Waterwood Enterprises, LLC v. City of Long Beach

Filed 12/18/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
WATERWOOD ENTERPRISES, B296830
LLC,
(Los Angeles County
Plaintiff and Appellant, Super. Ct. No. NC060787)
v.
CITY OF LONG BEACH,
Defendant and Respondent.
APPEAL from an amended judgment of the Superior Court
of Los Angeles County, Patrick T. Madden, Judge. Affirmed in
part, reversed in part, and remanded with directions.
Stuart Kane, Donald J. Hamman and Eve A. Brackmann
for Plaintiff and Appellant.
Amaro Baldwin, Michael L. Amaro and Sanaz Cherazaie
for Defendant and Respondent.
____________________________
This appeal follows a 10-day trial, a $45,050 damage award
in plaintiff’s favor on a single cause of action, and the parties’
combined attorney fees of more than $500,000. The issue before
us is whether the trial court erred in finding that defendant was
the prevailing party pursuant to a contractual attorney fee
provision.
We conclude the trial court abused its discretion in finding
that defendant—who lost the only cause of action in the case—
was the prevailing party. We reject both parties’ arguments
based on the definition of prevailing party in the attorney fees
provision in their contract. Any such definition would not trump
the definition of prevailing party in Civil Code1 section 1717.
We also conclude the trial court’s consideration of the parties’
settlement offers in determining which party achieved the
greater relief under section 1717’s definition of prevailing party
was contrary to precedent.
Finally, we reject defendant’s argument that it prevailed
because it admitted it owed plaintiff a portion of the contractual
damages plaintiff was seeking, and the jury’s lump sum award
was for less than plaintiff’s damages claim at trial. Defendant’s
argument is inconsistent with section 1717, subdivision (b)(2),
under which a defendant who owes a debt becomes a prevailing
party by tendering to the plaintiff the full amount owed and
alleging such tender in the defendant’s answer. Defendant never
tendered any portion of plaintiff’s damages, let alone any portion
it admitted it owed. To the contrary, it denied all liability in its
answer, and requested a jury instruction indicating that it
“denies” that it breached the contract. Defendant apparently did
1 Undesignated statutory citations are to the Civil Code.
2
not consider section 1717, subdivision (b)(2), and after a jury
trial, defendant lost the sole cause of action in the case. The trial
court thus abused its discretion in finding defendant was the
prevailing party.
On remand, the trial court’s discretion is limited to finding
either (1) plaintiff was the prevailing party; or (2) there was no
prevailing party. We reverse the amended judgment only insofar
as it orders plaintiff to pay defendant’s attorney fees.
BACKGROUND
The City of Long Beach (the City) sold property to
Waterwood Enterprises, LLC (Waterwood) in 2005, then leased it
back for a 10-year term beginning on October 14, 2005. The City
used the property as a police evidence storage facility. The lease
terminated on October 31, 2015.
1. The Lease Terms
The lease provides: “Tenant [the City] at its sole cost and
expense, shall maintain the Demised Premises and each part
thereof, structural and nonstructural, in good order and
condition, and . . . shall make any necessary Repairs thereto,
interior and exterior, whether extraordinary, foreseen or
unforeseen. When used in this Article VII, the term ‘Repairs’
shall mean all Alterations necessary for Tenant to properly
maintain the Demised Premises in at least the same order and
condition as of the date hereof, normal wear and tear excepted.”
(Boldface & underscoring omitted.) The lease defines “Demised
Premises” as the land and its improvements.
Article XXXV of the lease contains the following attorney
fee provision: “If any legal action should be commenced in any
court regarding any dispute arising between the parties
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hereto . . . concerning any provision of this Lease or the rights
and duties of any person in relation thereto, then the prevailing
party therein shall be entitled to collect its reasonable expenses,
attorney fees and court costs, including the same on appeal. As
used herein, the term ‘prevailing party’ means the party who, in
light of the claims, causes of action, and defenses asserted, is
afforded greater relief.”
