U.S. Grant Hotel Ventures v. American Property Management Corp. CA4/1

Opinion

Filed 5/11/16 U.S. Grant Hotel Ventures v. American Property Management Corp. CA4/1 OPINION ON REHEARING

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

U.S. GRANT HOTEL VENTURES, LLC, D066490

Plaintiff and Respondent,

v. (Super. Ct. No. GIC 845130)

AMERICAN PROPERTY MANAGEMENT CORPORATION et al.,

Defendants and Appellants.

APPEAL from an order of the Superior Court of San Diego County, Joan

Lewis, Judge. Affirmed.

Williams Iagmin and Jon R. Williams for Defendants and Appellants.

Procopio, Cory, Hargreaves & Savitch, Anthony J. Dain, Frederick K.

Taylor and Brian J. Kennedy, for Plaintiff and Respondent.

American Property Management Corporation (APMC), APMC San Diego

Hotel Management, LLC (Hotel Management), and Michael Gallegos appeal from

an order awarding U.S. Grant Hotel Ventures, LLC (USG) attorney's fees as the

prevailing party on its tort claims for breach of fiduciary duty and conversion arising out of a contract. Appellants contend the trial court erred in awarding USG

its attorney's fees. We filed our opinion, reversing the award of attorney's fees

under Code of Civil Procedure section 1021. We granted rehearing and allowed

the parties to submit supplemental briefing to address USG's claim for attorney's

fees under Civil Code section 1717, an argument USG presented to the trial court

that we failed to address in our original opinion. (Undesignated statutory

references are to the Civil Code.) We have reviewed and considered the briefs

filed by the parties. We now affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In 2003, Sycuan Investors — U.S. Grant, LLC (Sycuan Investors) formed

USG to own and acquire the U.S. Grant Hotel (the hotel) through the adoption of

an Operating Agreement. The Operating Agreement named Hotel Management as

the manager of USG. The Operating Agreement anticipated that USG and Hotel

Management would enter into another agreement whereby Hotel Management

would manage the hotel operations. Two days later, USG and Hotel Management

executed the Hotel Management Agreement (Managing Agreement) setting forth

the terms and conditions under which Hotel Management would manage the hotel.

In 2005, USG notified Hotel Management that it was terminating the

Managing Agreement due to alleged "mismanagement, misappropriation of funds

and breach of fiduciary duty." Thereafter, USG sued APMC, Hotel Management,

and Gallegos alleging, among other things, that APMC and Hotel Management

breached the Managing Agreement and APMC, Hotel Management and Gallegos

2 breached the Operating Agreement. USG also alleged numerous causes of action

sounding in tort, including that Hotel Management and Gallegos breached a

fiduciary duty owed under the Operating Agreement and converted funds. In turn,

Hotel Management and Gallegos filed a cross-complaint against USG asserting,

among other things, that it was entitled to liquidated damages due to USG's

wrongful termination of the Managing Agreement.

USG prevailed on the claims, but this court reversed the judgment on the

ground the trial court erred in not permitting extrinsic evidence offered by Hotel

Management. (See U.S. Grant Hotel Ventures, LLC v. American Property

Management Corp. et al. (Oct. 16, 2008, D048746, D050053) [nonpub. opns.],

(U.S. Grant I).) On remand, the trial court granted USG's motion to dismiss the

cross-complaint finding USG was entitled to sovereign immunity as a subordinate

economic entity of the Sycuan tribe. This court rejected USG's belated assertion

of sovereign immunity, reversed the lower court's dismissal of Hotel Management

and Gallegos's cross-complaint, and remanded the matter for further proceedings.

(American Property Management Corp. v. Superior Court (U.S. Grant Hotel

Ventures, LLC) (2012) 206 Cal.App.4th 491, 495, 508.)

On remand, the jury rejected USG's claim that Hotel Management breached

the Operating Agreement on the ground USG and Hotel Management did not enter

into the Operating Agreement. The jury, however, found in favor of USG on its

claims for breach of the Managing Agreement, breach of fiduciary duty and

3 conversion of $1,350,000 from an operating account. The jury awarded USG the

total of $1,350,000 in damages.

