Marina Pacifica Homeowners Assn. v. Southern Cal. Financial Corp.

Filed 2/5/18
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
MARINA PACIFICA B276719
HOMEOWNERS
ASSOCIATION, (Los Angeles County
Super. Ct. No. NC052700)
Plaintiff and Appellant,
v.
SOUTHERN CALIFORNIA
FINANCIAL CORPORATION,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County. Michael P. Vicencia, Judge. Affirmed.
Locke Lord, Susan A. Kidwell, Daniel A. Solitro; Lewis
Brisbois Bisgaard & Smith and Christopher J. Bakes for Plaintiff
and Appellant.
Greenberg Traurig, Scott D. Bertzyk, Adam Siegler and
Matthew R. Gershman for Defendant and Appellant.
_____________________________
SUMMARY
Both plaintiff and defendant appeal from a postjudgment
order concluding neither of them was the prevailing party in
litigation over an assignment fee, and consequently neither of
them was entitled to attorney fees under Civil Code section 1717
(section 1717) or to costs under Code of Civil Procedure
section 1032 (section 1032). We affirm the trial court’s order.
FACTS
This is the fifth appeal in litigation over the assignment fee
that began in 2006. Three of the previous appeals are pertinent
in one way or another to this appeal, and we will describe them
as needed.1 The history of the dispute is described in detail in
Marina Pacifica Homeowners Assn. v. Southern California
Financial Corp. (2014) 232 Cal.App.4th 494, 497-504 (Marina
Pacifica I). We summarize here the background and other facts
pertinent to the attorney fee and costs issues the parties present
in this appeal, borrowing liberally from the recitations in our
earlier opinions.
The plaintiff is Marina Pacifica Homeowners Association.
When unit owners in the Marina Pacifica complex in Long Beach
purchased their units, they bought an ownership interest in their
individual units and a share of an undivided leasehold interest in
the land on which the complex was built. That leasehold interest
included the obligation to pay monthly rent to the landowner and
1 The first appeal concerned the process for selection of an
appraiser to determine the fair market value of the property for
purposes of adjustment of the assignment fees in 2006.
(Lansdale v. Marina Pacifica Homeowners Assn. (Aug. 14, 2007,
B192520) [nonpub. opn.].)
2
an assignment fee to the developers. These two obligations were
to continue until 2041. Both payments were to be nominal until
2006, when the rent and assignment fee would be recalculated so
that together they would equal 10 percent (on an annual basis) of
the fair market value of the land underlying the units. (Marina
Pacifica I, supra, 232 Cal.App.4th at pp. 497-498.) Thus the unit
lease provided that as of October 2006, monthly rent would
become the greater of (1) $25 or (2) one-twelfth of 6 percent of the
fair market value of the leasehold premises. (Id. at p. 498.) The
monthly assignment fee would “ ‘be equal to the amount, if any,
by which one-twelfth (1/12) of ten percent (10%) of the fair
market value of the leasehold premises on October 1, 2006
exceed[ed] the monthly rent payable under’ ” the unit lease.
(Ibid.) Another recalculation would occur as of October 1, 2021.
(Id. at p. 499.)
In 1999, plaintiff bought the land underlying the
development and sold pro rata shares to the individual unit
owners, thus terminating rent payments under the unit leases.
The assignment fee, however, created a separate contractual
obligation from the unit owner to the developers. (Marina
Pacifica I, supra, 232 Cal.App.4th at pp. 499, 498.)
In 2000, plaintiff bought out the assignment fee rights of
two of the three development partners. But the remaining
partner, William Lansdale, retained his 43.75 percent interest in
those fees. In 2005, Mr. Lansdale and plaintiff began to litigate
disputes over the appraisal process that would determine the fair
market value of the property for purposes of readjustment of the
assignment fee. (Marina Pacifica I, supra, 232 Cal.App.4th at
p. 499.)
3
In 2007, the Legislature enacted Civil Code sections 1098
and 1098.5 to regulate “transfer fees.” A transfer fee was defined
broadly to include fees imposed in any document affecting the
transfer of an interest in real property. For transfer fees imposed
before January 1, 2008, the recipient of the fee was required to
record a separate document meeting specified requirements. In
order to continue collecting transfer fees on and after January 1,
2009, this separate document had to be recorded on or before
December 31, 2008. (§ 1098.5, subd. (a).) There were, however,
nine exceptions to the definition of a transfer fee. One of these
exceptions was for fees in documents recorded by December 31,
2007, that met specified requirements and that also substantially
complied with certain statutory provisions concerning notice to
the prospective transferee and other items. (Former § 1098,
subd. (i).)
In January 2008, Mr. Lansdale transferred his right to the
assignment fees to defendant. By December 2008, the appraisal
litigation had been concluded, an arbitration had been held, and
the fair market value of the property for purposes of calculating
the assignment fee was set at $60,615,500. Defendant began
billing the unit owners for their respective shares of the
readjusted assignment fee. Defendant did not record the
separate document described in Civil Code section 1098.5.
(Marina Pacifica I, supra, 232 Cal.App.4th at pp. 500-501.)
