Monster v. Super. Ct.

Filed 6/21/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
MONSTER, LLC et al., B278289
Petitioners, (Los Angeles County
Super. Ct. No. BC595235)
v.
THE SUPERIOR COURT OF
LOS ANGELES COUNTY,
Respondent;
BEATS ELECTRONICS, LLC,
Real Party in Interest.
ORIGINAL PROCEEDING. Petition for writ of mandate,
William F. Fahey, Judge. Petition for writ of mandate granted.
Cotchett, Pitre & McCarthy, Joseph W. Cotchett, Philip L.
Gregory; Gordon & Reese, Gary J. Lorch and Elizabeth B.
Vanalek for Petitioners.
No appearance for Respondent.
Boies, Schiller & Flexner, William A. Isaacson and Karen
L. Dunn for Real Party in Interest.
_________________________
Petitioners Monster LLC and its founder, Noel Lee, filed a
tort action alleging Beats Electronics had engaged in a
fraudulent scheme to deprive them of their interest in the
company. In its answer, Beats asserted all of the petitioners’
claims were barred by release provisions set forth in the parties’
prior written agreements. Beats also filed a cross-complaint
alleging that: (1) petitioners had breached the terms of those
written agreements by filing their complaint; and (2) petitioners’
acts had damaged Beats by causing the company to incur
attorney’s fees and other litigation costs.
Beats filed a motion for summary judgment seeking
dismissal of petitioners’ claims based on the contractual release
provisions. The court granted the motion, and set a trial on
Beats’s cross-claims for breach of contract. At a subsequent case
management conference, Beats argued that Civil Code section
1717 required the court, rather than a jury, to determine the
amount of attorney’s fees it was entitled to recover as damages on
its cross-claims. Petitioners, however, asserted that because
Beats was seeking its attorney’s fees as a form of contract
damages, they were entitled to a jury trial on the issue. After
receiving supplemental briefing, the court entered an order
directing that the amount of Beats’s attorney’s fees be resolved
through a noticed motion.
Petitioners filed a petition for writ of mandate seeking an
order directing the trial court to vacate its order, and enter a
new order granting them a jury trial on the issue of attorney’s
fees. We issued an order to show cause, and now grant the
petition.
2
FACTUAL BACKGROUND
A. Summary of Events Preceding the Filing of
Monster’s Complaint
1. Summary of the parties’ licensing and manufacturing
agreements
Noel Lee is the founder and manager of Monster LLC, an
audio equipment company. Between 2005 and 2008, Lee and
Monster (collectively Monster) entered into discussions with
Andre Young (also known as Dr. Dre, hereafter Dre) and Jimmy
Iovine to design and manufacture a new line of headphones. In
January of 2008, Iovine and Dre signed a licensing agreement
granting Monster the right to manufacture and sell “Beats by
Dre”-branded headphones. After entering into the agreement,
Dre and Iovine founded “Beats Electronics” (Beats).
In August of 2009, Monster and Beats entered into an
amended agreement that superseded the 2008 licensing
agreement. The amended agreement included a provision stating
that Beats had “the right to terminate [the agreement] . . . at any
time on or after the earlier of (i) January 7, 2013 or (ii) the
closing of a transaction that results in a Change of Control.”
Beats’s operating agreement defined the term “Change of
Control” to mean the acquisition of more than 50 percent of the
company. The amended agreement further provided that upon
termination, Monster would be required to: (1) transfer its
ownership rights to the “industrial design” of all Beats-branded
products to Beats; and (2) grant Beats a non-exclusive license to
use any intellectual property that was necessary for the
“continued manufacture and sale of all Beats products.” The
3
amended agreement also contained a provision granting Lee a 5
percent ownership interest in Beats.
2. Termination of the 2009 licensing agreement
In August of 2011, mobile phone manufacturer HTC agreed
to purchase a 51 percent interest in Beats for approximately $300
million. Several weeks later, Beats notified Monster that the sale
to HTC qualified as a “Change of Control,” and that Beats
intended to exercise its right to terminate the 2009 licensing
agreement. In June of 2012, Beats and Monster executed a
“Termination Agreement and Mutual Release” (Termination
Agreement) setting forth the terms of Monster’s “transition and
separation” from Beats.
The “Recitals” section of the Termination Agreement stated
that the parties had entered into the agreement “to affirm the
termination” of their prior agreements, including the 2009
licensing agreement, and to “mutually release each other from
[existing] claims, . . . and set forth the [p]arties’ remaining
obligations to each other.” Under the terms of the Termination
Agreement, Monster was provided “the right to act as Beats’ sales
representative and distributor through the end of 2012, and the
right to certain royalties through the end of 2013.” Monster, in
turn, agreed to waive “any and all causes of action, claims, rights,
judgments . . . or liabilities[,] . . . arising under or in connection
with the performance or termination of the [prior licensing
agreements].”
