Opinion
G054435
08-06-2018
MAYHEW PLAZA WOODLAND HILLS II, LLC, Plaintiff and Appellant, v. WARREN H. KELSEY etc., Defendant and Respondent.
Law Offices of Ernest Mooney and W. Ernest Mooney for Plaintiff and Appellant. Law Offices of Steven R. Young, William F. Zulch and Steven R. Young for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00858636) OPINION Appeal from an order of the Superior Court of Orange County, James L. Crandall, Judge. Reversed. Law Offices of Ernest Mooney and W. Ernest Mooney for Plaintiff and Appellant. Law Offices of Steven R. Young, William F. Zulch and Steven R. Young for Defendant and Respondent.
INTRODUCTION
Appellant Mayhew Plaza Woodlands Hills II, LLC (Mayhew Plaza) sued Hemet West, L.P. (Hemet West) and Warren Kelsey individually and as the representative of the Estate of George Coult over the purchase and sale of a shopping center in Hemet. The complaint alleged only tort causes of action. Mayhew Plaza subsequently dismissed Kelsey from the suit as the representative of the Coult estate, and Kelsey moved in the trial court for attorney fees. The trial court granted the motion and awarded approximately $9,000 in fees. Mayhew Plaza appealed.
We reverse. The central issue in this appeal is whether Coult, as Hemet West's general partner, was a party to the purchase agreement between Mayhew Plaza and Hemet West such that he (or now his estate) would be entitled to attorney fees for defending against tort claims under the purchase agreement's attorney fee provision. We have concluded that he would not be so entitled. As the representative of Coult's estate, Kelsey is likewise not entitled to attorney fees.
FACTS
Mayhew Plaza and Hemet West entered into a purchase agreement for a shopping center in February 2013. Coult signed the agreement as Hemet West's general partner. Coult died on June 4, 2014, and Kelsey became the representative of his estate.
The purchase agreement is largely a printed form, with several handwritten changes made to it. For example, the form arbitration agreement is crossed out and initialed. Every page includes a blank for "Buyer's initials" and "Seller's initials" at the bottom of the page.
Mayhew Plaza sued Hemet West and Kelsey individually and as the representative of the Coult estate on June 17, 2016. The complaint alleged causes of action for fraud (misrepresentation and false promise) and negligent misrepresentation, all relating to the allegedly poor condition of the shopping center.
Mayhew Plaza dismissed Kelsey in his capacity as representative of the Coult estate. Kelsey then moved on behalf of the estate for his attorney fees pursuant to the attorney fee provision in the purchase agreement. The court awarded him approximately $9,000 in attorney fees.
The purchase agreement attorney fee provision states, "In any litigation, arbitration, or other legal proceeding which may arise between any of the parties hereto, including Agent, the prevailing party shall be entitled to recover its costs, including costs of arbitration, and reasonable attorneys' fees in addition to any other relief to which such party may be entitled."
DISCUSSION
We review the legal basis for an award of attorney fees as a question of law (PNEC Corp. v. Meyer (2010) 190 Cal.App.4th 66, 69, disapproved on other grounds in DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968), and the parties have identified only questions of law for review in this appeal.
The purchase agreement's attorney fee provision is unusually broad in scope. It encompasses any litigation, arbitration or other legal proceeding. Even minimally limiting language such as "arising from" or "relating to" that often accompanies commercial attorney fee provisions has been dispensed with. (See, e.g., Lerner v. Ward (1993) 13 Cal.App.4th 155, 160 ["arising out of"]; Allstate Ins. Co. v. Loo (1996) 46 Cal.App.4th 1794, 1798-1799 ["relating to"].) Theoretically, a dispute having nothing at all to do with the shopping center would qualify under this provision.
The provision does have a limitation, however. This wide-ranging litigation, arbitration, or other legal proceeding must arise "between any of the parties hereto," that is, to the purchase agreement. The central issue of this appeal is thus whether Coult as Hemet West's general partner was a "party" to the purchase agreement.
The minute order includes the following statement: "[A] careful examination of the language used in the [attorney] fees clause belies the argument [that Coult is not a party to the purchase agreement]. The Agent, who is not identified as a 'party' to the contract[,] is entitled to an award of attorney's fees[;] therefore the clause by its own terms [] is not limited to the identified buyer and seller." (Italics added.)
The italicized statement is incorrect, but it is easy to see how the trial court made this mistake. The copy of the purchase agreement Kelsey submitted as an exhibit to the attorney fee motion omitted the last page. The copy submitted by Mayhew Plaza with the motion's opposition included the last page, which clearly identified Marcus and Millichap, the real estate brokers, as "Agent" and provided a signature line for the company. The attorney fee provision by its own terms is limited to identified parties: Buyer, Seller, and Agent.
Another important issue is the governing statute. Civil Code section 1717, which underlay many of the cases cited in the motion and the minute order, applies by its plain terms to actions "on a contract." (Civ. Code, § 1717, subd. (a).) The lawsuit in this case alleged only tort causes of action, so Civil Code section 1717 does not apply.