Defendant billed the unit owners using a “10 percent
formulation.” This formulation took advantage of the fact that
unit owners, having purchased the land, no longer paid rent to
the landowner. So, defendant charged a monthly assignment fee
calculated as 10 percent of $60,615,500 (the fair market value)
divided by 12, minus zero (rather than minus the 6 percent the
4
unit owners would have paid to the landowner had they not
bought the land). In other words, defendant would receive
10 percent rather than the 4 percent it would have received if the
unit owners had not purchased the land and eliminated their
rent payments.
Plaintiff instructed unit owners not to pay the assignment
fee bills defendant sent, and in March 2009 plaintiff sued
defendant. Plaintiff’s operative complaint alleged numerous
causes of action for declaratory relief, breach of contract, breach
of the covenant of good faith and fair dealing, reformation, and
restitution. As we stated in Marina Pacifica I, “[t]he gravamen of
the [complaint was] that the assignment fee is invalid or
unenforceable for several reasons, or assuming it is valid and
enforceable, [defendant’s] billing vastly overstated the amount
owing.” (Marina Pacifica I, supra, 232 Cal.App.4th at p. 501.)
Plaintiff’s claims that the assignment fee was void from its
inception or from a merger of estates in 1999 were eliminated by
summary adjudication. The court bifurcated the trial of the
remaining issues into several phases. The phases tried first
concerned (1) the remaining arguments that the assignment fee
was invalid (principally because of the transfer fee statute), and
(2) the proper calculation of the assignment fee, if it was valid.
(Marina Pacifica I, supra, 232 Cal.App.4th at p. 502.)
The trial court’s July 23, 2013 judgment
The trial court’s statement of decision and the later
judgment presented “mixed results” for the parties. (Marina
Pacifica I, supra, 232 Cal.App.4th at p. 502.) The trial court held
the assignment fee was a transfer fee, and could not be collected
after December 31, 2008, because defendant did not comply with
recording requirements. (Id. at pp. 502-503.) And, the trial court
5
held the fees imposed before that date should have been
calculated based on 4 percent of the fair market value rather
than the 10 percent formulation (but nevertheless found this did
not amount to a breach of contract). (Id. at pp. 503-504.) In
addition, the trial court held the escalation in the assignment fee
in 2006 and 2021 did not fail for lack of consideration. The
judgment set forth the amounts owing to defendant for each unit
owner under the 4 percent formulation. (Id. at p. 504.)
The trial court’s order on fees and costs
The parties then filed motions for fees and costs. The trial
court held that as between plaintiff and defendant, there was no
prevailing party on the contract. “[The trial court] did ‘not make
this finding lightly, and [did] so after careful deliberation.’ Both
parties’ claims to prevailing party status had some merit, which
was why the decidedly mixed result in the litigation resulted in
no clearly prevailing party as between the two. On the one hand,
[plaintiff] achieved ‘a primary goal’ in the holding that the
assignment fee was a transfer fee and not collectible after
December 31, 2008. As well, it prevailed in its position that the
4 percent formulation controlled the calculation of the fee. But it
mostly failed in its larger challenge to the assignment fee from its
inception in the 1970’s or the merger of estates in 1999. On the
other hand, [defendant] obtained a substantial monetary award
for unpaid assignment fees through December 31, 2008, because
many unit owners had not paid the fee for years while the
controversy was ongoing. But [defendant’s] recovery was still
significantly less than the amount it claimed under the
10 percent formulation.” (Marina Pacifica Homeowners Assn. v.
Southern California Financial Corp. (Mar. 4, 2016, B255413)
[nonpub. opn.] (Marina Pacifica II).)
6
The appeals and cross-appeals
Defendant appealed and plaintiff cross-appealed from the
judgment on the merits. This court reversed the trial court’s
judgment to the extent it held the assignment fee was an
uncollectible transfer fee after December 31, 2008. We affirmed
the trial court’s ruling that defendant should have used the
4 percent formulation to calculate the fees, and held that
defendant breached the unit lease by not doing so. We remanded
the case for proceedings to amend the judgment accordingly,
including “amended amounts due and owing for the assignment
fee.” (Marina Pacifica I, supra, 232 Cal.App.4th at pp. 512-513.)
Meanwhile, plaintiff had appealed from the trial court’s
attorney fee order and defendant cross-appealed. We concluded
that our disposition of the merits appeal “require[d]
reconsideration of the prevailing party.” (Marina Pacific II,
supra, B255413.) We explained: “Our disposition reversed the
judgment in a few key respects. We reversed the determination
that [defendant] could not collect the assignment fee after
December 31, 2008, and remanded for further proceedings to
determine the revised amounts owed to [defendant]. We also
reversed the judgment for [defendant] on the breach of contract
cause of action. In other words, we improved the outcome for
[defendant] in one respect, and worsened it another respect.”
(Ibid.) We declined defendant’s invitation to determine it was the
prevailing party, and remanded for the trial court’s exercise of its
discretion on that point. (Ibid.)