2. The Complaint
On August 29, 2016, Waterwood filed its complaint against
the City alleging a single cause of action for breach of a written
contract. Waterwood averred that when the City left the
premises, the roof had multiple leaks. “The leaks were so bad
that, in the rain storm within two months of the surrender of the
Premises, ceiling tiles became waterlogged and collapsed, carpet
and the underlying padding were damaged, and a new tenant
was unable to fully use the Premises.” Waterwood alleged that
the City “has acknowledged that it should have paid for repairs to
the roof, but failed to do so.”2
Waterwood further alleged that when the City left the
premises, “the air conditioner was inoperable and the HVAC
system had not been properly maintained or repaired. The air
conditioner was operating and effective when the Lease was
2 In a letter dated April 21, 2016, the deputy city attorney
wrote Waterwood’s principal: “While we acknowledge that the
City should have paid for repairs to the roof necessary to put it
into working condition, we do not believe the Lease required the
City to pay for a replacement roof, nor do we believe that the
Lease required the City to repair or replace an HVAC system
that was in working order at the time the City vacated the
Premises.”
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entered, and its failure was not the result of reasonable wear and
tear.” Waterwood also alleged when the City left the premises,
that “the block wall at the southeast co[rn]er of the Premises was
damaged as if hit by a truck, such that concrete blocks were
cracked, fence supports were tilted, and fencing was leaning.”
Waterwood further averred that when the City left the premises,
“grass was growing in, and causing deterioration of, asphalt at
the Premises, and there were [sic] severe indentations occurred
in the asphalt.” When the City left the premises, “concrete on the
Premises had been broken, cracked, and subsided or shifted such
that water ponds [sic] and may cause deterioration of the base
under the concrete, and has allowed grass to grow in the concrete
areas.” Waterwood reiterated that the foregoing conditions were
not mere reasonable wear and tear.
Waterwood alleged it was informed and believed the
amounts due under the lease totaled at least $150,000.
Waterwood also requested its reasonable attorney fees.
3. The City’s Answer
The City answered on October 4, 2016. The City entered a
general denial, denying that “the Plaintiff sustained damages in
the sum or sums alleged, or in any other sum or sums, or at all.”
Although the City raised 18 affirmative defenses, it did not allege
or acknowledge in those defenses any debt owed to plaintiff or
that it had tendered any such debt to plaintiff.
4. Trial
The record on appeal does not include a reporter’s
transcript. We thus rely on the description of the trial in the trial
court’s statement of decision following the posttrial motions for
attorney fees: “At trial, there was considerable testimony as to
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various items plaintiff contended that defendant had a duty to
repair before the lease expired and that because defendant failed
to repair the items, plaintiff argued it was entitled to recover as
damages the cost to repair the items. The significant contested
items were plaintiff’s contention that: (a) defendant was required
to remove and replace an entire roof on one of the buildings;
(b) defendant was required to replace two air conditioners; and
(c) defendant was required to tear up and replace all of the
existing asphalt parking lot on the property and nearby concrete
pads.” The City contended “that the roof did not require
replacement, because any deterioration was due to reasonable
wear and tear. As to the two air conditioners, defendant argued
that neither air conditioner required replacement. As to the
condition of the asphalt, defendant admitted that plaintiff was
entitled to recover some of its claimed damages to repair the
asphalt, because some of the asphalt had deteriorated based on
use that was beyond any reasonable wear and tear.” The City
argued it “was not liable for the replacement cost of the entire
parking lot or the concrete pads.”
5. Jury Instructions
The record also contains the trial court’s jury instructions,
which demonstrate that the trial court instructed the jury:
“Waterwood Enterprises LLC claims that it and The City of Long
Beach entered into a written contract for the 10-year lease of the
subject commercial property. Waterwood Enterprises LLC claims
that The City of Long Beach breached this contract by not
surrendering the premises at the end of the lease broom clean
and in the same order and condition as the premises was in [sic]
on the date the lease began subject to reasonable wear and tear;
by not performing repairs and maintenance during the ten-year
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tenancy, and by not repairing certain damage to the property
that occurred during the term of the lease.
“Waterwood Enterprises LLC also claims that The City of
Long Beach’s breach of this contract caused damages to
Waterwood Enterprises LLC for which the City of Long Beach
should pay.”
The trial court further instructed the jury: “The City of
Long Beach denies that it breached the lease agreement, and
contends that it completed the repairs required under the lease
agreement, except for items caused by reasonable/normal wear
and tear.” (Italics added.)