The Termination Agreement also included an attorney’s
fees provision stating: “In the event that any [p]arty brings an
action to enforce or affect its rights under this Agreement, the
prevailing [p]arty . . . shall be entitled to recover its costs and
4
expenses, including, . . . reasonable attorney’s fees, incurred in
connection with such an action.”
3. Lee’s sale of his 5 percent interest in Beats
In December of 2012, Lee decided to sell back three
quarters of the 5 percent interest he had obtained in Beats
pursuant to the 2009 licensing agreement, leaving him with a
1.25 percent ownership interest in the company. The terms of
the sale were set forth in the “2012 Unit Repurchase Agreement,”
which contained a provision releasing all claims related to the
transaction, including claims for fraud or fraudulent inducement.
In October of 2013, Lee elected to sell Beats back his
remaining 1.25 percent interest in the company. The terms of
the sale were set forth in the “2013 Unit Repurchase Agreement,”
which contained a provision stating that both parties agreed to
release all claims “pertaining or relating to the Securities,
including without limitation, causes of action for breach of
fiduciary duty, negligent misrepresentation, fraud and fraudulent
inducement. . . .” The 2013 agreement also included an
indemnity provision stating, in relevant part: “Each party to this
Agreement agrees to defend, indemnify and hold harmless the
other party . . . from and against all losses, damages, liabilities,
claims . . . and expenses (including reasonable attorneys’ fees)
arising out of, relating to or resulting from any breach of this
Agreement, including any representation or warranties contained
therein, by the indemnifying party.”
Approximately seven months after the parties executed the
2013 Unit Repurchase Agreement, Apple acquired Beats for over
$3 billion.
5
B. Summary of the Parties’ Pleadings
In January of 2015, Monster filed a tort action alleging
Beats and HTC had engaged in a fraudulent scheme to divest
Monster of its interest in Beats and the “Beats by Dre” line of
headphones. According to the complaint, HTC’s decision to
acquire a 51 percent interest in Beats had been a “sham ‘Change
of Control’ event” that was intended to force Monster out of the
company, and allow Beats to “assume complete manufacture,
promotion, distribution and sales of the ‘Beats by Dre’ product
line.” The complaint further alleged that less than a month after
Monster had finalized the Termination Agreement with Beats,
HTC loaned Beats over $200 million, which Beats then used to
purchase back half of HTC’s 51 percent interest in the company.
The complaint also alleged Beats had fraudulently induced
Lee to sell back his remaining 1.25 percent interest in the
company. Lee claimed that before agreeing to sell back his
interest, he had asked Iovine and Beats President Luke Wood
whether the company expected any “liquidity events” in the near
future. Iovine and Wood both told Lee no such events were
planned. Based on these representations, Lee agreed to sell his
remaining interest in Beats back to the company for
approximately $5.5 million. Eight months later, Lee learned
Apple was acquiring Beats for $3.2 billion, increasing the value of
Lee’s former 1.25 percent interest to over $30 million.1
1 In addition to the fraud claims, Monster’s complaint alleged
related claims for breach of the duty of trust and confidence,
breach of fiduciary duty and statutory claims arising under the
Business and Professions Code and the Corporations Code.
6
In its answer to the complaint, Beats asserted waiver as an
affirmative defense, claiming that all of Monster’s causes of
actions were barred by the release provisions set forth in the
Termination Agreement, the 2012 Unit Repurchase Agreement
and the 2013 Unit Repurchase Agreement.
Beats also filed a cross-complaint alleging Monster and Lee
had breached the terms of those agreements by filing their
lawsuit. In its first cause of action for breach of the Termination
Agreement, Beats alleged: “The gravamen of Monster’s claims
against Beats . . . . is that the HTC transaction was a ‘sham
“Change of Control” transaction’ executed solely to ‘exclude
Monster and Lee from the sale of the “Beats by Dre” product line.’
[¶] . . . [¶] By bringing these ‘sham’ claims Monster breached the
Termination Agreement’s release provision. . . . [¶] Monster’s
breach of the Termination Agreement has damaged and
continues to damage Beats. Beats has been, and will continue to
be, forced to expend money, time, and other resources in order to
defend against Monster’s meritless and released claims in this
litigation – damages that, but for Monster’s breach, it would not
have suffered.”
In its third cause of action for breach of the 2013 Unit
Repurchase Agreement, Beats similarly alleged: “The gravamen
of Lee’s claim . . . is that he was coerced and deceived into selling
his shares of Beats in order to deprive him of any profits from the
eventual (though unknown at the time) sale of Beats to Apple.
[¶] . . . [¶] By bringing these stock sale claims Lee breached the
release provisions of the 2013 Unit Repurchase Agreements. . . .
[¶] Lee’s breach of the 2013 Unit Repurchase Agreement has
damaged and continues to damage Beats. Beats has been, and
will continue to be, forced to expend money, time, and other
7
resources in order to defend against Lee’s meritless and released
claims in this litigation, damages that, but for Lee’s breach, it
would not have suffered.”2
Both parties initially requested a jury trial on all of the
claims and cross-claims. In its proposed jury instructions, Beats
requested the court provide the following instruction with respect
to damages on its cross-claims: “Beats claims damages for
attorney fees and costs reasonably and necessarily incurred in
defending all claims brought by Monster and [Lee]. . . . [¶] Beats
must prove the amount of attorney fees and costs.”