7
The amended judgment
Shortly before we decided Marina Pacifica II (remanding
the attorney fee and costs issues), the trial court (Judge Vicencia)
issued its 97-page amended judgment on the merits.2
As required by our opinion in Marina Pacifica I, the
December 28, 2015 amended judgment found defendant breached
the unit lease by assessing the fee using the 10 percent
formulation, ordered defendant to refund any excess payments
made by homeowners, and found no statutory bar to collecting
the assignment fee after December 31, 2008, and through
September 30, 2041. The judgment specified the 4 percent rate
for calculation of the assignment fee, and specified the monthly
fee by unit number for the 570 units for October 1, 2006, through
September 30, 2021. It also specified the 4 percent rate for
assignment fees from October 1, 2021, through September 30,
2041. All other claims asserted against defendant and defenses
asserted by defendant were denied. The amended judgment
declared amounts collectible and payable to defendant, by
homeowner, for fee amounts owed before January 1, 2009,
including prejudgment interest, and also listed homeowners who
2 Plaintiff appealed from the amended judgment, contending,
based on recently enacted clarifying legislation amending the
statute, that we erred in our earlier construction of the statute,
and should correct that error and declare the assignment fee
uncollectible. We concluded otherwise, finding the amended
statute and its legislative history demonstrated the Legislature
intended to permit the Marina Pacifica I assignment fees to
remain in place. (Marina Pacifica Homeowners Assn. v. Southern
California Financial Corp. (2017) 11 Cal.App.5th 54, 57 (Marina
Pacifica III).)
8
had paid all assignment fee amounts owed through January 1,
2009. The judgment then declared, by homeowner, the amounts
collectible and payable to defendant for fee amounts owed from
January 1, 2009, through October 31, 2015.
The judgment further stated that: “To the extent this Final
Judgment declares amounts presently owing, it is enforceable as
a money judgment. To the extent this Final Judgment declares
[defendant’s] rights to receive payments in the future, any such
payments shall be deemed ordered by and payable pursuant to
this Final Judgment.”
The current dispute
After the trial court entered the amended judgment, both
parties again filed motions for attorney fees and costs, both
claiming to be the prevailing party.
Plaintiff argued it was the prevailing party because the
amended judgment found defendant breached the unit lease by
assessing the assignment fee using the 10 percent formulation.
That is, defendant attempted to collect $97 million in assignment
fees, “an overcharge of $58 million to which they were not
entitled” under the lease; plaintiff was “the non-breaching party
and prevailed in its suit to enforce collection at the 4% rate.”
Defendant argued it was the prevailing party for several
reasons: First, the judgment “establish[ed] its present right to
approximately $12 million, and future right to continuing
[assignment] fees worth a minimum of $27 million more – and,
depending on the results of a 2021 reappraisal . . . , tens of
millions of dollars more than that.” Second, the judgment
“exceeded the terms on which it was willing to settle early on.”
Third, defendant’s loss on “the 10% position[] does not change
things at all,” because defendant obtained “a lopsided result” and
9
comparatively greater relief than plaintiff. Fourth, comparison of
the July 2013 judgment (where defendant was owed about
$2.5 million with no right to collect assignment fees from January
1, 2009) with the amended judgment (where defendant is owed
$9.5 million in addition to the $2.5 million, and has a right to
collect “at least $27 million more going forward”) showed the
results were no longer “sufficiently mixed” so as to justify a
finding of no prevailing party.
The parties also both filed memoranda seeking to recover
their respective costs. Plaintiff then filed a motion to strike or
tax defendant’s costs, to which defendant filed an opposition and
plaintiff filed a reply.
After thoroughly discussing the issues with counsel at the
hearing, the trial court found there was no prevailing party for
purposes of either an award of attorney fees or an award of costs.
Defendant filed an appeal and plaintiff filed a cross-appeal.
DISCUSSION
1. Defendant’s Appeal of the Attorney Fee Order
Defendant contends it “achieved all its dominant litigation
objectives” and therefore was the prevailing party for attorney fee
purposes as a matter of law. And, “even if the trial court had
some discretion, it would have been an abuse of discretion to deny
[defendant] its due,” because defendant’s “10% position was
asserted defensively[.]” Further, defendant argues that “[o]n
costs, the judgment indisputably gave [defendant] a ‘net
monetary recovery,’ ” entitling defendant to costs “ ‘as a matter of
right.’ ” We disagree with defendant’s contentions.
a. The legal principles
The principles governing a court’s determination of the
prevailing party under a contractual attorney fee provision are
10
explained in Hsu v. Abbara (1995) 9 Cal.4th 863 (Hsu). “When a
contract contains a provision granting either party the right to
recover attorney fees in the event of litigation on the contract, . . .
section 1717 . . . gives the ‘party prevailing on the contract’ a
right to recover attorney fees . . . . It defines the phrase ‘party
prevailing on the contract’ as ‘the party who recovered a greater
relief in the action on the contract,’ and it provides that a trial
court ‘may also determine that there is no party prevailing on the
contract for purposes of this section.’ ” (Id. at p. 865.)
