Opinion
F071886
01-19-2017
GWENDOLYN B. HARRIS, as Trustee, etc., Plaintiff and Respondent, v. DONALD E. BONANDER, as Co-trustee, etc., Defendant and Appellant.
McCormick, Barstow, Sheppard, Wayte & Carruth, Timothy J. Buchanan and Scott M. Reddie for Defendant and Appellant. Temmerman, Cilley & Kohlmann, James P. Cilley and Cathy E. Nelson for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 364063)
OPINION
APPEAL from an order of the Superior Court of Stanislaus County. William A. Mayhew, Judge. McCormick, Barstow, Sheppard, Wayte & Carruth, Timothy J. Buchanan and Scott M. Reddie for Defendant and Appellant. Temmerman, Cilley & Kohlmann, James P. Cilley and Cathy E. Nelson for Plaintiff and Respondent.
-ooOoo-
This is an appeal from the trial court's order denying appellant's motion for an award of attorney fees to him as the prevailing party in the litigation. The trial court denied the motion on the ground appellant did not prevail on the contract claim he asserted he raised as a defense to respondent's claims. We conclude that, regardless whether he prevailed on the contract, he was not entitled to an award of attorney fees because he failed to comply with a condition precedent to such an award, which was imposed by the terms of the attorney fee provision. Accordingly, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Some of the background facts are taken from our prior unpublished opinion. (Harris v. Bonander (May 29, 2014, F065732).)
As part of their estate plan, H. Emory Bonander and Dorothy G. Bonander (Emory & Dorothy) created the "BONANDER FAMILY 1991 TRUST" (family trust), the "BONANDER CHILDREN 1991 TRUST" (children trust), and a partnership, Bonander Properties. They named themselves trustees of the family trust; one of its assets was their shares of Bonander Pontiac, a family-owned corporation. Emory and Dorothy named their three children, appellant Donald Bonander (Bonander), respondent Gwendolyn Harris (Harris), and Sharon Ratzlaff (Ratzlaff), trustees of the children's trust. Emory and Dorothy, as trustees of the family trust, and Bonander, Harris, and Ratzlaff, as trustees of the children's trust, formed the Bonander Properties partnership. After 1997, Emory and Dorothy were the general partners of the Bonander Properties limited partnership. Bonander Properties rented to Bonander Pontiac a certain parcel of real property, referred to as the truck shop property, on which Bonander Pontiac carried on its business.
For purposes of clarity and convenience, we refer to the parties by abbreviated names. No disrespect is intended.
After the deaths of Emory and Dorothy, disputes arose among the three children about management of the entities and distribution of assets. Bonander Pontiac was to be distributed to Bonander, with the other assets distributed so that the three children received equal shares. Harris and Ratzlaff contended Bonander improperly reduced the rent Bonander Pontiac was paying to Bonander Properties for the truck shop property. They demanded that he increase the rent to fair market value and that Bonander Pontiac pay back rent accordingly.
In 2004, Harris and Ratzlaff filed a petition for instructions concerning the disputes. Ratzlaff passed away in 2005, and her daughters, Melody Benway and Joy Sullivan, succeeded to her interest in the entities and assets. In 2009, the parties agreed to dismiss their claims without prejudice and mediate their disputes. When the mediation was unsuccessful, on April 13, 2011, Harris filed against Bonander a Petition to Surcharge Trustee and Recover Trust Assets; for Imposition of Constructive Trust; for Breach of Fiduciary Duty; and, If Necessary Appointment For Trustee Ad Litem (petition to surcharge), asserting claims against Bonander based on the alleged improper reduction of the rent Bonander Pontiac paid to Bonander Properties.
Two days later, the parties entered into their April 15, 2011, settlement agreement, in which they released all claims against each other, except one: Harris, Benway, and Sullivan were permitted to litigate against Bonander a claim for "his alleged breach of fiduciary duty as a co-trustee of the Trust in connection with the amount of rent paid on behalf of Bonander Pontiac, Inc. for its use of [the truck shop] property for the period 1998 through the present."