Regarding damages, the trial court told the jury that it
could award Waterwood damages only if Waterwood proved all of
the following:
“1. That Waterwood Enterprises LLC and The City of Long
Beach entered into a contract;
“2. That Waterwood Enterprises LLC did all, or
substantially all, of the significant things that the contract
required it to do;
“3. That The City of Long Beach failed to do something
that the contract required it to do;
“4. That Waterwood Enterprises LLC was harmed; and
“5. That The City of Long Beach’s breach of contract was a
substantial factor in causing Waterwood Enterprises LLC’s
harm.”
6. Judgment
The jury found in favor of Waterwood on the only cause of
action before it. The jury found the City had breached the
contract (the lease) and awarded Waterwood $45,050 in
contractual damages. In a special verdict, jurors answered the
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following two questions affirmatively: (1) “Did Defendant, City of
Long Beach, breach the written lease contract?”; and (2) “Was the
breach of the written lease contract a substantial factor in
causing Plaintiff’s damages?” In its special verdict, the jury
did not identify the kind of repairs for which it was awarding
damages, but merely entered a lump sum.
7. Waterwood’s Attorney Fees Motion
In a posttrial motion for attorney fees, Waterwood sought
$307,068.50 in fees plus an additional $15,000 for bringing its
attorney fee motion. Waterwood also sought approximately
$12,000 in costs. Waterwood argued that it was the prevailing
party under the contract and was entitled to its reasonable
attorney fees and further argued that all its fees were reasonable.
8. The City’s Attorney Fees Motion
The City filed a competing motion for attorney fees, arguing
that it, not Waterwood, was the prevailing party. According to
the City: “Although this was a breach of contract case, the
history of the events which brought about the filing of this action
are paramount in determining who the ‘prevailing party’ is, for
purposes of attorney’s fees under Section 1717, as the ‘crux’ of
this case was about damages. The City admitted from the
beginning that it should have paid for some repairs to the roof
necessary to put it into working condition, as well as a few other
items. However, it staunchly disputed Plaintiff’s claim that the
City should tear off and replace the entire roof, and install two
entirely new HVAC units. The City also denied that it had an
obligation to tear up the entire asphalt parking lot, and nearby
concrete pads, and install new asphalt and concrete.”
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The City argued it achieved its main litigation objective “to
pay Plaintiff for some, but not all, of the claimed repairs.” The
City stated that it incurred $172,375 in attorney fees, $17,673.50
in costs, and $39,483.50 in expert fees, for a total of $229,532.
9. Postjudgment Attorney Fee Award
The trial court awarded Waterwood costs in the amount of
$19,905.04. The trial court found that Waterwood was the
prevailing party for purposes of a costs award under Code of Civil
Procedure section 1032 because Waterwood achieved a net
monetary recovery. The trial court awarded the City $172,375 in
attorney fees. On appeal, no one has challenged the trial court’s
award of costs to Waterwood; the only issue before us is the trial
court’s award of attorney fees to the City.
In its statement of decision, the trial court explained its
reasoning for awarding attorney fees to the City: Waterwood’s
complaint “asserted a single cause of action for breach of
contract.” “The sole defendant was the City.” “After the lease
expired, the parties engaged in discussions regarding the
condition of the property both before commencement of the lease
and at the end of the lease. Waterwood claimed that during the
lease, the City damaged the Property and sought compensation
from the City for the claimed damage. On the other hand, the
City argued that most of the claimed damage by Waterwood was
caused by normal wear and tear and, on that basis, the City was
not responsible for most of the damage claimed by Waterwood.”
Each party made various settlement offers, including
Waterwood’s Code of Civil Procedure section 998 offer to
compromise for $120,000 plus attorney fees and costs and the
City’s Code of Civil Procedure section 998 offer to compromise for
$40,001. No party accepted the other’s settlement offers.
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Citing Hsu v. Abbara (1995) 9 Cal.4th 863, 876 (Hsu), the
trial court reasoned that to determine the prevailing party, it had
to consider the parties’ demands as disclosed by their pleadings,
trial briefs, and opening statements. The trial court did not
discuss the parties’ pleadings, trial briefs, or opening statements,
but instead recounted the parties’ settlement offers in
determining that the City’s settlement offer was closer to the
jury’s award than was Waterwood’s settlement offer. “The jury’s
verdict was $5,050 greater than the City’s statutory [Code of Civil
Procedure section 998] offer, while the verdict was $74,950 less
than Waterwood’s § 998 offer (which does not include
Waterwood’s considerable costs and attorney fees, which were
part of Waterwood’s § 998 offer).” The trial court also relied on
the parties’ “pre-litigation settlement discussions” to determine
that the City was the prevailing party.