Hsu construed the statutory language providing that the
trial court may determine there is no party prevailing on the
contract. (Hsu, supra, 9 Cal.4th at p. 874.) The court described
the history of section 1717, and observed that the language at
issue “was declaratory of existing law.” (Hsu, at p. 874.) The
court cited earlier Court of Appeal cases recognizing “that the
results of litigation may be so equivocal as to permit or even
require that no party be found to have prevailed for purposes of
attorney fees under section 1717.” (Ibid.)
Hsu then observed that under the current statute, “the
appellate courts have continued to recognize the trial court’s
authority to determine that there is no party prevailing on the
contract for purposes of contractual attorney fees,” and for the
most part these were “cases in which the opposing litigants could
each legitimately claim some success in the litigation.” (Hsu,
supra, 9 Cal.4th at p. 875.) The court expressly approved
appellate court cases construing section 1717 as follows:
“As one Court of Appeal has explained, ‘[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.’ [Citation.] By
11
contrast, when the results of the litigation on the contract claims
are not mixed--that is, when the decision on the litigated contract
claims is purely good news for one party and bad news for the
other--the Courts of Appeal have recognized that a trial court has
no discretion to deny attorney fees to the successful litigant.
Thus, when a defendant defeats recovery by the plaintiff on the
only contract claim in the action, the defendant is the party
prevailing on the contract under section 1717 as a matter of law.
[Citations.] Similarly, a plaintiff who obtains all relief requested
on the only contract claim in the action must be regarded as the
party prevailing on the contract for purposes of attorney fees
under section 1717. [Citations.]” (Hsu, supra, 9 Cal.4th at pp.
875-876.)
This construction of the statute, Hsu tells us, effectuates
legislative intent, “allowing those parties whose litigation success
is not fairly disputable to claim attorney fees as a matter of right,
while reserving for the trial court a measure of discretion to find
no prevailing party when the results of the litigation are mixed.
[¶] Accordingly, we hold that in deciding whether there is a
‘party prevailing on the contract,’ the trial court is to compare the
relief awarded on the contract claim or claims with the parties’
demands on those same claims and their litigation objectives as
disclosed by the pleadings, trial briefs, opening statements, and
similar sources. The prevailing party determination is to be
made only upon final resolution of the contract claims and only
by ‘a comparison of the extent to which each party ha[s]
succeeded and failed to succeed in its contentions.’ [Citation.]”
(Hsu, supra, 9 Cal.4th at p. 876.) The court also agreed “that in
determining litigation success, courts should respect substance
rather than form . . . .” (Id. at p. 877.)
12
b. Contentions and conclusions
According to defendant, Hsu’s holding was “that (i) where a
party has achieved all its dominant litigation objectives, it is a
prevailing party as a matter of law, and (ii) in such a
circumstance, the trial court has no discretion to deny fees[.]” As
is apparent from our recitation above, Hsu said nothing of the
kind.
Hsu held that the defendant was “the party prevailing on
the contract as a matter of law” if the trial court “renders a
simple, unqualified decision in favor of the defendant on the only
contract claim in the action.” (Hsu, supra, 9 Cal.4th at pp. 865-
866.) That did not happen here. Indeed, defendant here was
found to have breached the contract by charging assignment fees
calculated at 10 percent rather than 4 percent of fair market
value. That is not an “unqualified decision in favor of the
defendant[.]” (Id. at p. 865.) Nor does the Hsu court ever
mention “dominant” litigation objectives.
That brings us to the only relevant question here, which is
whether the trial court abused its discretion when it found there
was no “party prevailing on the contract” for purposes of
section 1717. We think not.
As Hsu tells us, the trial court was required to compare the
relief awarded on the contract claims with “the parties’ demands
on those same claims and their litigation objectives as disclosed
by the pleadings, trial briefs, opening statements, and similar
sources.” (Hsu, supra, 9 Cal.4th at p. 876.) Several points for
and against each side are pertinent to the required comparison.
There is no doubt plaintiff sought throughout the litigation
to rid the homeowners of the burden of the assignment fee in its
entirety. In this it failed completely. If that were the whole
13
story, defendant would be the prevailing party. But it is not the
whole story.
Plaintiff’s lawsuit, filed March 23, 2009, was preceded by
defendant’s billing of the assignment fees, beginning in December
2008. Defendant billed at 10 percent of fair market value instead
of 4 percent – a huge overcharge, two and a half times what it
should have charged. Plaintiff claims victory in preventing
defendant from charging the assignment fee based on the
10 percent formulation at $58 million, telling us that while the
judgment declares that $39 million in fees are collectible under
the contract, that is $58 million less than the amount defendant
claimed under the 10 percent formulation.
Defendant claims victory in establishing the propriety of
the assignment fee at “easily $40 million over time,” pointing out
the judgment establishes defendant’s “present entitlement to
more than $12 million in arrearages, and to easily $27 million
more through 2041[.]”
Defendant does not dispute the judgment is $58 million less
than the amount defendant claimed. But defendant says
plaintiff’s success on the 10 percent/4 percent issue counts for
nothing, because defendant “consistently had offered to abandon”
the 10 percent formulation, which was “only a defensive issue[.]”