The parties tried the remaining "carved-out" issue raised by Harris's petition in an eight-day bench trial in July and August 2011. The trial court found that Bonander breached his fiduciary duties as trustee by reducing the rent on the truck shop property; it entered judgment in favor of Harris and awarded damages of $527,102.02. This court reversed the judgment, concluding Harris failed to carry her burden of proving Bonander breached his fiduciary duties as trustee. We concluded the truck shop property belonged to Bonander Properties, not to the trust, so Bonander, as trustee, had no obligation or authority to set the rent and could not have breached his fiduciary duties by reducing it. We directed the trial court to enter judgment in favor of Bonander.
The trial court subsequently entered judgment in favor of Bonander; the judgment allowed Bonander to seek attorney fees by filing a timely, noticed motion. Bonander filed a motion for an award of attorney fees, based on an attorney fee provision in the April 15, 2011, settlement and release agreement. He sought approximately $380,000 in attorney fees, arguing he was the prevailing party and entitled under that provision to an award of attorney fees incurred in the trial court and on appeal. Harris opposed the motion. The trial court denied the motion, finding that Bonander did not prevail on appeal by enforcing the release agreement as a defense to Harris's petition to surcharge, so the attorney fee provision did not apply. Bonander appeals.
DISCUSSION
I. Standard of Review
"Whether a contractual attorney fee clause provides for a fee award in a particular case is a question of contract interpretation. We interpret a contract de novo if the interpretation does not turn on the credibility of extrinsic evidence." (Windsor Pacific LLC v. Samwood Co., Inc. (2013) 213 Cal.App.4th 263, 273.) When a trial court has resolved a disputed factual issue, we review that ruling under the substantial evidence rule. (Carpenter & Zuckerman, LLP v. Cohen (2011) 195 Cal.App.4th 373, 378.) Interpretation of the applicable laws and their application to undisputed facts present questions of law that are subject to de novo review. (Weakly-Hoyt v. Foster (2014) 230 Cal.App.4th 928, 931.)
The issue here is whether the attorney fees provision in the parties' settlement and release agreement authorized an award of attorney fees to Bonander under the circumstances of this case. No extrinsic evidence was offered to aid in construing that agreement. The facts relevant to the dispositive issue are undisputed. Consequently, whether Bonander was entitled to an award of attorney fees presents a question of law for de novo review.
II. Recovery of Attorney Fees by a Prevailing Party
"Each party to a lawsuit must pay his or her own attorney fees except where a statute or contract provides otherwise." (Cargill, Inc. v. Souza (2011) 201 Cal.App.4th 962, 966.) Attorney fees authorized by contract are recoverable as costs by the party prevailing in the action. (Code Civ. Proc., §§ 1032, subd. (b), 1033.5, subd. (a)(10)(A).)
"In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract ... shall be entitled to reasonable attorney's fees in addition to other costs." (Civ. Code, § 1717, subd. (a).) "The prevailing party determination under section 1717 must be based on the results of the litigated contract claims, 'without reference to the success or failure of noncontract claims.' [Citations.] 'When a party obtains a simple, unqualified victory by completely prevailing on or defeating all contract claims in the action and the contract contains a provision for attorney fees, section 1717 entitles the successful party to recover reasonable attorney fees incurred in prosecution or defense of those claims." (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 239-240.)
All further statutory references are to the Civil Code unless otherwise indicated.
III. Settlement and Release Agreement
The April 15, 2011, settlement and release agreement contained a release of all of the parties' claims against each other, with the exception of one, which the parties "carved out" for continued litigation. The release provided that those executing the settlement and release agreement released all known or unknown claims, "except as set forth in Paragraph 22 herein." Paragraph 22 provided, in pertinent part:
"Following final execution of this Agreement, without conceding the validity or invalidity of any such claims, objections or defenses, Gwen, Joy and Melody wish to litigate a claim against Don for his alleged breach of fiduciary duty as a co-trustee of the Trust in connection with the amount of rent paid on behalf of Bonander Pontiac, Inc. for its use of the [truck shop] property for the period 1998 through the present. On April 13, 2011, a new petition was filed on behalf of Gwen titled 'Petition to Surcharge Trustee
and Recover Trust Assets; For Imposition of Constructive Trust; For Breach of Fiduciary Duty; And, If Necessary, Appointment for Trustee Ad Litem For Imposition of Constructive Trust' .... The parties further agree that Don shall be entitled to raise all possible objections and defenses to this Petition, without limitation ...."