C. Trial Court Proceedings
On April 28, 2016, Beats filed a motion for summary
judgment on the claims pleaded in Monster’s complaint. Beats
argued that all of Monster’s claims were barred by the release
provisions set forth in the Termination Agreement, the 2012 Unit
Purchase Agreement and the 2013 Unit Purchase Agreement.
Beats’s motion did not address its cross-claims for breach of
contract. The court granted Beats’s motion, concluding that “the
releases agreed to by [Monster and Lee] are valid and enforceable
and act as a complete bar to [their] claims against Beats.” The
court’s order directed that Beats was “dismissed with prejudice
from plaintiff’s complaint,” and that the case was to “proceed to
trial solely on the first and third causes of action of Beats’[s]
[c]ross-complaint against Monster and Lee.”
2 Beats dismissed without prejudice the second cause of
action in its cross-complaint, which alleged Monster had
breached a non-disparagement provision in the Termination
Agreement.
8
At a subsequent case management conference, Beats’s
counsel argued that under Civil Code section 1717 (section 1717),
the damages it was seeking on its cross-claims, which consisted
solely of attorney’s fees and costs incurred in defending itself
against Monster’s fraud claims, should be resolved through a
noticed motion to the court, rather than by jury trial. Counsel
explained that section 1717 was applicable because its cross-
claims qualified as actions to enforce contracts that contained
attorney’s fees provisions (specifically, the Termination
Agreement and the 2013 Unit Repurchase Agreement).
Monster’s counsel, however, argued that because Beats had
“ple[aded] and s[ought] their attorney’s fees as an element of
their [contract] damages,” the issue must “go[] to a trier of fact.”
The court requested the parties submit supplemental briefing,
and scheduled a hearing to determine whether Monster was
entitled to a jury trial on the issue of attorney’s fees.
In its supplemental briefing, Beats argued that section
1717 required the court, rather than a jury, to fix attorney’s fees
in any action brought to enforce a contract containing an
attorney’s fees provision. Beats also argued that the fact it was
seeking attorney’s fees as damages, rather than as a form of
posttrial costs, was immaterial, asserting that Monster had not
offered any “logical explanation for why California law would or
should treat the assessment of pre-trial fees by a different
procedure than fees incurred during and after trial.” Beats also
argued that holding a jury trial on the issue of attorney’s fees
would be “impractical[]” because the jury would not be able to
account for fees incurred “in connection with time spent at trial
and posttrial.”
9
Monster, however, argued that section 1717 was
inapplicable because Beats was not seeking to recover its
attorney’s fees based on its status as the prevailing party on
Monster’s fraud claims, but rather as damages on its cross-claims
for breach of contract. Monster contended that numerous prior
cases had held the right to jury trial attaches when a party seeks
attorney’s fees as damages, rather than as a cost of litigating its
claims. Monster also argued that allowing the jury to determine
the amount of fees Beats had incurred in defending itself against
Monster’s claims would not be impractical, explaining that once
the jury had resolved Beats’s contract claims (including a
determination of damages), Beats could then seek to recover the
attorney’s fees it had incurred in litigating its breach of contract
claims through a noticed motion to the court under section 1717.
After hearing argument, the court ordered that the
“attorney’s fees issue” would be “heard by way of a noticed motion
resolved by the court.” The court’s ordered explained: “Section
1717 is right on point. . . . That section provides that attorney’s
fees are to be fixed by the court. Similarly, [Code of Civil
Procedure] section 1033.5 provides that attorney’s fees based
upon contract are to be fixed by way of a noticed motion, resolved
by the court.” The court further explained that the Supreme
Court had repeatedly acknowledged that “trial courts are best
equipped to resolve attorney’s fees issues.”
On October 17, 2016, Monster filed a petition for writ of
mandate requiring the trial court to vacate its order, and enter a
new order directing that a jury trial be held to assess the amount
of attorney’s fees, if any, Beats was entitled to recover as
damages on its cross-claims. Monster also requested that we stay
the trial court proceedings pending resolution of the writ petition.
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After receiving an opposition to the petition for writ of mandate,
we issued an order to show cause, and stayed the trial court
proceedings pending our review.
DISCUSSION
A. Availability of Writ Relief and Standard of Review
“‘A writ of mandate is a proper remedy to secure the right
to a jury trial. . . . [E]ven if [the complaining party] could [obtain]
. . . reversal of the judgment [after a bench trial], such a
procedure would be inefficient and time consuming.’” (Shaw v.