(Indeed, defendant asserts that “a 4% outcome was [defendant’s]
dominant litigation objective[.]”) To support this notion,
defendant points to a letter it sent to homeowners before plaintiff
filed suit, plus four settlement communications exchanged
between the parties around the time of the March 2011 trial.
Defendant also relies on Ajaxo Inc. v. E*Trade Group Inc. (2005)
135 Cal.App.4th 21 (Ajaxo), asserting that “if the plaintiff in
14
Ajaxo was a prevailing party, [defendant] is too.” Neither the
record nor Ajaxo supports defendant’s contention.
As to the record, defendant relies principally on a trial
exhibit: a proposed letter agreement defendant sent to
homeowners (apparently in January 2009), before plaintiff filed
suit. Under the proposed letter agreement, the homeowner
would agree to pay the “minimum 4% Assignment Fee amount”
“until we resolve our dispute, or until . . . April 1, 2009 . . .
whichever occurs first” – in return for which defendant would
“not take legal action to enforce [its] claim to collect additional
Assignment Fees” until April 1, 2009. We fail to see how an offer
to bill temporarily at 4 percent establishes that “a 4% outcome”
was defendant’s objective all along – particularly in the face of its
concurrent 10 percent billing (and, much later, its appeal of the
trial court’s ruling that 4 percent was the proper formulation).3
Defendant insists there is a “wealth of evidence beyond” the
proposed letter agreement, to the effect that defendant was
always ready to abandon its 10 percent demand if only plaintiff
would stop the litigation. This “wealth of evidence” consists of a
confidential settlement offer defendant made on February 24,
2011, before the trial in March 2011, that included a 4 percent fee
structure (with cost of living adjustments instead of the 2021
reappraisal), and also three offers plaintiff made in February,
March and July 2011 (the last one, proposed after the trial and
3 Defendant also repeatedly points out that plaintiff did not
raise the 10 percent/4 percent breach of contract issue in its
original complaint. This is utterly without significance, as
plaintiff’s operative complaint was filed four months later, with
no responsive pleading from defendant in the interim.
15
before the statement of decision in November 2011, using a
1.5 percent formulation).4
We reject the notion that any of the settlement
communications constitute “pleadings, trial briefs, opening
statements, and similar sources” that Hsu tells us the trial court
is to use to compare the relief awarded on the contract with “the
parties’ demands on those same claims and their litigation
objectives[.]” (See Hsu, supra, 9 Cal.4th at p. 876.) Settlement
communications are not sources “similar” to “pleadings, trial
briefs, [and] opening statements.” (Ibid.) They were not
presented at trial, and we decline to allow their use to establish
that defendant’s “litigation objectives” were in fact different from
the “demands” it made on those claims throughout the litigation.
Putting aside the parties’ arguments over whether the use
of these settlement communications is permissible under
Evidence Code section 1152,5 settlement communications are not
4 In chronological order, the settlement communications
defendant relies on to support its “many offers to accept a 4%-
based fee” consist of a February 14, 2011 “confidential . . .
inadmissible settlement offer” from plaintiff, to which defendant’s
February 24, 2011 offer was a counter; plaintiff’s March 16, 2011
“confidential and inadmissible settlement communication”
countering defendant’s February 24, 2011 offer; and plaintiff’s
July 5, 2011 counteroffer (stating, among other points, that the
counteroffer “also reflects the unlikelihood of your prevailing on
any figure above 4%, and the strong likelihood that [plaintiff] will
be awarded its attorneys’ fees under the lease in litigating
against a calculation proved incorrect”).
5 Evidence Code section 1152 states: “Evidence that a person
has, in compromise . . . , furnished or offered or promised to
furnish money or any other thing, act, or service to another who
16
comparable to the sources identified in Hsu, which are
unequivocal statements of a party’s litigation objectives. The
objectives in settlement negotiations are utterly unlike litigation
objectives stated in court proceedings to obtain a legal decision.
Neither of the authorities defendant cites – Scott Co. v. Blount,
Inc. (1999) 20 Cal.4th 1103 (Scott) and Meister v. Regents of the
University of California (1998) 67 Cal.App.4th 437 (Meister) –
suggests otherwise.
Scott construed Code of Civil Procedure section 998 and is
irrelevant to the issue here. (Scott, supra, 20 Cal.4th at p. 1114
[a losing defendant whose settlement offer exceeds the judgment
is treated for purposes of postoffer costs (including attorney fees
under section 1717) as if it were the prevailing party].) Meister
likewise had nothing to do with a prevailing party determination
(and involved a statutory attorney fee provision, not section
1717). The “only question on appeal [was] whether the trial
court’s method of calculating the amount of the attorney’s fee
award was appropriate.”6 (Meister, supra, 67 Cal.App.4th at p.
has sustained or will sustain or claims that he or she has
sustained or will sustain loss or damage, as well as any conduct
or statements made in negotiation thereof, is inadmissible to
prove his or her liability for the loss or damage or any part of it.”
