement requires KB to pay the
impact fees because the record contains substantial evidence that KB's "impact fee
obligations" accrued during the option term, even though the fees themselves might not
have been due and payable during that term. According to Estancia, KB immediately
25
obligated itself to pay the impact fees when it signed the Purchase Agreement and the
Option Agreement; when the Development Declaration was recorded; when the City
issued its conditions of approval for the development of Old Creek Ranch; and when the
District demanded payment of water and sewer impact fees in November 2006. We are
not persuaded.
To the extent Estancia bases its argument on the provisions of the Purchase
Agreement, the Option Agreement, and the Development Declaration, Estancia confuses
the issue of when KB's executory obligation to pay impact fees arose with the issue of
when a particular impact fee accrued or became due. Although KB assumed an
obligation to pay impact fees when it signed the Purchase and Option Agreements, and
the Development Declaration confirmed that obligation insofar as it was based on the
Purchase Agreement, section 6.1 of the Option Agreement expressly limited that
obligation to impact fees "which accrue or become due during the term of this
Agreement." Thus, to trigger KB's obligation to pay an impact fee, the specific impact
fee itself must have accrued or become due during the term of the Option Agreement.
Because, all of the impact fees at issue on appeal accrued or became due after termination
of the Option Agreement, KB had no obligation to pay any of them.
Estancia also asserts the accrual of KB's impact fee obligations was affirmed when
the City imposed conditions of approval on the development of Old Creek Ranch.
Estancia cites no legal authority to support this assertion. The only evidence Estancia
cites is testimony from Ryan, its expert "real estate professional," that "impact fees are
normal and customary in the real estate industry"; "the City puts them in the conditions of
26
approval" because "they are paid by the developer of the site," not by the project lender;
and a "shift in timing" of the payment of impact fees does not "shift[] the obligation" to
pay them. None of this generalized testimony about who customarily pays impact fees
for a real estate development project indicates when any particular impact fee accrued or
became due as to Old Creek Ranch, the issue determinative of KB's obligation to pay
such a fee. Ryan's opinions about who ordinarily has to pay impact fees are not binding
on us, because the determination of KB's obligation to pay impact fees depends on the
interpretation of statutes, ordinances, and contracts, and their application to undisputed
facts, which are all matters subject to our de novo review. (City of Monterey v.
Carrnshimba (2013) 215 Cal.App.4th 1068, 1081; Scheenstra, supra, 213 Cal.App.4th at
pp. 390-391; Herman v. Los Angeles County Metropolitan Transportation Authority
(1999) 71 Cal.App.4th 819, 825.)
Lastly, Estancia maintains the water and sewer impact fees accrued and became
due in November 2006 when the District demanded payment of those fees. We disagree.
Although in November 2006 the District did demand payment of impact fees as a
condition of final approval of the development plans, the District later withdrew that
demand. At trial, Gerdes, the District's engineer, testified that when he signed off on the
plans on March 13, 2007, the water and sewer impact fees were not yet due. Gerdes
explained that the fees for Old Creek Ranch had to be paid "prior to hook-up or prior to
taking service, actually turning on the meter and taking service," "either through water
meters or through the public sewer." Gerdes further testified that water and sewer impact
fees are not like property taxes, which accrue during the year but are not payable until a
27
later date, because water and sewer impact fees do not have to be paid unless and until
there is a request for service. Gerdes's testimony is consistent with the District's
ordinances, which provide that water and sewer impact fees "shall become owing, due,
and payable at the time application is made to connect to the District's water [or sewer]
system." (Vallecitos Water Dist. Ord. Nos. 122, § 9, 138, § 9, 139, § 8.) Because no
such application was made until 2009, the water and sewer impact fees did not accrue or
become due before termination of the Option Agreement in March 2007.
c. Section 6.5 of the Option Agreement Does Not Require KB to Pay
the Impact Fees
Estancia also contends section 6.5 of the Option Agreement requires KB to pay the
impact fees. That provision states: "[KB] agrees and acknowledges that it is the intent of
the parties that notwithstanding the fact that [Estancia] acquired [Old Creek Ranch] as the
'Buyer' under the Purchase Agreement, all the obligations of . . . 'Buyer' under the
Purchase Agreement . . . shall be performed by and shall be the sole obligations of [KB]."