Superior Court (2017) 2 Cal.5th 983, 991 (Shaw) [citing and
quoting with approval Byram v. Superior Court (1977) 74
Cal. App. 3d 648, 654]; see also Shaw, supra, 2 Cal.5th at p. 992
[“our . . . court has on a number of occasions reviewed the validity
of a trial court ruling denying a jury trial by means of a pretrial
extraordinary writ proceeding”].) As explained by one court,
although the denial of a jury trial is “reviewable on appeal
from the judgment,” review by way of extraordinary writ is
“normally . . . the better practice” so as to avoid “time needlessly
expended in a court trial.” (Selby Constructors v. McCarthy
(1979) 91 Cal. App. 3d 517, 522-523.)
“The issue whether [a party is] constitutionally entitled to a
jury trial . . . is a pure question of law that we review de novo.”
(Caira v. Offner (2005) 126 Cal. App. 4th 12, 23; see also Ghirardo
v. Antonioli (1994) 8 Cal. 4th 791, 799.)
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B. Summary of Applicable Legal Principles
1. Right to a jury trial in suits seeking damages for
breach of contract
“Article I, section 16 of the California Constitution declares
broadly that ‘[t]rial by jury is an inviolate right and shall be
secured to all. . . .’ Notwithstanding the breadth of this
declaration, past California cases make clear ‘that . . . . “[a] jury
trial is a matter of right in a civil action at law, but not in
equity.”’ [Citations.]” (Shaw, supra, 2 Cal.5th at pp. 995-996.)
“[A] suit to recover damages for . . . breach of contract is an action
at law in which a right to jury trial ordinarily exists.” (Raedeke v.
Gibraltar Sav. & Loan Assn. (1974) 10 Cal. 3d 665, 671; C & K
Engineering Contractors v. Amber Steel Co. (1978) 23 Cal. 3d 1, 9
[“the complaint purports to seek recovery of damages for breach
of contract, in form an action at law in which a right to jury trial
ordinarily would exist”].)
“When the right to jury trial exists, it provides the right to
have a jury try and determine issues of fact.” (Shaw, supra, 2
Cal.5th at p. 993 [emphasis omitted]), which includes the “the
assessment of damages.” (Dorsey v. Barba (1952) 38 Cal. 2d 350,
356 (Dorsey) [“issues of fact shall be decided by a jury, and the
assessment of damages is ordinarily a question of fact”]
[overruled on another ground in Jehl v. Southern Pac. Co. (1967)
66 Cal. 2d 821, 828].)
“The jury as a fact-finding body occupies so firm and
important a place in our system of jurisprudence that any
interference with its function in this respect must be examined
with the utmost care.” (Dorsey, supra, 38 Cal.2d at p. 356.)
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2. Civil Code section 1717
Civil Code section 1717 provides, in relevant part: “(a) In
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. [¶] . . . [¶] Reasonable
attorney’s fees shall be fixed by the court, and shall be an
element of the costs of suit. (b)(1) The court, upon notice and
motion by a party, shall determine who is the party prevailing on
the contract for purposes of this section, whether or not the suit
proceeds to final judgment.”
“The primary purpose of section 1717 is ‘to establish
mutuality of remedy when a contractual provision makes
recovery of attorney’s fees available to only one party, and to
prevent the oppressive use of one-sided attorneys fee provisions.’
[Citations.]” (Hjelm v. Prometheus Real Estate Group, Inc. (2016)
3 Cal.App.5th 1155, 1168.) Our courts have interpreted the
statute to make an otherwise unilateral attorney’s fee provision
reciprocal in two situations. “The first . . . is ‘when the contract
provides the right to one party but not to the other.’ [Citation.]
In this situation, the effect of section 1717 is to allow recovery of
attorney fees by whichever contracting party prevails, ‘whether
he or she is the party specified in the contract or not.’ [Citation].
[¶] ‘The second situation in which section 1717 [applies] . . . is
when a person sued on a contract containing a provision for
attorney fees to the prevailing party defends the litigation ‘by
successfully arguing the inapplicability, invalidity,
13
unenforceability, or nonexistence of the same contract.”
(Santisas v. Goodin (1998) 17 Cal. 4th 599, 615 (Santisas).)
Under those circumstances, the statute “allows [the] party who
defeats the contract claim . . . to recover attorney fees under that
contract if the opposing party would have been entitled to
attorney fees had it prevailed. [Citation.]” (Brown Bark III, L.P.
v. Haver (2013) 219 Cal. App. 4th 809, 819 (Brown Bark).)
As a general matter, “[t]ort and other noncontract claims
are not subject to section 1717 and its reciprocity principles.
[Citations.] [Although] [t]he parties to a contract are free to
agree that one or more of them shall recover their attorney fees if
they prevail on a tort or other noncontract claim, . . . the right to
recover those fees depends solely on the contractual language.
[Citation.] Section 1717 does not make a unilateral fee provision
reciprocal on tort or other noncontract claims.” (Brown Bark,
supra, 219 Cal.App.4th at p. 819; see also Santisas, supra, 17
Cal.4th at p. 615.)