Hotel Management's operative cross-complaint alleged that USG breached

the Managing Agreement by wrongfully terminating the agreement and refusing to

pay fees and liquidated damages. On this claim, the jury found in favor of Hotel

Management and awarded them liquidated damages and other damages for a total

of over $5 million in damages. Posttrial motions resulted in a conditional

remittitur which reduced Hotel Management and Gallegos's damages to about $3.2

million.

Thereafter, the trial court granted Hotel Management its attorney's fees and

costs under section 1717 as the prevailing parties under the Managing Agreement,

with Hotel Management receiving about $3.35 million in attorney's fees. USG

then sought to be declared the prevailing party under Code of Civil Procedure

section 1021 on the Operating Agreement for its success on its tort claims for

breach of fiduciary duty and conversion arising out of the Operating Agreement.

Initially, USG did not seek attorney's fees under section 1717 and conceded in its

motion that this statute did not apply. In amended points and authorities, USG

asserted it was also a prevailing party under section 1717. USG argued that the

terms of the Operating Agreement made it a party thereto. Alternatively, USG

asserted it was a third party beneficiary to the Operating Agreement. The trial

court awarded USG about $4.2 million in attorney's fees as the prevailing party

under the Operating Agreement. Hotel Management timely appealed from this

4 postjudgment order. Although there are two other appellants, the order awarded

fees solely against Hotel Management; accordingly, we limit our discussion to this

party.

DISCUSSION

I. General Legal Principles

In California each party to a lawsuit ordinarily must pay his or her own

attorney's fees. (Musaelian v. Adams (2009) 45 Cal.4th 512, 516.) "Code of Civil

Procedure section 1021 codifies the rule, providing that the measure and mode of

attorney compensation are left to the agreement of the parties '[e]xcept as

attorney's fees are specifically provided for by statute.' " (Ibid.) One such statute

is section 1717 which provides "[i]n any action on a contract, where the contract

specifically provides that attorney's fees and costs, which are incurred to enforce

that contract, shall be awarded either to one of the parties or to the prevailing

party, then the party who is determined to be the party prevailing on the contract,

whether he or she is the party specified in the contract or not, shall be entitled to

reasonable attorney's fees in addition to other costs." (§ 1717, subd. (a).) "When

an action involves multiple, independent contracts, each of which provides for

attorney fees, the prevailing party for purposes of . . . section 1717 must be

determined as to each contract regardless of who prevails in the overall action.

[Citation.] The fact that a party 'obtained a higher net recovery in the lawsuit is

irrelevant to the determination of which party prevailed on any particular action on

5 a contract.' " (Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47

Cal.App.4th 464, 491.)

The purpose of section 1717 is to establish a mutuality of remedy and

"prevent oppressive use of one-sided attorney's fees provisions." (Reynolds

Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128.) To accomplish this purpose,

the statute has been interpreted to provide for an award of attorney's fees to a

defendant who has not signed a contract, but is sued as if it had, if the plaintiff

would have been able to recover attorney's fees under the contract if the plaintiff

prevailed. (Ibid.) This rationale also applies to a nonsignatory plaintiff seeking to

enforce a contract against a signatory defendant. (Real Property Services Corp. v.

City of Pasadena (1994) 25 Cal.App.4th 375, 380-381.) At least "[t]wo situations

may entitle a nonsignatory party to attorney fees." (Cargill, Inc. v. Souza (2011)

201 Cal.App.4th 962, 966.) "First is where the nonsignatory party 'stands in the

shoes of a party to the contract.' [Citation.] Second is where the nonsignatory

party is a third party beneficiary of the contract." (Ibid.)

To invoke section 1717 and its reciprocity principles a party must show (1)

it was sued on a contract containing an attorney fee provision; (2) it prevailed on

the contract claims; and (3) the opponent would have been entitled to recover

attorney's fees had the opponent prevailed. (Santisas v. Goodin (1998) 17 Cal.4th

599, 610-611.) The term " 'on a contract' " as used within section 1717 is liberally

construed to extend to any action involving a contract. (Blickman Turkus, LP v.

MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 894 (Blickman).)

6 The "party prevailing" is "the party who recovered a greater relief in the action on

the contract." (§ 1717, subd. (b)(1).)