The attorney fee provision of the settlement and release agreement provided:
"If any litigation becomes necessary to seek declaratory relief or enforcement of any terms or provisions of this Agreement, the prevailing Party shall be entitled to recovery of reasonable attorney fees and costs on noticed motion. However, no fees or costs shall be awarded or recoverable unless the party seeking such award or recovery makes a satisfactory showing that they first initiated and participated in good faith in informal settlement discussions or mediation."
Thus, consistent with section 1717, subdivision (a), the attorney fee provision "provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded ... to the prevailing party." Under that section, if Bonander is "the party prevailing on the contract," he "shall be entitled to reasonable attorney's fees in addition to other costs." (§ 1717, subd. (a).) Under the contract, however, he may recover his attorney fees only if he also "makes a satisfactory showing that [he] first initiated and participated in good faith in informal settlement discussions or mediation."
IV. Good Faith Settlement Discussions
In his motion for attorney fees, Bonander contended he argued as a defense to Harris's petition to surcharge that the petition was barred by the settlement agreement, because the claim she was pursuing in the petition had been released in that agreement. He asserted the claim carved out of the settlement and preserved for further litigation was a claim against Bonander for breach of his fiduciary duty as a trustee of the family trust in connection with the alleged underpayment of rent by Bonander Pontiac. The claim pursued by Harris, however, was based on partnership issues, not trust issues, and the partnership claims were all settled and released in the April 15, 2011, settlement agreement. Bonander asserted this court's reversal in the prior appeal of the judgment in Harris's favor was based on the argument that the claims raised in Harris's petition for surcharge were partnership claims released through the settlement agreement. Thus, he contended it became necessary for him to raise enforcement of the settlement and release agreement as a defense to the petition to surcharge, he prevailed on that defense, and therefore he was entitled to an award of attorney fees under the attorney fee provision in that agreement.
The trial court's decision on Bonander's attorney fee motion was based on its finding that Bonander's defense did not enforce the provisions of the settlement and release agreement, because Harris's claim was exactly the claim she was permitted by the carve-out provision to pursue. It noted this court found Bonander was acting as a general partner of Bonander Properties in setting the rent on the property, not as a trustee, so there was no breach of fiduciary duties as trustee. Harris alleged a claim against Bonander as trustee, but the facts presented at trial showed he was acting as general partner, so the petition to surcharge failed. The trial court's decision did not discuss the condition precedent to recovery of attorney fees—that Bonander show he "first initiated and participated in good faith in informal settlement discussions." We find that issue dispositive, however. Bonander argues he need not address this issue on appeal because the trial court did not base its decision on it or make any findings about it. We disagree.
If the decision of a lower court is correct on any theory of law applicable to the case, the judgment or order will be affirmed regardless of the basis on which the trial court reached its conclusion. (Perlin v. Fountain View Management, Inc. (2008) 163 Cal.App.4th 657, 663-664.) "The rationale for this principle is twofold: (a) an appellate court reviews the action of the lower court and not the reasons given for its action; and (b) there can be no prejudicial error from erroneous logic or reasoning if the decision itself is correct." (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 610.)
On appeal, the trial court's judgment or order is presumed correct. (Rayii v. Gatica (2013) 218 Cal.App.4th 1402, 1408.) As appellant, Bonander bears the burden of establishing error in the trial court's order. (Ibid.) He must also demonstrate that any error is prejudicial. "'The burden is on the appellant in every case to show that the claimed error is prejudicial; i.e., that it has resulted in a miscarriage of justice.' [Citation.] Injury is not presumed from error, but injury must appear affirmatively upon the court's examination of the entire record." (In re Marriage of McLaughlin (2000) 82 Cal.App.4th 327, 337.) "An error is prejudicial and results in a miscarriage of justice only if the reviewing court concludes, based on its review of the entire record, that it is reasonably probable that the trial court would have reached a result more favorable to the appellant absent the error." (Jones v. Farmers Ins. Exchange (2013) 221 Cal.App.4th 986, 999.)