There is currently a split of authority regarding whether
section 1717 applies when a defendant successfully asserts a
contract containing an attorney’s fees provision as a defense to a
tort or other noncontract claim. (Compare Gil v. Mansano (2004)
121 Cal. App. 4th 739 [section 1717 “inapplicable” where
defendant relied on a release containing an attorney’s fee
provision to defeat a tort claim because the “assertion of the
affirmative defense of release” did not qualify as “an action
brought to enforce the release”]; Exxess Electronixx v. Heger
Realty Corp. (1998) 64 Cal. App. 4th 698, 712 & fn. 15 [“By
asserting a defense . . ., [defendant] did not bring an action or
proceeding to enforce the [contract] or to declare rights under it”]
and Windsor Pacific LLC v. Samwood Co., Inc. (2013) 213
14
Cal. App. 4th 263, 266 [the term “‘any action . . . to enforce . . . a
contract’ applies not only where the plaintiff’s allegations in the
complaint seek to enforce or interpret the contract, but also
where the defendant seeks to do so by asserting an affirmative
defense raised in its answer”].) This issue is currently under
review in the California Supreme Court. (See Mountain Air
Enterprises, LLC v. Sundowner Towers, LLC, Case No.
S223536.)3
C. The Trial Court Erred in Denying Monster’s
Request for a Jury Trial on Beats’s Contract
Damages
In the trial court, Beats did not seek to recover its
attorney’s fees as the prevailing party on Monster’s fraud claims.
Instead, Beats sought to recover those fees as damages on its
cross-claims for breach of contract, and argued that section 1717
required the court, rather than a jury, to determine the amount
3 The Court’s statement of pending issues (available at
, (as
of June 15, 2017)) indicates that Mountain Air Enterprises
presents “the following issues: (1) Does the assertion of an
agreement as an affirmative defense implicate the attorney fee
provision in that agreement? (2) Does the term ‘action’ or
‘proceeding’ in Civil Code section 1717 and in attorney fee
provisions encompass the assertion of an affirmative defense?”
These questions, which essentially address whether contractual
attorney’s fees are recoverable as costs when a party successfully
asserts an agreement as an affirmative defense to noncontract
claims, are not relevant to the issue in this writ proceeding,
which is whether section 1717 authorizes the court, rather than
the jury, to set the amount attorney’s fees that are sought as
damages on a breach of contract claim.
15
of those fees.4 The trial court agreed, and ordered that the
amount of attorney’s fees Beats was entitled to recover on its
4 In its trial court briefing, Beats acknowledged that the
specific issue presented to the court was “whether Beats’ claims
for attorneys’ fees and costs based on its cross-claims should be
resolved by a motion to the Court or by a jury trial.” Beats’s
briefing did not address whether it could recover such fees based
on its status as the prevailing party on Monster’s fraud claims.
In its return to our order to show cause, however, Beats claims
that during the trial court proceedings, it requested its attorney’s
fees as both “damages for its cross-claims” and “as a prevailing
party.” To the extent Beats is now contending it sought to
recover its fees as the “prevailing party” on Monster’s fraud
claims, that assertion finds no support in the record. The hearing
transcripts and Beats’s own briefing demonstrate that the
question presented to the trial court was whether the attorney’s
fees Beats had alleged as damages on its cross-claims could be
resolved “by a noticed motion,” rather than by a jury trial.
Alternatively, to the extent Beats is now asserting it sought, or is
otherwise entitled to, attorney’s fees based on its status as the
“prevailing party” on its breach of contract claims against
Monster (a position Beats appeared to take at oral argument), the
record shows that those contract claims have not yet been
resolved because there has been no determination of damages, a
necessary element of the claims. (See Professional Collection
Consultants v. Lauron (2017) 8 Cal.App.5th 958, 968 (Lauron)
[elements of a breach of contract claim include damages resulting
from the breach].) Indeed, the very issue presented in this writ
proceeding is whether section 1717 authorized the trial court to
assess attorney’s fees that Beats had pleaded as the damages
resulting from Monster’s breach of the relevant contracts.
Because there has been no determination of damages, Beats has
not prevailed on those claims. (See Hsu v. Abbara (1995) 9
Cal. 4th 863, 876 (Hsu) [prevailing party determination cannot be
16
breach of contract claims would be “heard by way of a noticed
motion resolved by the court.” Accordingly, the issue presented
in this writ proceeding is not whether section 1717 (or any other
provision) would allow Beats to recover its attorney’s fees as the
prevailing party on Monster’s fraud claims, but rather whether
the trial court was authorized to act as the trier of fact in
determining the amount of fees Beats was entitled to recover as
damages on its breach of contract claims.
Beats does not dispute that the right to a jury trial
generally exists in breach of contract actions, and that this right
extends to the assessment of damages. Beats contends, however,
that section 1717 effectively withdraws that jury right when the
damages sought on a breach of contract claim consist of
attorney’s fees. According to Beats, under such circumstances,
section 1717 requires the court, rather than a jury, to determine
the amount of attorney’s resulting from the breach.