We review a trial court's prevailing party determination for abuse of

discretion and its determination of the legal basis for an award of attorney fees de

novo. (Silver v. Boatwright Home Inspection, Inc. (2002) 97 Cal.App.4th 443,

448-449.) In interpreting a contract, we apply the general rules of contract

interpretation with the objective of giving effect to the mutual intent of the parties

at the time of contracting. (City of Chino v. Jackson (2002) 97 Cal.App.4th 377,

382.) Where no extrinsic evidence is offered to interpret the agreement, it is solely

a judicial function to interpret the written instrument. (Id. at pp. 382-383.)

II. Analysis

The Operating Agreement provided: "If any legal action . . . is commenced

arising out of this Agreement, the prevailing party shall be entitled to an award of

its attorneys' fees and expenses . . ." "The phrase 'prevailing party' shall include a

party who receives substantially the relief desired whether by dismissal, summary

judgment, judgment or otherwise." The language of this provision is broad

enough to encompass both contract actions and actions in tort. (Lerner v. Ward

(1993) 13 Cal.App.4th 155, 157-158, 160 [noting the language " 'arising out of this

agreement' " supported an award of attorney's fees for tort-based causes of

action].)

The Operating Agreement does not define the word "party" and the attorney

fee provision is not limited to the actual parties to the contract. (Compare,

7 Blickman, supra, 162 Cal.App.4th at p. 896 [attorney fees provision expressly

limited to " 'litigation between the parties hereto' " precludes recovery by third

parties].) Accordingly, USG may be entitled to the benefit of the attorney fee

provision if it is a party or a third party beneficiary to the Operating Agreement.

The jury concluded that USG and Hotel Management did not enter into the

Operating Agreement. Thus, USG is not a party to the Operating Agreement in

the traditional sense. (Black's Law Dictionary (10th ed. 2014), p. 1297 [defining

"party" as someone taking part in a transaction].) Nonetheless, under California

law, third party beneficiaries of contracts have the right to enforce the terms of a

contract made expressly for their benefit. (§ 1559.) " 'If the terms of the contract

necessarily require the promisor to confer a benefit on a third person, then the

contract, and hence the parties thereto, contemplate a benefit to the third person.' "

(Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th

1004, 1022.)

"The party claiming to be a third party beneficiary bears the burden of

proving that the contracting parties actually promised the performance which the

third party beneficiary seeks. This remains largely a question of interpreting the

written contract." (Loduca v. Polyzos (2007) 153 Cal.App.4th 334, 341.) While

third party beneficiary status is often a question of fact, where "the issue can be

answered by interpreting the contract as a whole and doing so in light of the

uncontradicted evidence . . . the issue becomes one of law that we resolve

8 independently." (Prouty v. Gores Technology Group (2004) 121 Cal.App.4th

1225, 1233.)

As a threshold matter, while belated, USG did rely on a third party

beneficiary theory before the trial court. Additionally, USG argued this theory in

its respondent's brief on appeal. Thus, we reject Hotel Management's argument

that USG waived this theory.

As Hotel Management concedes, the Operating Agreement burdened USG

with certain duties and responsibilities, including: indemnifying Sycuan Investors

or Hotel Management; entering into the Managing Agreement; reimbursing Hotel

Management's expenses in connection with the formation and organization of

USG; maintaining bank accounts in its name; and being liable for the return of

Sycuan Investors's capital account. Additionally, the Operating Agreement

created contractual duties that Hotel Management owed to USG, including not

taking certain actions impacting USG without prior written approval from Sycuan

Investors. The Operating Agreement also expressly provided that Hotel

Management owed USG a fiduciary duty. Critically, the Operating Agreement

does not expressly disclaim that it creates any rights or confers any benefits on

third parties. The Operating Agreement, as a whole, shows the intent to benefit

USG, thus qualifying USG as a third party beneficiary. We reject Hotel

Management's argument that this matter should be remanded to the trial court to

determine the parties' intent as the provisions of the Operating Agreement are

unambiguous. (Wolf v. Walt Disney Pictures & Television (2008) 162

9 Cal.App.4th 1107, 1126.) Where, as here, the contract is clear and explicit, the

parties' intent is determined solely by reference to the language of the agreement.