In this case, in order to demonstrate prejudicial error, Bonander must show that he was entitled to an award of attorney fees and the trial court's denial of that award was in error. To do this, he must demonstrate that he met all the prerequisites to an award of attorney fees. If he was not entitled to an award of attorney fees, even in the absence of the alleged error in the trial court's decision, then the order must be affirmed. We conclude that, regardless of any asserted error in the trial court's reasoning, Bonander was not entitled to an award of attorney fees because he failed to comply with the contractual condition precedent to an award of attorney fees.
"The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (§ 1638.) In Frei v. Davey (2004) 124 Cal.App.4th 1506, 1508 (Frei), the court addressed a provision of the standard form residential real property purchase agreement used in California, in which the parties agreed "to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action." (Id. at p. 1509.) The agreement further provided that, if either party "commence[d] an action without first attempting to resolve the matter through mediation, or refuse[d] to mediate after a request ha[d] been made," the party would not be entitled to attorney fees under the prevailing party attorney fee provision. (Ibid.) The court observed that "[m]any written contracts include provisions requiring the parties to mediate before filing a lawsuit or arbitration proceeding, and conditioning recovery of attorney fees by a prevailing party on an attempt to mediate." (Id. at p. 1508.) It concluded the condition in the parties' contract meant what it said, and the court enforced the provision by holding "that the prevailing parties [were] barred from recovering attorney fees because they refused a request to mediate." (Ibid.)
Further, the mediation that took place shortly before the trial date did not satisfy the requirement that the parties mediate. (Frei, supra, 124 Cal.App.4th at p. 1517.) "The purpose of the early mediation requirement is to minimize the costs of litigation and arbitration. To allow a party to wait one year until the eve of trial to accede to a request for mediation would defeat that purpose.... [W]hen a contract conditions the recovery of attorney fees on a party's willingness to participate in mediation before the litigation begins, the window for agreeing to mediate does not remain open indefinitely." (Ibid.)
In Lange v. Schilling (2008) 163 Cal.App.4th 1412, the court was faced with the same standard real property purchase contract and concluded the party prevailing in the litigation was not entitled to an award of attorney fees. While the agreement authorized attorney fees to the prevailing party, that right was contingent on "first attempting to resolve the matter through mediation." (Id. at pp. 1416-1417.) The court concluded: "Plaintiff filed his complaint first and only later offered mediation. His failure to meet the condition precedent required by [the contract] precludes any award of fees." (Id. at p. 1417.)
The settlement and release agreement in this case authorized an award of attorney fees to the prevailing party if litigation became necessary to seek enforcement of the terms or provisions of the agreement. Bonander contends he sought enforcement of the terms of the agreement by asserting the release as a defense to Harris's petition to surcharge. The attorney fee provision, however, was conditioned on Bonander showing that he "first initiated and participated in good faith in informal settlement discussions or mediation." The undisputed facts Bonander relies on show he did not initiate or participate in informal settlement discussions before he sought enforcement of the release by raising it as a defense to the petition to surcharge. Accordingly, he failed to comply with that condition.
Bonander's motion for attorney fees asserted he complied with the condition precedent to an award of attorney fees: "There is also no dispute that Don satisfied the requirement of engaging in good faith informal settlement discussions regarding resolution of the Petition as well as the attorneys' fees. The parties engaged in substantial settlement discussions of all issues, but could just not come to terms with respect to the Petition that Gwen chose to pursue. In addition, Gwen's counsel had no interest in pursuing settlement discussions related to Don's attorneys' fees, instead taking the position that Don was not entitled to any attorneys' fees." Bonander's supporting declaration stated the parties engaged in lengthy settlement discussions and ultimately reached a global settlement of all but one issue, and the settlement was memorialized in the April 15, 2011, settlement and release agreement. His attorney's declaration asserted he sent an e-mail to Harris's counsel on August 6, 2014, before filing the motion for attorney fees, "in an effort to institute informal settlement discussions regarding Don's claim to attorneys' fees based upon paragraph 56 of the April 2011 settlement agreement."