Our courts have consistently “distinguish[ed] between”
attorney’s fees that are sought as “an allowance . . . to the
prevailing party as an incident to the principal cause of action,”
and those that are sought as “part of the cause of action.” (Mabee
v. Nurseryland Garden Centers, Inc. (1979) 88 Cal. App. 3d 420,
425 (Mabee), superseded by statute on another ground as stated
in Stanisas, supra, 17 Cal.4th at p. 629.) When sought by the
“prevailing party . . . as an incident to the judgment” (ibid.),
attorney’s fees may be “properly awarded [as a form of cost] after
entry of a . . . judgment.” (Khavarian Enterprises, Inc. v.
Commline, Inc. (2013) 216 Cal. App. 4th 310, 326 (Khavarian).)
However, when “fees are part of the relief sought[, they] must be
made until there has been a “final resolution of the contract
claims”].)
17
pleaded and proved at trial.” (Id. at p. 327.) As explained by our
Supreme Court: “‘[W]here attorney fees are . . . sought in a
proceeding as damages . . ., then the claim for attorney fees is
part of the damage sought in the principal action. . . . [I]n such
circumstances . . . the attorney fee [would] be required to be
pleaded and proven -- as any other item of damages -- at trial. No
similar procedural and evidentiary base is required where ‘the
attorney fee was not the cause of action but an incident to it.’
[Citation.]” (Folsom v. Butte County Assn. of Governments (1982)
32 Cal. 3d 668, 679, fn. 16 (Folsom) [citing and quoting Mabee,
supra, 88 Cal.App.3d at p. 425].)
In Brandt v. Superior Court (1985) 37 Cal. 3d 813 (Brandt),
the Court applied this distinction in the context of a tort action
alleging that an insurer had acted in bad faith when it denied
coverage for an injury. Brandt held that a plaintiff in a bad faith
insurance claim is entitled to recover attorney’s fees that were
“reasonably incurred to compel payment of the policy
benefits . . . as an element of the damages.” (Id. at p. 815.) The
Court further held that “[s]ince the attorney’s fees are
recoverable as damages, the determination of the recoverable fees
must be made by the trier of fact unless the parties stipulate
otherwise.” (Id. at p. 819.) The Court explained that “[a]
stipulation for a postjudgment allocation and award by the trial
court would normally be preferable since the determination then
would be made after completion of the legal services [citation],
and proof that otherwise would have been presented to the jury
could be simplified because of the court’s expertise in evaluating
legal services. [Citations.] If, however, the matter is to be
presented to the jury, the court should instruct along the
following lines: ‘If you find (1) that the plaintiff is entitled to
18
recover on his cause of action for breach of the implied covenant
of good faith and fair dealing, and (2) that because of such breach
it was reasonably necessary for the plaintiff to employ the
services of an attorney to collect the benefits due under the
policy, then and only then is the plaintiff entitled to an award for
attorney’s fees incurred to obtain the policy benefits, which award
must not include attorney’s fees incurred to recover any other
portion of the verdict.” (Id. at pp. 819-820.)
Numerous other cases decided both before and after Brandt
have likewise recognized that “[a]lthough fee issues are usually
addressed to the trial court in the form of a posttrial motion, fees
as damages are pleaded and proved by the party claiming them
and are decided by the jury unless the parties stipulate to a
posttrial procedure.” (Sumner Hill Homeowners’ Assn., Inc. v.
Rio Mesa Holdings, LLC (2012) 205 Cal. App. 4th 999, 1035, fn.
50; see also Folsom, supra, 32 Cal.3d at p. 677; Khavarian, supra,
216 Cal.App.4th at p. 327; Vacco Industries, Inc. v. Van Den Berg
(1992) 5 Cal. App. 4th 34, 56; No Oil, Inc. v. City of Los Angeles
(1984) 153 Cal. App. 3d 998, 1005-1006; Mabee, supra, 88
Cal.App.3d at p. 425.)
Beats contends, however, that although the above cases
show there is generally a right to a jury trial when attorney’s fees
are sought as damages, section 1717 imposes a different rule in
breach of contract actions that seek attorney’s fees as damages.
According to Beats, under those circumstances, section 1717
requires that the amount of the fees “be determined by the court,”
rather than a jury.
This argument finds no support in the text of section 1717.
As summarized above, the statute provides that “[t]he party who
is determined to be the party prevailing on the contract . . . shall
19
be entitled to reasonable attorney’s fees, which shall be fixed by
the court as an element of costs.” The statute further states that
“upon notice and motion by a party,” the court “shall determine
who is the party prevailing on the contract,” which is defined as
“the party who recovered a greater relief in the action on the
contract.” Our Supreme Court has held that under section 1717,
“the prevailing party determination is to be made only upon final
resolution of the contract claims, and only by ‘a comparison of the
extent to which each party ha[s] succeeded and failed to succeed
in its contentions.”’ [Citation.]” (Hsu, supra, 9 Cal.4th at p. 876;
see also Poseidon Development, Inc. v. Woodland Lane Estates,
LLC (2007) 152 Cal. App. 4th 1106, 1120 [prevailing party
determination “must await final resolution of the matter”].) The
determination involves “‘an inquiry separate from the decision on
the merits - an inquiry that cannot even commence until one
party has “prevailed.”’ [Citation.]” (Folsom, supra, 32 Cal.3d at
p. 677 [discussing prior version of section 1717] [quoting White v.