Based upon the settlement offers, the trial court concluded
that “the City clearly succeeded on its claims and Waterwood
did not. The jury did not require the City to pay Waterwood the
cost of a new roof, the cost of new air conditioners or the cost to
remove and replace the entire parking area, plus the concrete
pads. Instead, the jury required the City to pay the cost to repair
a portion of the parking lot, which was exactly the relief the City
acknowledged to the jury that it should pay to Waterwood.”
The trial court did not explain its rationale for concluding
the jury’s damage award was based on the cost to repair a portion
of the parking lot. The award itself included only a lump sum
and did not distinguish among the various items that Waterwood
argued needed repair or replacement. The trial court concluded:
“Simply stated, the jury’s verdict was very good news to the City
and terrible new[s] for Waterwood. Based on the litigation
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objectives of the parties, defendant is clearly the prevailing
party.”
10. Amended Judgment
The amended judgment provides: (1) The City shall pay
Waterwood damages of $45,050 with interest amounting to
$1,987.06; (2) the City shall pay Waterwood costs of $19,905.04;
and (3) Waterwood shall pay the City attorney fees in the amount
of $172,375. Thus, under the amended judgment, Waterwood
owed the City a total of $105,432.90.
DISCUSSION
A. Section 1717 Governs the Determination of the
Prevailing Party
Section 1717 defines prevailing party as “the party who
recovered a greater relief in the action on the contract.” (§ 1717,
subd. (b)(1).) Under section 1717, there may be one prevailing
party (Frog Creek Partners, LLC v. Vance Brown, Inc. (2012)
206 Cal.App.4th 515, 529; see also de la Carriere v. Greene (2019)
39 Cal.App.5th 270, 276), or “no party prevailing on the
contract . . . .” (§ 1717, subd. (b)(1).) “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.” (Scott Co. v.
Blount, Inc. (1999) 20 Cal.4th 1103, 1109 [trial court did not
abuse its discretion in determining plaintiff was the prevailing
party even though it received less than 25 percent of the damages
it sought].) In exercising that discretion, our high court has
counseled, “the trial court is to compare the relief awarded on the
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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.”
(Hsu, supra, 9 Cal.4th at p. 876.)
On the other hand, if a party achieves a “ ‘simple,
unqualified win’ ” on the only contract claim between the parties,
then the trial court has no discretion to find no party prevailed.
(Hsu, supra, 9 Cal.4th at p. 876 [trial court erred in finding no
prevailing party when defendant won the only contract claim in
the case].) Thus, “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.” (Ibid.) The case before us is not such a case
because Waterwood did not recover all its damages on its contract
claim against the City and thus did not achieve an unqualified
win.
Both sides argue that Article XXXV of the lease commands
a finding that it was the prevailing party. Article XXXV defines
prevailing party as “the party who, in light of the claims, causes
of action, and defenses asserted, is afforded greater relief.”
Waterwood argues that unlike section 1717, this provision does
not allow a finding of no prevailing party, and modifies the “party
afforded greater relief” by the phrase “in light of the claims,
causes of action, and defenses” in the case. Given that the City
lost on all its affirmative defenses and that the jury awarded
Waterwood damages on the only cause of action in the case—
breach of the lease—Waterwood asserts it was the “party
afforded greater relief”’ under the contract.
The City, on the other hand, argues that Waterwood has
failed to satisfy its burden of demonstrating the trial court erred
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in interpreting the lease. The City argues the trial court’s
statement of decision was supported by substantial evidence and
that the trial court properly applied the lease’s definition of
prevailing party to determine that the City prevailed.
Both parties’ arguments miss the mark. To the extent
arguendo Article XXXV’s definition of prevailing party conflicts
with that in section 1717, section 1717 supersedes any such
contractual variance. (Santisas v. Goodin (1998) 17 Cal.4th 599,
617 [“When a plaintiff files a complaint containing causes of
action within the scope of section 1717 (that is, causes of action
sounding in contract and based on a contract containing an
attorney fee provision), and the plaintiff thereafter voluntarily
dismisses the action, section 1717 bars the defendant from
recovering attorney fees incurred in defending those causes of
action, even though the contract on its own terms authorizes
recovery of those fees.”]; Walker v. Ticor Title Co. of California
(2012) 204 Cal.App.4th 363, 373 [“Parties to a contract cannot,
for example, enforce a definition of ‘prevailing party’ different
from that provided in Civil Code section 1717.”]; Exxess
Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 707
[“[T]he lease contemplated an award of attorneys’ fees to a cross-
defendant who is dismissed as a result of a settlement.