The California Supreme Court carefully drew the distinction between fee awards under this statute and awards authorized by other sources. "[I] in voluntary pretrial dismissal cases, Civil Code section 1717 bars recovery of attorney fees incurred in defending contract claims, but . . . neither Civil Code section 1717 nor [International Industries, Inc. v. Olen (1978) 21 Cal. 3d 218] bars recovery of attorney fees incurred in defending tort or other noncontract claims. Whether attorney fees incurred in defending tort or other noncontract claims are recoverable after a pretrial dismissal depends upon the terms of the contractual attorney fee provision." (Santisas v. Goodin (1998) 17 Cal.4th 599, 602 (Santisas).) "[I]f a plaintiff voluntarily dismisses an action asserting only tort claims (which are beyond the scope of [Civil Code] section 1717), and the defendant, relying on the terms of a contractual attorney fee provision, seeks recovery of all attorney fees incurred in defending the action, the plaintiff could not successfully invoke section 1717 as a bar to such recovery." (Id. at p. 617.)
As the court stated in Santisas, the legislative history of Civil Code section 1717 "reflects a legislative intent to establish uniform treatment of fee recoveries in actions on contracts containing attorney fee provisions and to eliminate distinctions based on whether recovery was authorized by statute or by contract." (Santisas, supra, 17 Cal.4th at p. 616.) The purpose of this section "is to transform a unilateral contract right to attorney's fees 'into a reciprocal provision giving the right to recover fees to whichever party prevails [in the contract action].' [Citations.]" (Associated Convalescent Enterprises v. Carl Marks & Co., Inc. (1973) 33 Cal.App.3d 116, 120.)
Because of this emphasis on reciprocity, courts have ruled that a nonsignatory to a contract can recover fees under Civil Code section 1717 if the opposing party could have recovered fees from the nonsignatory under section 1717, for example, by means of an alter ego theory. (See Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129.) This reciprocity principle, however, applies only when the underlying action is one governed by section 1717, that is, an action on a contract. It does not apply to noncontract actions, even if an attorney fee provision itself is broad enough to cover them. (Moallem v. Coldwell Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827, 1832-1833.)
"An agreement to pay attorney fees to the prevailing party in an action not governed by Civil Code section 1717 or some other statute is controlled by the more general provisions found in the Code of Civil Procedure." (Maynard v. BTI Group, Inc. (2013) 216 Cal.App.4th 984, 993-994.) The attorney fee provision in the purchase agreement is unquestionably broad enough to include tort claims. But the governing statutes are Code of Civil Procedure sections 1032 and 1033.5, not Civil Code section 1717, because the Mayhew Plaza action was not one on a contract. It alleged tort causes of action only. The reciprocity rules developed for Civil Code section 1717 do not apply unless the underlying action was one on a contract.
Thus, attorney fees are recoverable in tort actions between contracting parties if the attorney fee provision is broad enough. They are not, however, recoverable under Civil Code section 1717. Instead, courts look to the Code of Civil Procedure.
Kelsey in his representative capacity was dismissed, which dismissal makes him a "prevailing party" under Code of Civil Procedure section 1032, subdivision (a)(4). Code of Civil Procedure section 1033.5, subdivision (a)(10)(A), permits the recovery of attorney fees authorized by contract as part of the prevailing party's costs. The question thus becomes whether the attorney fee provision of the purchase agreement authorizes attorney fees for Coult. If it did, then Kelsey was entitled to fees as the representative of the Coult estate.
The attorney fee provision in the purchase agreement authorized the prevailing party in any litigation, etc., between "any of the parties hereto" to recover reasonable fees. The trial court concluded that Coult was a party to the purchase agreement because a general partner of a limited partnership is jointly and severally liable for the partnership's debts, citing Corporations Code section 15904.04.
Corporations Code section 15904.04, subdivision (a), provides, "Except as otherwise provided in subdivision (b), all general partners are liable jointly and severally for all obligations of the limited partnership unless otherwise agreed by the claimant or provided by law."
A general partner's liability for partnership obligations, however, is not joint and several in the ordinary sense of the term. Corporations Code section 15904.05 outlines the conditions that must be fulfilled before the general partner's assets may be used to satisfy a judgment against the limited partnership. First, the general partner must be joined in the action against the limited partnership. Second, a separate judgment must be rendered against the limited partner. Finally, Corporations Code section 15904.05, subdivision (c), imposes conditions or restrictions on a judgment creditor's ability to satisfy a judgment based on a claim against the limited partnership from the assets of the general partner. (Corp. Code § 15904.05.) Thus a creditor with a judgment against a limited partnership cannot collect the judgment from the general partner's assets except under certain conditions - conditions that do not apply to normal joint and several liability.