New Hampshire Dept. of Empl. Sec. (1982) 455 U.S. 445, 451,
which interpreted a federal law awarding “attorney’s fees to a
‘prevailing party’”].)
Thus, under section 1717, a party cannot move for fees, nor
can the court fix the amount of those fees, until the breach of
contract claim has been resolved. (See In re Estate of Drummond
(2007) 149 Cal. App. 4th 46, 51 [“[T]he prevailing party
determination must await ‘the final resolution of the contract
claims.’ It necessarily follows that no fee award can be made
before such a ‘final resolution’”].) Once the claim is resolved and
a party has submitted a motion, the court is then permitted to:
(1) determine whether the moving party prevailed on the contract
claim; (2) fix the amount of fees incurred to resolve the claim; and
20
(3) award those fees as costs. The statute contains no language
requiring (or even permitting) the court to assess attorney’s fees
that are sought as damages, an element that must be proved to
prevail on the merits of a contract claim. (See Bramalea
California, Inc. v. Reliable Interiors, Inc. (2004) 119 Cal. App. 4th
468, 473 [“[a] breach of contract is not actionable without
damage”]; Lauron, supra, 8 Cal.App.5th at p. 968 [“breach of
contract is comprised of the following elements: . . . . (4) the
resulting damages to plaintiff”].) Indeed, the Supreme Court’s
determination that a trial court has no authority to fix attorney’s
fees under section 1717 until the contract claim has been resolved
compels us to conclude the statute does not authorize the court to
fix fees sought as damages. If Beats ultimately prevails on its
breach of contract claims, section 1717 would allow it to move for
attorney’s fees that it incurred in litigating those claims, but the
statute has no application to the fees Beats has sought as
damages on its contract claims, which must be “proven -- as any
other item of damages -- at trial.” (Folsom, supra, 32 Cal.3d at
p. 679, fn. 16.)5
5 In the trial court, Beats argued it would be “impractical[]”
to allow a jury to assess attorney’s fees, explaining: “If the court
were to proceed as Plaintiffs propose, there would be a jury trial
on the amount of Beats’ attorneys fees. But the amount of fees
that Beats is entitled to in connection with time spent at trial and
posttrial would not be accounted for. The issue of the amount of
attorneys fees can only be finally determined by the Court, not a
series of jury trials.” This argument conflates two categories of
attorney’s fees related to Beats’s contract claims: the fees Beats
incurred in defending itself against Monster’s fraud claims, and
the fees Beats has incurred (and will continue to incur) in
litigating its breach of contract claims against Monster.
21
Beats’s assertion that section 1717 requires the court,
rather than a jury, to fix attorney’s fees sought as damages in a
breach of contract action also raises serious constitutional
problems. As explained above, the California Constitution
affords civil litigants the right to a jury trial in suits seeking to
recover damages for breach of contract. (Raedeke, supra, 10
Cal.3d at p. 671.) This jury right extends to questions of fact,
which includes the “assessment of damages.” (Dorsey, supra, 38
Cal.2d at p. 356.) Under Beats’s interpretation of section 1717,
the statute acts to eliminate that jury right when the damages
sought in a breach of contract action consists of attorney’s fees. A
statute, however, cannot override a constitutional requirement,
and is “invalid to the extent of the conflict.” (Jacob B. v. County
of Shasta (2007) 40 Cal. 4th 948, 961; see also Strauss v. Horton
(2009) 46 Cal. 4th 364, 395, [“A California statute, of course, is
invalid if it conflicts with the governing provisions of the
California Constitution”] [abrogated on other grounds by
Obergefell v. Hodges (2015) 135 S. Ct. 2584].) Given that the
California Constitution provides litigants the right to have a jury
determine damages in a breach of contact action, interpreting
section 1717 in a manner that would withdraw that right in a
subset of contract cases would raise serious doubts as to its
constitutional validity. When possible, we must “construe
statutes in a manner which avoids constitutional difficulties.”
(Welfare Rights Organization v. Crisan (1983) 33 Cal. 3d 766, 772;
Monster’s writ petition only seeks a jury trial on the first
category of attorney’s fees, which constitute the damages Beats
has alleged in relation to its breach of contract claim. Monster
has not sought a jury trial on the second category of fees, which
cannot be fixed until after the contract claim is resolved.