Nevertheless, the definition of ‘prevailing party’ in Civil Code
section 1717 is mandatory and cannot be altered or avoided by
contract.”].)
We also reject the City’s argument that the trial court
“specifically analyzed the contractual terms defining a prevailing
party”; the trial court’s statement of decision is devoid of any
analysis of the definition of prevailing party in Article XXXV.
(Boldface, underscoring, & capitalization omitted.)
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B. Standard of Review
Under section 1717, a trial court has discretion to
determine which party is the prevailing party for purposes of a
contractual attorney fee provision. (DisputeSuite.com, LLC v.
Scoreinc.com (2017) 2 Cal.5th 968, 973.) A trial court abuses its
discretion when it relies on improper criteria. (Y.R. v. A.F. (2017)
9 Cal.App.5th 974, 983; see Ayala v. Antelope Valley Newspapers,
Inc. (2014) 59 Cal.4th 522, 530.) A trial court also abuses its
discretion if it relies on a fact wholly unsupported by the
evidence. (In re Marriage of Pasco (2019) 42 Cal.App.5th 585,
590.) In part, this is because consideration of the evidence “ ‘ “ ‘is
essential to a proper exercise of judicial discretion.’ ”
[Citations.].’ ” (Ibid; see also Tire Distributors, Inc. v. Cobrae
(2005) 132 Cal.App.4th 538, 544 [“If there is no evidence to
support the court’s findings, then an abuse of discretion has
occurred.”].)
“ ‘ “The scope of discretion always resides in the particular
law being applied, i.e., in the ‘legal principles governing the
subject of [the] action . . . .’ Action that transgresses the confines
of the applicable principles of law is outside the scope of
discretion and we call such action an ‘abuse’ of discretion.” ’ ”
(Hypertouch, Inc. v. Superior Court (2005) 128 Cal.App.4th 1527,
1537.)
C. The Trial Court Abused Its Discretion in Finding the
City Was the Prevailing Party
1. The trial court relied on wholly unsupported
facts
As just noted above, a trial court abuses its discretion
when it relies on facts wholly unsupported by the record. (In re
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Marriage of Pasco, supra, 42 Cal.App.5th at p. 590.) The trial
court’s statement that the jury awarded damages based on the
City’s concession that it failed to repair the parking lot is
unsupported by the record. In its answer, the City disputed all of
Waterwood’s allegations. At trial, the court instructed the jury:
“The City of Long Beach denies that it breached the lease
agreement, and contends that it completed the repairs required
under the lease agreement, except for items caused by
reasonable/normal wear and tear.” The trial court further
instructed the jury that to award damages, the jury had to find
the City “failed” to do something it was required to do. The City
cites to no concession that it breached the lease or that it owed
Waterwood damages.
The record also does not support the trial court’s finding
that “the jury required the City to pay the cost to repair a portion
of the parking lot . . . .” The special verdict form did not itemize
by location the damages Waterwood was claiming. Instead, it
provided a single line on which the jury was to place a damage
award if it found the City had breached the lease. Although it is
possible the jury awarded damages based on repairing the
parking lot, the jury could have instead awarded damages based
on repairing the roof, which the City admitted before trial and on
appeal it should have fixed,3 or on a combination of items. The
3 The City concedes on appeal that it “admitted from the
beginning that it should have paid for some repairs to the roof
necessary to put it into working condition, as well as a few other
items.” The City concludes that “[t]he jury awarded $45,050,
which accounted for the repairs to the roof necessary to put it into
working condition, which the defense did not dispute it should
pay under the contract.” As noted in the text, this is not a
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special verdict does not elucidate the basis for the damage award
and does not support the finding that the award was based solely
on the cost of repairing the parking lot.