Among the many obligations the Purchase Agreement imposed on the Buyer was the
obligation to pay specified "Buyer's Fees," including the impact fees. According to
Estancia, section 6.5 was specifically negotiated to ensure that KB retained full
responsibility for the impact fees no matter when due, and section 6.1 was not intended to
limit the scope of section 6.5. We perceive at least three flaws in this argument.
First, to the extent general and specific contract provisions conflict, the specific
provision controls. (Civ. Code, § 3534; Code Civ. Proc., § 1859; National Ins.
Underwriters v. Carter (1976) 17 Cal.3d 380, 386 (Carter); Ovitz v. Schulman (2005)
28
133 Cal.App.4th 830, 855 (Ovitz).) Here, the temporally limited duty to pay impact fees
specifically prescribed by section 6.1 prevails over the broad duty to perform all of the
Buyer's obligations under the Purchase Agreement generally prescribed by section 6.5.
Second, Estancia's interpretation of section 6.5 effectively reads section 6.1 out of
the Option Agreement. If, as Estancia insists, section 6.5 requires KB to pay impact fees
no matter when due, the explicit language of section 6.1 restricting KB's payment
obligation to fees that accrued or became due during the term of the Option Agreement
would be nullified. A court should not interpret a contract so as to render a provision
inoperative or meaningless. (Code Civ. Proc., § 1858; Founding Members of the
Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109
Cal.App.4th 944, 957; Kavruck v. Blue Cross of California (2003) 108 Cal.App.4th 773,
783.) Rather, a court should strive to give effect to every contractual provision and to
avoid making any superfluous. (Civ. Code, § 1641; Carson v. Mercury Ins. Co. (2012)
210 Cal.App.4th 409, 420; Zalkind v. Ceradyne, Inc. (2011) 194 Cal.App.4th 1010,
1027). We thus interpret section 6.1 to govern KB's obligation to pay impact fees and
section 6.5 to govern other obligations KB assumed under the Purchase Agreement.
Third, interpreting section 6.5 of the Option Agreement as overriding the temporal
limitations of section 6.1 would upset the parties' basic bargain and produce an unjust
result. A court must give a contract a reasonable and commonsense interpretation that is
consistent with the parties' apparent purpose in entering into the contract. (Civ. Code,
§ 1643; People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal.App.4th
516, 526; Howe v. American Baptist Homes of the West, Inc. (1980) 112 Cal.App.3d 622,
29
626.) Here, the parties' contractual relationship was essentially a financing arrangement:
Lo Land, Estancia's assignor, bought Old Creek Ranch for $52 million and granted KB
an option to purchase and develop the property in parcels over time, and in exchange KB
paid Lo Land $17.7 million in initial and monthly payments to keep the option open. The
Option Agreement also required KB to pay impact fees that "accrued or become due
during the Option Term" as "additional consideration" for the option and as a "condition"
to keeping it open. Although it is economically rational for KB to agree to pay impact
fees that arose during the option term as additional consideration to keep the option open,
it is not economically rational for KB to agree to pay impact fees that arose after Lo Land
terminated the Option Agreement. Rather, it would be inequitable to require KB to pay
not only the $17.7 million it had already paid to keep the option open but also the
$6.5 million in post-termination impact fees as "additional consideration" for an option it
no longer had a right to exercise. Since we must adopt an interpretation that makes a
contract fair and reasonable rather than one that leads to a harsh and illogical result (Code
Civ. Proc., § 1866; Cohn v. Cohn (1942) 20 Cal.2d 65, 70; Chavez v. Indymac Mortgage
Services (2013) 219 Cal.App.4th 1052, 1058; Cooper v. Mart Associates (1964) 225
Cal.App.2d 108, 116), we reject Estancia's claim that section 6.1 was not intended to
limit the scope of section 6.5.
d. The Survival Clause of the Option Agreement Does Not Require KB
to Pay the Impact Fees
Estancia claims that under the survival clause of the Option Agreement, KB's
obligation to pay impact fees remained a binding obligation regardless of whether the
30
option was exercised or terminated. We disagree. As pertinent here, the survival clause
states: "Unless expressly provided to the contrary herein, . . . all obligations and
indemnities contained in this Agreement shall survive the . . . termination of this
Agreement, so that such obligations and indemnities shall continue to be binding upon
the parties hereto . . . ." (Italics added.) Section 6.1 of the Option Agreement "expressly
provided to the contrary" by stating: "After the termination of this Agreement, [KB]
shall have no further obligation to pay the Expenses[,]" including impact fees. Although
Estancia ignores the limiting language of the survival clause italicized above, we must
give effect to such clear and explicit language. (Civ. Code, § 1638; Bank of the West v.