(See §§ 1638, 1639, 1641, 1644.)

To be entitled to a contractual fee award under section 1717, USG must be

"the party prevailing on the contract." (§ 1717, subd. (b)(1).) We first address

whether USG's claims were "on the contract" and then examine whether USG was

the prevailing party on these claims.

" 'Whether an action is based on contract or tort depends upon the nature of

the right sued upon, not the form of the pleading or relief demanded. If based on

breach of promise it is contractual; if based on breach of a noncontractual duty it is

tortious. [Citation.] If unclear the action will be considered based on contract

rather than tort. [Citation.] [¶] In the final analysis we look to the pleading to

determine the nature of plaintiff's claim.' " (Kangarlou v. Progressive Title Co.,

Inc. (2005) 128 Cal.App.4th 1174, 1178-1179 (Kangarlou).) We liberally

construe the phrase "on a contract" to extend to any action that involves a contract.

(Turner v Schultz (2009) 175 Cal.App.4th 974, 979-980.) One court distilled the

following principle: "An action (or cause of action) is 'on a contract' for purposes

of section 1717 if (1) the action (or cause of action) 'involves' an agreement, in the

sense that the action (or cause of action) arises out of, is based upon, or relates to

an agreement by seeking to define or interpret its terms or to determine or enforce

a party's rights or duties under the agreement, and (2) the agreement contains an

10 attorney fees clause." (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012)

211 Cal.App.4th 230, 241-242.) Both of these prongs are satisfied.

USG sued Hotel Management for breach of the Operating Agreement,

breach of fiduciary duty and conversion. The Operating Agreement shows that

Hotel Management agreed to be USG's manager and assumed a contractual

fiduciary duty to USG. USG alleged that Hotel Management improperly

transferred $1.35 million from USG's operating account and claimed this transfer

amounted to conversion and breach of the fiduciary duty that Hotel Management

owed to USG under the Operating Agreement. These claims were based on the

Operating Agreement for purposes of an attorney fees award under section 1717.

(Kangarlou, supra, 128 Cal.App.4th at pp. 1178-1179 [breach of fiduciary duty

claim arising out of escrow agreement entitled prevailing plaintiff to attorney fees

under section 1717]; Mustachio v. Great Western Bank (1996) 48 Cal.App.4th

1145, 1151 [conversion claim based on contract allowed fee award under section

1717].)

USG did not prevail on its claim for breach of the Operating Agreement as

the jury concluded that USG did not enter into the Operating Agreement with

Hotel Management. USG, however, prevailed on both its breach of fiduciary duty

and conversion claims with the jury awarding it $1.35 million in damages. Where,

as here, neither party obtained a complete victory on all contract claims, the trial

court has the discretion to determine which party prevailed on the contract. (Scott

Co. of Calif. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.) In making this

11 determination the trial court compares the relief awarded on the contract claims

with the parties' demands and litigation objectives. (Ibid.) We determine that the

trial court did not abuse its discretion in concluding that USG was the prevailing

party on the Operating Agreement.

Section 1717 authorizes attorney's fees "to the prevailing party . . . whether

he or she is the party specified in the contract or not . . . ." A nonsignatory who

prevails in an action on the contract is entitled to attorney's fees provided it would

have been liable for fees had the other party prevailed. (Reynolds Metals Co. v.

Alperson, supra, 25 Cal.3d at p. 129.) Here, had Hotel Management prevailed on

the breach of fiduciary duty and conversion claims USG would have been liable

for fees. As third-party beneficiaries to the Operating Agreement USG was

entitled to attorney's fees by operation of the contract. (Steve Schmidt & Co. v.

Berry (1986) 183 Cal.App.3d 1299, 1313, 1315-1317 [a third party beneficiary of

a contract is entitled to attorney's fees if he is a prevailing party in litigation on the

contract].) We therefore conclude that the trial court properly awarded USG its

attorney's fees. Based on this conclusion, we need not address the parties'

remaining arguments.

12 DISPOSITION

The order is affirmed. USG is awarded its costs on appeal.

McINTYRE, J.

WE CONCUR:

HUFFMAN, Acting P. J.

NARES, J.