2. The trial court relied on improper legal criteria
The trial court also abused its discretion in relying on
improper legal criteria—specifically the parties’ settlement
offers—to conclude that the City was the prevailing party. The
trial court concluded that “[b]ased on the parties’ respective
[Code of Civil Procedure] § 998, . . . offers to compromise, the
defendant City clearly succeeded on its claims at trial, while
Waterwood did not.” The trial court also relied on the parties
other “settlement discussions” predating their respective Code of
Civil Procedure section 998 offers.
In determining the prevailing party under section 1717, a
trial court may not consider the parties’ settlement
communications. “Settlement communications are not sources
‘similar’ to ‘pleadings, trial briefs, [and] opening statements.’
[Citation.] 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.” (Marina Pacifica Homeowners
Assn. v. Southern California Financial Corp. (2018)
20 Cal.App.5th 191, 204 (Marina Pacifica).) As Division Eight of
our court observed, “[t]he objectives in settlement negotiations
are utterly unlike litigation objectives stated in court proceedings
to obtain a legal decision.” (Ibid.) Simply put, the Code of Civil
Procedure section 998 offers and settlement negotiations here
necessary conclusion from the record, and one not reached by the
trial court.
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were irrelevant to the determination of whether Waterwood was
a prevailing party under section 1717.
We are cognizant that certain circumstances may permit an
attorney fee award under Code of Civil Procedure section 998
even when a party was not the prevailing party under section
1717. (SCI California Funeral Services, Inc. v. Five Bridges
Foundation (2012) 203 Cal.App.4th 549, 577–578 (SCI).) “[A]
defendant’s entitlement to costs under section 998 derives not
from its status as a prevailing party but rather from the
plaintiff’s failure to accept a reasonable settlement offer.” (SCI,
at p. 578.) Under Code of Civil Procedure section 998, “a party
whose settlement offer exceeds the judgment ‘is treated for
purposes of postoffer costs as if it were the prevailing party.’ ”
(SCI, at p. 578.) Where a contract permits the prevailing party
attorney fees, such postoffer costs may also include attorney fees.
(Ibid.) These principles do not assist the City because the City’s
Code of Civil Procedure section 998 offer, offering $40,001,
did not exceed the judgment of $45,050. (See Code Civ. Proc.,
§ 998, subd. (c)(1).)
3. The trial court did not consider the controlling
legal standard
A trial court abuses its discretion when it applies the wrong
legal standard. (Miyamoto v. Department of Motor Vehicles
(2009) 176 Cal.App.4th 1210, 1219.) Even if the City admitted
that it owed Waterwood money to repair the parking lot, and
assuming arguendo the jury based its damage award on repairing
the parking lot, the trial court abused its discretion in relying on
that purported admission to conclude the City was a prevailing
party. To achieve prevailing party status under this theory,
section 1717, subdivision (b)(2) required the City to admit its debt
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and tender the debt before a contested trial. The City never did
so.
Section 1717, subdivision (b)(2) provides in pertinent part:
“Where the defendant alleges in his or her answer that he or she
tendered to the plaintiff the full amount to which he or she was
entitled, and thereupon deposits in court for the plaintiff, the
amount so tendered, and the allegation is found to be true, then
the defendant is deemed to be a party prevailing on the contract
within the meaning of this section.”
Contemporaneously with section 1717, subdivision (b)(2)’s
enactment, the Senate Committee on the Judiciary described its
purpose as follows: “Proponents perceive another deficiency in
present C.C. [Civil Code] Sec. 1717 in that it does not contain a
provision allowing the defendant to be deemed the prevailing
party when she or he tenders the plaintiff the full amount to
which the defendant alleges that the plaintiff is entitled, deposits
that amount in court, and then establishes the allegation as true.
Such a provision, which is aimed at encouraging settlements, is
contained in present C.C. Sec. 1811.1, whose language SB 1028
would incorporate into C.C. Sec. 1717.” (Sen. Com. on Judiciary,
Analysis of Sen. Bill No. 1028 (1981–1982 Reg. Sess.) as
introduced Mar. 27, 1981, p. 3.)
As the legislative history reveals, section 1717,
subdivision (b)(2) was modeled after section 1811.1, and we may
presume the Legislature was aware of contemporaneous judicial
construction of section 1811.1. (People v. Jones (2001) 25 Cal.4th
98, 109; see also Viking Pools, Inc. v. Maloney (1989) 48 Cal.3d
602, 609 [“The Legislature is deemed to be aware of existing laws
and judicial decisions construing the same statute in effect at the
time legislation is enacted . . . .”].)