Superior Court (1992) 2 Cal.4th 1254, 1264; Brandt v. Lockheed Missiles & Space Co.
(1984) 154 Cal.App.3d 1124, 1129-1130.)
e. The Indemnity Clause of the Option Agreement Does Not Require
KB to Pay the Impact Fees
Next, Estancia asserts the indemnity clause of the Option Agreement requires KB
to pay the impact fees. Estancia is incorrect. As pertinent here, the indemnity clause
requires KB to indemnify Estancia against "any loss, liability, claim, action or proceeding
made against [Estancia] or [Old Creek Ranch] relating to impact fees and/or real property
taxes arising for any time periods during and before the term of this Agreement." (Italics
added.) Under this plain language, KB is not liable for the impact fees because all of
them arose after Estancia terminated the Option Agreement. The indemnity provisions
on which Estancia relies relate more generally to obligations of the Buyer under the
Purchase Agreement and do not override the provision specifically governing impact
31
fees. (Civ. Code, § 3534; Code Civ. Proc., § 1859; Carter, supra, 17 Cal.3d at p. 386;
Ovitz, supra, 133 Cal.App.4th at p. 855.)
f. The Construction Agreement Does Not Require KB to Pay the
Impact Fees
Finally, Estancia argues the jury properly awarded impact fees based on KB's
breach of the Construction Agreement. In support of this argument, Estancia contends:
(1) the Work to be performed under the Construction Agreement itself included payment
of impact fees; and (2) the Construction Agreement required KB to complete all work
necessary to deliver "finished lots," and impact fees had to be paid for lots to be
considered "finished." We reject these contentions as inconsistent with the plain
language of the Construction Agreement.
Two provisions of the Construction Agreement are pertinent here. Section 1.1
required KB to "perform and complete the 'Work,' " which was defined as "the
construction and services required by (and reasonably inferable from) the 'Contract
Documents' . . . , whether completed or partially completed, and includes all labor,
materials, equipment and services provided or to be provided by [KB] to fulfill [its]
obligations under this Agreement." (Italics added.) Section 1.1 further provided: "The
Work consists generally of the construction of certain roads, fencing, sewers, curbs,
gutters, grading, water lines and utility lines within, and adjacent to, [Old Creek Ranch]."
Section 2.6 of the Construction Agreement obligated KB to "secure and pay for all
approvals, easements, assessments, charges, permits and governmental fees, licenses and
inspections necessary for proper execution and completion of the Work." (Italics added.)
32
Thus, KB had to pay all governmental fees required to grade, fence, construct roads,
install utility lines, and otherwise physically improve Old Creek Ranch so that homes
could be built on it.
That obligation did not include payment of any of the impact fees awarded by the
jury. The school, park, and roadway impact fees did not have to be paid until approval
and issuance of building permits for homes; and the water and sewer impact fees did not
have to be paid until application was made to connect the homes to the District's facilities
and obtain service. (See pt. III.A.2, ante.) Payment of those impact fees was therefore
not necessary unless and until homes were built. The Construction Agreement, however,
did not obligate KB to build any homes. The Work that section 1.1 required KB to
perform consisted only of physical tasks needed to prepare the site for later home
building. Accordingly, under section 2.6, KB did not have to pay the impact fees because
they were not "necessary for proper execution and completion of the Work."
Ignoring the contractual language and quoting only extrinsic evidence, Estancia
claims the definition of Work contained in the Construction Agreement includes payment
of impact fees.7 That claim is untenable. Section 1.1 defines the Work generally as
7 Estancia asserts "Gallagher admitted that the 'Work' to be performed under the
Construction Agreement included impact fees," but the testimony Estancia quotes belies
that assertion. When asked whether it was his "understanding that the work to be done
under the Construction Agreement included impact fees," Gallagher responded, "I think
the work included whatever we were doing . . . to construct and build homes. So if it . . .