(Id., subd. (a).)
6 Meister held the trial court did not abuse its discretion
when it found that attorney hours expended after an oral
settlement offer “were not ‘reasonably spent’ on the litigation
because plaintiff could have obtained all of the relief he
ultimately achieved, and more, by accepting that offer.” (Meister,
supra, 67 Cal.App.4th at pp. 449-450; but see Greene v.
Dillingham Construction N.A., Inc. (2002) 101 Cal.App.4th 418,
426 [“declin[ing] to follow [Meister’s] holding that a trial court can
17
446.) Neither case has anything to do with a prevailing party
determination under section 1717.
Defendant’s reliance on Ajaxo (for the proposition that if
the Ajaxo plaintiff was a prevailing party, so is defendant) is
equally misplaced. Ajaxo rejected a defendant’s contention that
the plaintiff did not achieve sufficient success to qualify as the
prevailing party on a breach of contract cause of action. (The jury
found a breach and awarded the plaintiff $1.29 million in
damages, “far short of the damages [the plaintiff] initially
sought[.]” (Ajaxo, supra, 135 Cal.App.4th at p. 59.)) Ajaxo does
not help defendant in the slightest, because the plaintiff there
“won a simple, unqualified verdict on the breach of contract claim
and established monetary damages in excess of $1 million. Ergo,
it was the ‘party prevailing on the contract’ ” under Hsu. (Ajaxo,
at p. 59.) As we have said before, and as defendant stubbornly
refuses to acknowledge, defendant did not obtain “a simple,
unqualified decision in [its] favor . . . on the . . . contract claim in
the action.” (Hsu, supra, 9 Cal.4th at pp. 865-866.)7
consider an informal settlement offer in making [a]
determination” on whether fees were reasonably spent].)
7 Defendant also cites Pacific Custom Pools, Inc. v. Turner
Construction Co. (2000) 79 Cal.App.4th 1254 (PCP) for the
proposition that “[w]here a litigant has achieved all its dominant
litigation objectives (but not a complete victory on every single
issue), some appellate courts would declare the litigant a
prevailing party as a matter of law[.]” (Defendant mis-cites Hsu
for the same proposition.) The PCP case had nothing to do with
“dominant litigation objectives.” The court held the trial court’s
refusal to award attorney fees to the cross-defendant was an
abuse of discretion. (PCP, at p. 1273; see id. at p. 1272 [“By
succeeding in having summary judgment granted on the cross-
18
As we indicated earlier, there is no doubt that plaintiff
sought to eliminate the fee in its entirety. But plaintiff’s failure
in that objective does not cancel out its success in reducing the
assignment fees by an enormous amount. Defendant’s focus on
“dominant litigation objectives” is not the rule stated in Hsu or
anywhere else.8
In short, a party’s failure to obtain its preferred litigation
objective (here, complete elimination of the fee) does not mean
that the other party is ipso facto the prevailing party. The rule
we follow is the rule as stated in Hsu, and as reiterated in Scott,
supra, 20 Cal.4th at page 1109: “If neither party achieves a
complete victory on all the contract claims, it is within the
discretion of the trial court to determine which party prevailed on
the contract or whether, on balance, neither party prevailed
sufficiently to justify an award of attorney fees.”
complaint, there can be no doubt that [the cross-defendant]
obtained a ‘simple, unqualified win.’ ”].) Further, the trial court’s
refusal to award fees was based on its misinterpretation of the
attorney fee provision in the contract. (Id. at pp. 1269-1270.)
PCP has no application here.
8 Defendant also tells us that Sears v. Baccaglio (1998) 60
Cal.App.4th 1136 “teaches that [defendant] prevailed.” In that
case, the court found no abuse of discretion in the trial court’s
determination that the defendant, who established that the
plaintiff’s guaranty was enforceable, was the prevailing party,
even though the defendant had to repay more than half the
money the plaintiff had paid him (under protest) under the
“ ‘hotly disputed’ ” guaranty. (Id. at pp. 1158-1159.) We fail to
see how Sears is “instructive” on the facts in this case.
19
We pause to note a related point. Defendant repeatedly
points out that it brought no affirmative claims and that the
10 percent/4 percent question was “only a defensive issue.” And
plaintiff repeatedly contends that defendant “did not ‘recover’
anything” because defendant did not assert any claims, and the
amounts the amended judgment declares are presently owing (or
payable in the future) relate to plaintiff’s claims for declaratory
relief on the calculation issue. Neither party’s position has any
material effect on the conclusion we reach. Hsu directs us to
“respect substance rather than form” in determining litigation
success. (Hsu, supra, 9 Cal.4th at p. 877.)
The substance is that defendant has a judgment declaring
amounts owing in the millions of dollars that is “enforceable as a
money judgment.” But the substance is also that the amounts
declared owing are $58 million less than the amounts defendant
sought until this court’s decision in December 2014 in Marina
Pacifica I. (See 232 Cal.App.4th at pp. 504-505 [“[Defendant]
raises two main issues on appeal,” the second of which was its
contention “the 10 percent formulation, not the 4 percent
formulation, represents the correct method for calculating the
assignment fee”].)