22
People v. Smith (1983) 34 Cal. 3d 251, 259 [“if reasonably possible
the courts must construe a statute to avoid doubts as to its
constitutionality”]; City of Huntington Park v. Superior Court
(1995) 34 Cal. App. 4th 1293, 1299 [courts “have an obligation to
construe a statute in such a way as to avoid any doubt of its
validity under the constitution”].) Applying that principle here,
to the extent section 1717 can be reasonably interpreted in the
manner Beats proposes, we reject that reading to avoid the
difficult constitutional questions it would raise.6
6 Beats also appears to contend that Code of Civil Procedure
section 1033.5 requires the court, rather than a jury, to assess
attorney’s fees that are sought as damages on a breach of
contract action. Section 1033.5, however, merely lists the items
that the prevailing party in a civil action is entitled to recover “as
costs.” (See Code of Civil. Proc., §§ 1033.5, subd. (a), 1032, subd.
(b).) The statute includes “attorney’s fees” that are “authorized
by” “Contract” as a recoverable cost, and directs that such fees
“may be fixed . . . upon a noticed motion.” (See Code of Civil.
Proc., § 1033.5, subds. (a)(10)(A) & (c)(5)(A).) The term “costs,”
however, refers to “‘allowances [that] are authorized to reimburse
the successful party to an action or proceeding and are in the
nature of incidental damages to indemnify a party against the
expense of successfully asserting his rights.” [Citation.]’
[Citation.]” (Folsom, supra, 32 Cal.3d at p. 677 [citing and
quoting Rappenecker v. Sea-Land Service, Inc. (1979) 93
Cal. App. 3d 258, 264].) “[C]osts ‘are allowed solely as an incident
of the judgment given upon the issues in the action. [Citation.]
. . . They constitute no part of a judgment . . .’ [Citations].”
(Folsom, supra, 32 Cal.3d at p. 677.) Thus, as with section 1717,
section 1033.5 only applies once a party has prevailed on a claim,
and relates only to attorney’s fees incurred as costs. It has no
application to attorney’s fees that are sought as damages.
23
In sum, Monster has a right to have a jury determine the
amount of attorney’s fees resulting from its alleged breach of the
Termination Agreement and the 2013 Unit Repurchase
Agreement. Nothing in section 1717 withdraws that right. If
Beats preferred to have its attorney’s fees fixed by way of a
noticed motion, rather than by jury trial, it could have pursued a
motion for fees under section 1717 (or Code of Civil Procedure
section 1033.5, subdivision (c)(5)(A)) as the prevailing party on
Monster’s fraud claims. Beats, however, elected to seek its fees
as damages on its cross-claims for breach of contract. Because
“the fees are part of the relief sought[,] [they] must be pleaded
and proved at trial . . . as any other item of damages.” (Folsom,
supra, 32 Cal.3d at p. 677, fn. 16.)7
7 At oral argument, Beats’s counsel asserted that two prior
decisions, Bankes v. Lucas (1992) 9 Cal. App. 4th 365 (Bankes) and
Lanyi v. Goldblum (1986) 177 Cal. App. 3d 181 (Lanyi), held that when
attorney’s fees are sought as damages resulting from the breach of a
contract, section 1717 allows the court, rather than the jury, to assess
the amount of those fees. Neither case, however, addressed that
specific issue. In Bankes, the court considered whether “the filing of a
notice of appeal . . . deprive[s] the trial court of jurisdiction to award
attorney fees as costs post trial,” and whether the respondents’ motion
for attorney’s fees had been filed a in a timely manner. (See Bankes,
supra, 9 Cal.App.4th at pp. 368-369.) The decision contains no
language suggesting that section 1717 requires the trial court, rather
than a jury, to determine attorney’s fees sought as damages resulting
from a breach of contract. Indeed, Bankes specifically clarifies that
section 1717 applies when a prevailing party seeks attorney’s fees as a
form of costs following the resolution of a contract claim.
In Lanyi, supra, 177 Cal. App. 3d 181, the court held that
“attorney fees authorized by section 1717 are available to a party
who prevails by a [Code of Civil Procedure] section 998
compromise settlement that is silent as to costs and fees.” (Id. at
24
DISPOSITION
Let a peremptory writ of mandate issue commanding the
superior court to: (1) vacate its order directing that the
attorney’s fees Beats seeks as damages on its cross-claims for
breach of contract are to be fixed through a noticed motion; and
(2) issue a new order directing that Monster and Lee are entitled
to a jury trial to determine the amount of those attorney’s fees.
The temporary stay order is vacated. Petitioners shall recover
their costs for this proceeding.
ZELON, Acting P. J.
We concur:
SEGAL, J. SMALL, J.
p. 187.) As in Bankes, the Lanyi court explained that section
1717 enables the prevailing party in an action on a contract with
an attorney’s fees provision to recover his or her fees as a form of
costs “after entry of a . . . judgment.” (Ibid.) The court further
explained that section 1717 contains no language barring the
award of fees as a form of costs merely because the “judgment[]”
resulted from “a section 998 settlement.” (Id. at pp. 189-191.) In
its analysis, Lanyi specifically distinguished between attorney’s
fees sought as costs after judgment, which may be obtained
through a noticed motion under section 1717, and “‘[t]hose
situations where fees are part of the relief sought and hence must
be pleaded and proved at trial. [Citation.]’” (Id. at p. 187, fn. 5.)

Judge of the Los Angeles Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
25