incurred a fee, then we would have to pay that as the builder." (Italics added.) Gallagher
later explained: "[T]his doesn't really talk about the homes. This talks about the
completion of the 'Work.' So if we had to get a grading permit, for instance, we would
have to pay for a grading permit." Hence, Gallagher's testimony is consistent with the
33
"construction and services," and then lists "roads, fencing, sewers, curbs, gutters, grading,
water lines and utility lines" as specific examples of the types of construction or services
included within the definition. "[W]here specific words follow general words in a
contract, 'the general words are construed to embrace only things similar in nature to
those enumerated by the specific words.' " (Nygård, Inc. v. Uusi-Kerttula (2008) 159
Cal.App.4th 1027, 1045.) Payment of impact fees constitutes neither "construction" nor
"services," and it bears no resemblance to grading, fencing, building roads, installing
utility lines, or doing any of the other physical tasks needed to prepare Old Creek Ranch
for later home building. Hence, contrary to Estancia's claim, we conclude that paying
impact fees was not part of the Work the Construction Agreement required KB to do.
We also reject Estancia's contention that the Construction Agreement required KB
to do all work necessary to deliver "finished lots," a phrase Estancia claims is understood
in the real estate industry to mean subdivision lots for which, among other things, impact
fees have been paid. (See fn. 1, ante.) As Estancia acknowledges in its briefing, the
quoted phrase never appears in the Construction Agreement, although the parties
included it in the letter of intent that preceded the final contracts. "The execution of a
contract in writing . . . supersedes all the negotiations or stipulations concerning its matter
which preceded or accompanied the execution of the instrument." (Civ. Code, § 1625.)
Thus, when interpreting a contract, a court's task "is simply to ascertain and declare what
requirement of section 2.6 that KB pay only those governmental fees necessary to
complete the Work. In any event, Gallagher's "understanding" of the Construction
Agreement is irrelevant to its proper interpretation. (Brant, supra, 4 Cal.2d at p. 133;
Winet, supra, 4 Cal.App.4th at p. 1166, fn. 3.)
34
is in terms or in substance contained therein, not to insert what has been omitted." (Code
Civ. Proc., § 1858; see Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 954.)
"This court has neither the power to make for the parties a contractual arrangement which
they themselves did not make nor to insert in the agreement language that [one party]
now wish[es] were there." (Sayble, supra, 76 Cal.App.3d at p. 515.) If Estancia wanted
delivery of "finished lots," it should have included that phrase in the Construction
Agreement. But it did not.
Estancia asserts, however, that KB's statement in discovery responses that the term
"Work" was ambiguous as used in the Construction Agreement permitted the jury to
resolve the ambiguity in Estancia's favor based on extrinsic evidence that the term
essentially meant construction of lots for which impact fees had been paid. We disagree.
The ambiguity KB perceived was whether the construction of a swimming pool and other
improvements fell within the definition of Work, not whether the payment of impact fees
was included in the definition. On the issue of the obligation to pay impact fees, KB's
consistent position at trial was that the parties' contracts were not ambiguous and
extrinsic evidence was not properly considered by the jury. Moreover, "[e]ven where
extrinsic evidence in aid of interpretation was offered in the trial court, the appellate court
is not bound by the [jury's] findings if the extrinsic evidence . . . is inconsistent with the
only interpretation to which the instrument is reasonably susceptible." (Pasadena Police
Officers Assn. v. City of Pasadena (1983) 147 Cal.App.3d 695, 707.) Estancia's extrinsic
evidence is inconsistent with the plain language of the Construction Agreement requiring
KB to pay only those governmental fees needed to get the site ready for home building,
35
because the impact fees did not have to be paid unless and until homes were built. That
evidence therefore cannot support the jury's award of impact fees.
B. The Trial Court Must Reconsider the Attorney Fee Award but Not the Cost Award
KB contends reversal of the judgment to eliminate the award of impact fees
requires reversal of the orders awarding costs and attorney fees and remand for
redetermination of who is the prevailing party. We agree as to attorney fees, but not as to
costs.
1. The Trial Court Must Determine Anew Who Is the Prevailing Party for
Purposes of Attorney Fees
In light of our decision that Estancia is not entitled to recover any impact fees, the
trial court must reconsider its award of attorney fees. Estancia sought and obtained
attorney fees on the basis of the following provision of the Option Agreement:
"If there is any legal action or proceeding between the parties to enforce or
interpret any provisions of this Agreement or to protect or establish any
right or remedy of any of them hereunder, the unsuccessful party to such
action or proceeding shall pay to the prevailing party all costs and expenses
(including, but not limited to, reasonable attorneys' fees and costs) incurred
by such prevailing party in such action or proceeding."