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Section 1811.1 provides (and provided at the time the
Legislature enacted the pertinent part of § 1717, subd. (b)(2)):
“Reasonable attorney’s fees and costs shall be awarded to the
prevailing party in any action on a contract or installment
account subject to the provisions of this chapter[4] regardless of
whether such action is instituted by the seller, holder or buyer.
Where the defendant alleges in his answer that he tendered to
the plaintiff the full amount to which he was entitled, and
thereupon deposits in court, for the plaintiff, the amount so
tendered, and the allegation is found to be true, then the
defendant is deemed to be a prevailing party within the meaning
of this article.”
In Joseph Magnin Co. v. Schmidt (1978) 89 Cal.App.3d.
Supp. 7 (Schmidt), the court applied section 1811.1 to determine
the plaintiff was the prevailing party. (Id. at p. Supp. 11.) In
Schmidt, the defendant paid the amount it owed the plaintiff a
month after the plaintiff sued the defendant, but before the
defendant answered. (Id. at p. Supp. 8.) The judgment awarded
the plaintiff no damages because the defendant had already paid
the obligation. (Id. at pp. Supp. 8–9.) The plaintiff argued that
notwithstanding that fact, it was the prevailing party for
purposes of an award of attorney fees because the defendant did
not pay the amount owed until after the plaintiff filed the
complaint. (Id. at p. Supp. 9.)
The Schmidt court agreed: Under section 1811.1,
“[s]uccessful plaintiffs are entitled to costs and disbursements as
a matter of course. [Citation.] Attorneys fees are likewise
4 Section 1811.1 appears in a chapter regarding retail
installment contracts.
19
available in the absence of agreement where specifically provided
for by statute as here. [Citation.] Hence [plaintiff] herein, by
specific statutory authorization, upon the date of filing of its
complaint, was in the same position as any other similarly
authorized plaintiff-creditor who is owed a debt and who incurs
attorneys fees and costs in seeking payment of that debt. The
clear import of section 1811.1 is to encourage prelitigation
tenders. Tender is a word in common legal usage to denote an
offer before suit. The use of the word ‘tender’ in the same
sentence in which the phrase ‘. . . deposits in court . . .’ appears
also supports our conclusion that tenders in section 1811.1 are to
be made before the litigation commences. Logically then if the
prelitigation tender is refused the defendant may after suit allege
such tender and deposit the amount to which plaintiff is entitled
into court.” (Schmidt, supra, 89 Cal.App.3d at p. Supp. 11.) The
court further concluded that “neither law, equity, fairness nor
justice requires that a defendant debtor be entitled to delay
payment of a debt in circumstances such as these until after a
lawsuit has been filed and thus defeat a plaintiff-creditor’s
entitlement to attorneys fees and costs.” (Id. at p. Supp. 13.)
In Schmidt, the plaintiff was a prevailing party because the
defendant did not timely tender the amount it owed the plaintiff.
Here, the City never tendered any debt owed Waterwood
relating to the lease. The trial court overlooked the import of
section 1717, subdivision (b)(2), and as we explain below, the trial
court thus abused its discretion in finding that the City was the
prevailing party.
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4. Under the correct legal standard, the City
was not a prevailing party
Although the City argues that “from the very beginning [it]
admitted breach, as it had not completed all the repairs,” an
“admitted breach” is not the same as a tender. (Underscoring
omitted.) “A tender is an offer of performance made with the
intent to extinguish the obligation.” (Still v. Plaza Marina
Commercial Corp. (1971) 21 Cal.App.3d 378, 385; see also
Crossroads Investors, L.P. v. Federal National Mortgage Assn.
(2017) 13 Cal.App.5th 757, 783.) When properly made, a tender
puts the other party in default if he or she refuses to accept it.
(Still, supra, at p. 385.)