And so we return to the question whether the trial court
abused its discretion in finding no prevailing party.9 Defendant
9 We also reject defendant’s contention we should give no
deference to the trial court’s prevailing party determination
because the court (Judge Vicencia, who also issued the
December 28, 2015 amended judgment) did not preside over the
trial in 2011 and therefore was not “in the best position to
identify dominant litigation objectives” and “had no familiarity
with the underlying proceedings.” There is no merit at all to this
contention, and the case defendant cites does not support it. (See
20
insists it did, because “where, as here, the results are lopsided, it
still is an abuse of discretion to deny prevailing party fees.”
Defendant cites de la Cuesta v. Benham (2011) 193 Cal.App.4th
1287 (de la Cuesta), where the court explains that: “If the results
in a case are lopsided in terms of one party obtaining ‘greater
relief’ than the other in comparative terms, it may be an abuse of
discretion for the trial court not to recognize that the party
obtaining the ‘greater’ relief was indeed the prevailing party.”
(Id. at p. 1295; see also Silver Creek, LLC v. BlackRock Realty
Advisors, Inc. (2009) 173 Cal.App.4th 1533, 1541 [“Although a
trial court has broad discretion to determine the prevailing party
in a mixed result case, its discretion is not unlimited.”].)
The de la Cuesta principle is sound, but it does not apply
here. The question, as de la Cuesta observed, is “[h]ow lopsided
must the results be before it is an abuse of discretion not to
acknowledge that one party has clearly prevailed?” (de la Cuesta,
supra, 193 Cal.App.4th at pp. 1295-1296.) The court pointed out
that the reason for the discretion clause “was obviously to allow
trial courts to take into account the unique facts and
circumstances of each case, as reflected in the ‘totality’ and
substance language from Hsu.”10 (Id. at p. 1296.)
Mann v. Quality Old Time Service, Inc. (2006) 139 Cal.App.4th
328, 346 [issue was the amount of fees to award a defendant who
partially prevailed on an anti-SLAPP motion].)
10 De la Cuesta was an unlawful detainer action where the
landlord sought unpaid rent of $103,000 and the tenant “asserted
the extreme position that she owed nothing by way of back rent”
because of leaks in the premises. (de la Cuesta, supra, 193
Cal.App.4th at p. 1296.) The tenant vacated the premises the
day before trial, and the landlord recovered 70 percent of the
21
We see nothing “lopsided” in the results in this case. Hsu’s
directive is to compare relief awarded to the parties with their
litigation demands and objectives. Here, plaintiff sought to pay
nothing, but instead the judgment required it to pay $39 million
over time instead of the $97 million defendant sought to charge.
That is relief of $58 million, while defendant established its right
to recover $39 million rather than nothing. The fact that
defendant obtains an actual monetary payment, while plaintiff
obtains only a reduction in its monetary obligations as claimed by
defendant, does not render that reduction meaningless. Hsu
instructs courts to respect substance over form, and de la Cuesta
correctly observes that courts may consider “the unique facts and
circumstances of each case” (de la Cuesta, supra, 193 Cal.App.4th
at p. 1296). That is what the trial court did here when it
determined there was no prevailing party, and we see no error.
2. Plaintiff’s Cross-appeal of the Attorney Fee Order
In its cross-appeal, plaintiff does not try to persuade us to
find the trial court abused its discretion. Instead, plaintiff
contends that if we are persuaded by defendant that the trial
court abused its discretion by finding no party prevailed, then we
amount he claimed. The trial court found there was no
prevailing party, and the Court of Appeal reversed because the
result was “so lopsided that, even under an abuse of discretion
standard, it was unreasonable to say the landlord was not the
prevailing party.” (Id. at pp. 1290, 1296; id. at pp. 1296, 1299
[“[t]he landlord . . . got about 70 percent of the most of what he
sought going into trial; the tenant got zero percent,” ending up
“with a judgment of about $70,000 against her”; the landlord
obtained “the ‘greater’ part of its two litigation objectives:
repossession and compensation”].)
22
should find plaintiff was the prevailing party. Because we have
concluded the trial court did not err, we need not discuss
plaintiff’s cross-appeal further.
3. The Appeals From the Order Denying Costs
a. The legal principles
Section 1032 governs the recovery of costs by the prevailing
party. Under section 1032, “ ‘Prevailing party’ includes the party
with a net monetary recovery, a defendant in whose favor a
dismissal is entered, a defendant where neither plaintiff nor
defendant obtains any relief, and a defendant as against those
plaintiffs who do not recover any relief against that defendant. If
any party recovers other than monetary relief and in situations
other than as specified, the ‘prevailing party’ shall be as
determined by the court, and under those circumstances, the
court, in its discretion, may allow costs or not . . . .” (Id.,
subd. (a)(4).) Section 1032 further provides that, “[e]xcept as
otherwise expressly provided by statute, a prevailing party is
entitled as a matter of right to recover costs in any action or
proceeding.” (Id., subd. (b).)