The prevailing party under this provision is "the party who recovered a greater relief in
the action on the contract." (Civ. Code, § 1717, subd. (b)(1).) Based on the jury's
verdict, Estancia was the prevailing party because it had obtained "a 'simple, unqualified
win' " on each of its contract claims. (Hsu v. Abbara (1995) 9 Cal.4th 863, 876 (Hsu).)
Our conclusion the jury erroneously awarded the impact fees changes the outcome to a
mixed result, however, with Estancia prevailing on its claims for property taxes and costs
36
to complete site development work,8 and KB prevailing on Estancia's claim for the
impact fees. In such a situation, where neither party won a complete victory on all
contract claims, the trial court has discretion to determine which party prevailed or
whether, on balance, neither party prevailed sufficiently to justify an attorney fee award.
(Civ. Code, § 1717, subd. (b)(1); Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.)
We therefore reverse the order awarding attorney fees and remand the matter to allow the
trial court to exercise its discretion. (See, e.g., Ghirardo, supra, 8 Cal.4th at pp. 808-809
[reversing damages award and remanding for reconsideration of prevailing party issue];
Zagami, Inc. v. James A. Crone, Inc. (2008) 160 Cal.App.4th 1083, 1097 [same].)
For the guidance of the trial court on remand, we note that in deciding whether
there is a prevailing party for purposes of awarding attorney fees, the "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
8 We reject KB's argument that Estancia is not entitled to attorney fees based on the
award of costs to complete site development work because that award rested solely on
breach of the Construction Agreement. The Option Agreement defined a failure to
perform under any of the "Builder's Agreements," which included the Construction
Agreement, as a default that entitled Estancia to recover damages for breach of the
Option Agreement. Estancia's claim for costs to complete the site development work
thus fell within the scope of the attorney fee clause because the claim constituted an
"action or proceeding between the parties . . . to protect or establish any right or remedy"
under the Option Agreement. It is too late for KB to argue that its breach of the
Construction Agreement did not qualify as a default under the Option Agreement on the
ground that Estancia did not provide the required written notice of breach. KB did not
argue that factual point in the trial court in opposition to Estancia's attorney fee motion
and may not do so for the first time on appeal. (See, e.g., Silk v. Feldman (2012) 208
Cal.App.4th 547, 555; Perez v. Grajales (2008) 169 Cal.App.4th 580, 591-592.)
37
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.) The trial court must "identify the party obtaining 'a
greater relief ' by examining the results of the action in relative terms: the general term
'greater' includes '[l]arger in size than others of the same kind' as well as 'principal' and
'[s]uperior in quality.' " (Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1151.) In
mixed result cases like this one, the court also may determine there is no prevailing party
for purposes of attorney fees. (Civ. Code, § 1717, subd. (b)(1).) " '[T]ypically, a
determination of no prevailing party results when both parties seek relief, but neither
prevails, or when the ostensibly prevailing party receives only a part of the relief
sought.' " (Hsu, at p. 875.) We express no opinion on which party, if any, the trial court
on remand should determine to be the prevailing party.
2. Estancia Is the Prevailing Party for Purposes of Costs
Finally, we summarily reject KB's suggestion in a footnote in its opening brief that
we must also vacate the order awarding costs and remand for reconsideration. As "the
party with a net monetary recovery," Estancia is the prevailing party entitled to costs "as
a matter of right," even though it did not prevail on all of its claims for damages. (Code
Civ. Proc., § 1032, subds. (a)(4), (b); see Dell'Oca v. Bank of New York Trust Co., N.A.
(2008) 159 Cal.App.4th 531, 559.)
DISPOSITION
The judgment, the order denying KB's partial JNOV motion, and the order
awarding Estancia attorney fees are reversed. The order awarding costs is affirmed. The
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matter is remanded to the trial court with directions (1) to enter a new order granting
KB's partial JNOV motion; (2) to enter a new judgment deleting the jury's award of
$6,464,071.84 for impact fees, awarding Estancia damages in the total amount of
$2,706,074 for costs to complete site development work, and recalculating prejudgment
interest on that amount; and (3) to conduct further proceedings to determine whether
either Estancia or KB is a prevailing party entitled to attorney fees, and if so, to award the
prevailing party a reasonable amount of fees. Costs on appeal are awarded to KB.
IRION, J.
WE CONCUR:
HUFFMAN, Acting P. J.
McDONALD, J.
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