Applying section 1717, subdivision (b)(2), we have
explained that a defendant is a prevailing party when the
defendant tenders the full amount of the contractual debt or pays
the entire debt. (David S. Karton, A Law Corp. v. Dougherty
(2014) 231 Cal.App.4th 600, 608 [defendant was the prevailing
party under section 1717, subdivision (b)(2) because prior to
plaintiff’s commencement of arbitration, he paid plaintiff the
attorney fees and interest he owed].) Division Three of our court
recognized in Bank of Idaho v. Pine Avenue Associates (1982)
137 Cal.App.3d 5, 16, that under section 1717, subdivision (b)(2),
a defendant could be a prevailing party “if in the answer a tender
is alleged, a deposit is made, and the plaintiff is found to be
entitled to no more than the amount of the tender,” but concluded
it was premature to make a prevailing party finding there before
the defendant answered. Because the City did not tender to
Waterwood any amount for repair, its “admitted breach” does not
support prevailing party status.
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Here, there was only one contract claim, and Waterwood
was the only party that obtained relief. The jury found against
the City on the sole cause of action for breach of contract and
rejected all its affirmative defenses. The City failed to tender any
admitted cost of repair to Waterwood at any time before or during
the trial of this case. Thus the record does not reveal any
circumstance under which the City could be the prevailing party
under section 1717.
The City counters with de la Cuesta v. Benham (2011)
193 Cal.App.4th 1287 (de la Cuesta), but to no avail. There, the
plaintiff-landlord filed an unlawful detainer complaint seeking
unpaid rent and other damages. (Id. at pp. 1290–1291.) The
defendant-tenant answered alleging she owed nothing and that
the landlord had breached the warranty of habitability. (Id.
at p. 1291.) After the tenant vacated the premises, the court
converted the case from an unlawful detainer to an ordinary civil
action. (Id. at p. 1291.) Ultimately the landlord recovered
approximately 70 percent of the monetary damages he had
requested. (Ibid.) The trial court denied the landlord’s motion
for attorney fees and found neither party prevailed because the
landlord recovered possession before the civil action commenced
and recovered only a portion of its damages. (Ibid.)
Applying section 1717, the appellate court distinguished a
case in which a plaintiff obtains an unqualified victory and all the
damages it sought, from a case in which a plaintiff recovers only
a portion of the damages sought. (de la Cuesta, supra,
193 Cal.App.4th at pp. 1292–1293.) The appellate court
explained that in the latter scenario, a trial court cannot simply
“nullify” an attorney fee “provision if there is anything less than
100 percent success as measured against the most extreme claim
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for relief taken by a litigant . . . .”5 (de la Cuesta, at p. 1295.)
The court then concluded that, given the “lopsidedness” of the
award and that the landlord had obtained repossession of the
premises, the trial court abused its discretion in finding there
was no prevailing party and in not awarding attorney fees to the
landlord. (Id. at pp. 1297, 1299.)
We fail to discern how this case supports the trial court’s
finding that the City was the prevailing party here.
D. Instructions on Remand
Upon remand the trial court shall determine whether
Waterwood was the prevailing party or whether there was no
prevailing party. As discussed earlier, when “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.” (Hsu, supra, 9 Cal.4th at
p. 876; de la Cuesta, supra, 193 Cal.App.4th at p. 1296.) The
trial court may not consider the parties’ settlement discussions.
(Marina Pacifica, supra, 20 Cal.App.5th at p. 204.)
5 “Most of the time, attorneys have an incentive to assert
the maximal claims possible on behalf of their clients. . . . But if
anything less than complete victory means that a client loses
what would otherwise have been ‘prevailing party’ status under
section 1717, the attorney is crunched into a dilemma. Risk a
malpractice suit by not asserting maximal claims, or risk a
malpractice suit by forfeiting ‘prevailing party’ status under
section 1717 by asserting maximal claims.” (de la Cuesta, supra,
193 Cal.App.4th at p. 1296, fn. 5.)
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If the trial court concludes that Waterwood is the
prevailing party, it shall calculate the amount of reasonable fees
the City owes Waterwood under Article XXXV. If the trial court
finds there was no prevailing party, neither party is entitled to
its attorney fees.
DISPOSITION
The amended judgment is reversed in so far as it requires
Waterwood Enterprises, LLC to pay the City of Long Beach’s
attorney fees. In all other respects the amended judgment is
affirmed. The case is remanded to the trial court for further
proceedings consistent with this opinion. Waterwood
Enterprises, LLC is entitled to its costs on appeal.
CERTIFIED FOR PUBLICATION.
BENDIX, J.
We concur:
ROTHSCHILD, P. J.
FEDERMAN, J.*
* Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.
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