As the Supreme Court has observed, “ ‘ “The theory upon
which [costs] are allowed to a plaintiff is that the default of the
defendant made it necessary to sue him; and to a defendant, that
the plaintiff sued him without cause. Thus the party to blame
pays costs to the party without fault.” ’ ” (DeSaulles v.
Community Hospital (2016) 62 Cal.4th 1140, 1147 (DeSaulles).)
“Section 1032 codifies this approach to allocating costs.” (Ibid.)
DeSaulles also tells us that the definition of “prevailing party” in
section 1032 “is particular to that statute and does not
necessarily apply to attorney fee statutes or other statutes that
use the prevailing party concept.” (DeSaulles, at p. 1147.)
23
b. Contentions and conclusions
As previously noted, after finding no prevailing party for
attorney fee purposes, the trial court “[l]ikewise” found no
prevailing party “with respect to the entitlement of costs.”
Defendant argues, to the contrary, that the judgment
“indisputably” gave defendant a “net monetary recovery” and
therefore entitled defendant to costs as a matter of right.
Plaintiff, in its cross-appeal, makes the very same claim: that it
is entitled to costs because it had a “net monetary recovery.”
Defendant’s theory is that the judgment entitles it to collect
$12 million in arrearages and “easily $27 million more through
2041,” while plaintiff recovered only $14,000 on its breach of
contract claim. (This is because most of the homeowners
withheld payment of the assignment fees during the litigation.)
Plaintiff’s theory is that it was the only party seeking monetary
relief, and it recovered $14,000, whereas defendant “had no
claims so it recovered nothing”; instead, “the amounts stated in
the judgment reflect declaratory relief awarded to [plaintiff],
reducing the amounts [defendant] was trying to collect by 60%.”
Neither of these theories is correct. It seems to us that this
is a textbook case for the trial court’s exercise of discretion to
“allow costs or not,” because the statute expressly allows a court
to do so “[i]f any party recovers other than monetary relief and in
situations other than as specified[.]” (§ 1032, subd. (a)(4).)
If (as plaintiff contends) “net monetary recovery” refers
solely to monetary damages affirmatively sought by a party, then
only plaintiff obtained any “monetary relief”: $14,000 in damages
for defendant’s collection, in breach of the unit lease, at the
10 percent rate. Defendant brought no cross-complaint and
sought no damages for breach of contract or anything else, merely
24
defending against plaintiff’s claims. But even under this theory,
the judgment nevertheless also provides both parties with
declaratory relief – that the fee was valid, but that it was
collectible only at the 4 percent rate.
Viewed this way, while only the plaintiff recovered
damages ($14,000), both parties “recover[ed] other than monetary
relief[.]” (§ 1032, subd. (a)(4).) And in such a circumstance,
section 1032 expressly gives the trial court the authority to
determine the prevailing party and to “allow costs or not”: “If any
party recovers other than monetary relief and in situations other
than as specified, the ‘prevailing party’ shall be as determined by
the court, and under those circumstances, the court, in its
discretion, may allow costs or not . . . .” (Ibid., italics added.)
On the other hand, if (as defendant claims) “net monetary
recovery” is viewed in terms of the sums of money actually
changing hands under the amended judgment, then defendant
has a “net monetary recovery.” The amended judgment expressly
states that, to the extent the judgment “declares amounts
presently owing, it is enforceable as a money judgment,” and to
the extent the judgment declares defendant’s rights to receive
future payments, “any such payments shall be deemed ordered by
and payable pursuant to this Final Judgment.”
But even under this analysis, in addition to the “net
monetary recovery” obtained by defendant, plaintiff has
“recover[ed] other than monetary relief,” because plaintiff
obtained declaratory relief to the effect that defendant could not
collect the fee at the 10 percent rate. This ruling, while not a
“monetary recovery,” reduced plaintiff’s potential liability by
$58 million. The “net monetary recovery” provision does not
25
eliminate the trial court’s discretion when one of the parties also
“recovers other than monetary relief,” and that is the case here.11
In sum, plaintiff, in addition to recovering the $14,000 in
monetary relief (and being ordered to pay, over time,
$40 million), obtained a declaration that the 4 percent
formulation applied instead of the 10 percent formulation, and
this principle resulted in a reduction in amounts to be paid of
$58 million. The case did not simply involve a monetary award;
it also involved declaratory relief in plaintiff’s favor. Under those
circumstances, “the court, in its discretion, may allow costs or
not[.]” (§ 1032, subd. (a)(4).)
DISPOSITION
The order is affirmed. The parties shall bear their own
costs.
GRIMES, J.
WE CONCUR:
BIGELOW, P. J. RUBIN, J.
11 We do not find guidance in either of the cases cited by the
parties. Defendant relies on DeSaulles, supra, 62 Cal.4th 1140,
and both parties rely on Michell v. Olick (1996) 49 Cal.App.4th
1194, but neither case addresses circumstances comparable to
those here. Neither involved a judgment that provided
declaratory relief affecting future liabilities, as well as monetary
recoveries. Both DeSaulles and Michell involved monetary
recovery and nothing more.
26