Bonander's opening brief in this appeal made no mention of the condition precedent to recovery of attorney fees; he did not argue that he showed in the trial court that the condition was satisfied. Harris raised the issue in her respondent's brief, arguing that, even if Bonander was the party prevailing on the contract, he did not meet the condition of showing that he first engaged in good faith settlement negotiations. In his reply brief, Bonander again relied on his assertion that he complied with the condition because "[t]he undisputed facts show Don did, in fact, initiate settlement discussions before Respondent pursued her petition, and later before Don filed his motion for attorneys' fees and costs."
The purpose of requiring that the parties "first" participate in good faith, informal settlement discussions is to attempt to avoid the costs of litigation, including the attorney fees that might otherwise be incurred by the parties. (See Leamon v. Krajkiewcz (2003) 107 Cal.App.4th 424, 433.) To serve that purpose, the attempt at informal settlement must precede any litigation of the dispute arising out of the agreement. This is what the condition precedent in the settlement and release agreement required: that a party, before seeking to enforce the settlement and release agreement by litigation, first initiate and participate in good faith, informal settlement discussions or mediation of the contractual dispute.
Harris filed her petition to surcharge, alleging claims that included a claim for breach of Bonander's fiduciary duties as trustee of the family trust. Two days later, the parties negotiated the April 15, 2011, settlement of all the other disputes between them, leaving for further litigation only the carved-out claim for breach of Bonander's fiduciary duties as trustee of the family trust. Bonander relies on this negotiation that resulted in the April 15, 2011, settlement and release agreement to satisfy his obligation to "first initiate[] and participate[] in good faith in informal settlement discussions or mediation." But the dispute that must be the subject of informal settlement discussions is the dispute the party claiming attorney fees attempted to resolve by seeking enforcement of the contract. Here, the relevant dispute was Bonander's contention, which he asserts he raised as a defense to the petition to surcharge, that the release barred Harris's claim of breach of fiduciary duties, because her claim was actually based on his fiduciary duties as a partner in the Bonander Properties limited partnership, rather than as a trustee of the family trust.
When the parties were negotiating the April 15, 2011, settlement agreement, the settlement and release agreement did not exist. Thus, in negotiating that settlement, they could not have participated in informal settlement discussions aimed at avoiding litigation regarding whether the release barred the claim against Bonander for breach of fiduciary duties that was alleged in the petition to surcharge. Consequently, Bonander's reliance on the pre-settlement negotiations to satisfy the condition precedent to an award of attorney fees is misplaced. In order to satisfy the condition, Bonander was required to initiate and participate in informal settlement discussions after the release came into existence, but before the time he claims he raised the release as a defense to Harris's petition to surcharge. He offered no evidence that any informal discussions of his defense were initiated or took place during that time period.
Bonander's attempt to show compliance with the condition by his attorney e-mailing an invitation to negotiate to Harris's attorney prior to the filing of his motion for attorney fees also fails. The dispute the parties were required to informally negotiate prior to litigation was the dispute that was the subject of the litigation, not the question whether one party was entitled to attorney fees, or the reasonable amount of the attorney fees to which the party might be entitled, after the dispute was litigated to judgment. The contractual dispute that was the subject of the litigation was the defense Bonander asserts he raised: that Harris's claim was actually for breach of Bonander's fiduciary duties owed as a partner in the Bonander Properties limited partnership, which was one of the claims barred from further litigation by the settlement and release agreement. By the time Bonander's attorney sent his e-mail to Harris's counsel proposing to discuss Bonander's claim for attorney fees, the parties had already litigated Harris's claims and Bonander's defenses through trial and appeal. Bonander could not comply with his obligation to "first" initiate and participate in informal settlement discussions regarding a contractual defense, after that contractual defense had already been litigated through judgment and appeal.
The settlement and release agreement, under which Bonander claimed a right to attorney fees, provided that "no fees or costs shall be awarded or recoverable unless the party seeking such award or recovery makes a satisfactory showing that they first initiated and participated in good faith in informal settlement discussions or mediation." Bonander failed to make the required showing. On the undisputed facts, Bonander was not entitled to an award of attorney fees. The trial court correctly denied his motion for attorney fees.
DISPOSITION
The order denying Bonander's motion for attorney fees is affirmed. Harris is entitled to her costs on appeal.
/s/_________
HILL, P.J. WE CONCUR: /s/_________
DETJEN, J. /s/_________
PEÑA, J.