Corporations Code section 15904.05, subdivision (c), provides, "A judgment creditor of a general partner may not levy execution against the assets of the general partner to satisfy a judgment based on a claim against the limited partnership, unless the partner is personally liable for the claim under Section 15904.04 and: [¶] (1) a judgment based on the same claim has been obtained against the limited partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part; [¶] (2) the limited partnership is a debtor in bankruptcy; [¶] (3) the general partner has agreed that the creditor need not exhaust limited partnership assets; [¶] (4) a court grants permission to the judgment creditor to levy execution against the assets of a general partner based on a finding that limited partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of limited partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court's equitable powers; or [¶] (5) liability is imposed on the general partner by law or contract independent of the existence of the limited partnership."
Civil Code section 1430 provides, "An obligation imposed upon several persons, or a right created in favor of several persons, may be: [¶] 1. Joint; [¶] 2. Several; or, [¶] 3. Joint and several (italics added)." Civil Code section 1659 provides, "Where all the parties who unite in a promise receive some benefit from the consideration, whether past or present, their promise is presumed to be joint and several."
In this case, the purchase agreement imposed obligations on and created rights in the first instance in only one "person" on each side of the contract: Mayhew Plaza, a limited liability company, and Hemet West, a limited partnership. A limited partnership and a limited liability company are both distinct entities. (Corp. Code, §§ 15901.04, subd. (a) [limited partnership], 17701.04, subd. (a) [limited liability company].) A limited partnership carries on its activities in its own name. (Corp. Code, § 15901.05.) Kelsey has presented no authority for the proposition that a general partner becomes a party to a contract by signing it on behalf of a limited partnership.
The brokers, as "Agent," also had certain rights under the purchase agreement, but none of these rights is at issue in this appeal.
The Restatement Second of Agency, section 320 provides, "Unless otherwise agreed, a person making or purporting to make a contract with another as agent for a disclosed principal does not become a party to the contract." The Restatement Third of Agency, section 6.01 provides, "When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal, [¶] (1) the principal and the third party are parties to the contract; and [¶] (2) the agent is not a party to the contract unless the agent and third party agree otherwise."
Kelsey argues that the language of the attorney fee provision permits an award of fees to nonparties. Although the litigation must be "between the parties hereto," so the argument goes, the "prevailing party" entitled to fees need not be one of these parties. The "prevailing party" is anyone involved in the litigation who prevailed, regardless of whether that party was also a party to the contract.
This interpretation implies that "party" means one thing in the fee provision's introductory clause (a party to the contract) and something else (a party to the lawsuit) in the main clause. We have to interpret contracts so that they make sense. (Civ. Code, § 1643 [interpretation must be reasonable].) The reasonable interpretation here is that "party" means the same thing in both clauses, and that's what we adopt.
We reject Kelsey's reliance on Cargill, Inc. v. Souza (2011) 201 Cal.App.4th 962 (Cargill), as supporting his position. The issue in Cargill was whether the reciprocity principles of Civil Code section 1717 permitted the recovery of attorney fees when a prevailing party to the contract was sued by a purported third-party beneficiary. (Id. at pp. 966-967.)
As we have discussed, Civil Code section 1717 does not apply to the case now before us. Moreover, the court in Cargill misquoted the attorney fee provision in that case. The provision stated, "'In the event that any party hereto obtains a judgment in its favor in connection with the enforcement or interpretation of this Agreement, the prevailing party shall be entitled to recover from the losing party all of its attorney fees and costs . . . .'" (Cargill, supra, 201 Cal.App.4th at p. 965 (italics added).) Later in the opinion, however, the court stated, "The language used [in the attorney fee clause] does not necessarily limit attorney fees to litigation between the signatories. Rather, the attorney fees are available to 'any party' thus expressing the intent 'to include someone else,' such as a third party creditor." (Id. at p. 970.) The language used was not "any party"; it was "any party hereto." (Id. at p. 965.) "Hereto" means "to this writing or document." (Webster's 3d New Internat. Dict. (1981) p. 1059, col. 2.) That is also what "hereto" means in the purchase agreement in this case. Nothing in this agreement indicates that the parties intended an already wide-ranging fee provision would apply to anyone who happened to get swept up in litigation between the contracting parties.
Kelsey argued on appeal that certain contractual language regarding "successors and assigns" of the parties also entitled him to attorney fees. Kelsey's fee motion did not raise this basis of recovery in the trial court, and we generally do not entertain theories and arguments raised for the first time on appeal. (See City of San Diego v. D.R. Horton San Diego Holding Co., Inc. (2005) 126 Cal.App.4th 668, 685 [contentions and theories raised for first time on appeal not considered].)
Kelsey further argues that Coult was a third-party beneficiary of the purchase agreement and therefore covered by the attorney fee provision. He supports this argument with discussions of agency and the joint and several liability of general partners that we have addressed above, and by referring us to section 6.2 of the purchase agreement. This turns out to be problematic.
Kelsey raised this argument in the trial court in his reply brief.
As stated above, the purchase agreement is a printed form, apparently supplied by the brokers, with some handwritten changes. Section 6.2 includes handwritten changes. Both Mayhew Plaza and Kelsey supplied copies of the purchase agreement in connection with the fee motion. Section 6.2 appears on page 2. But Mayhew Plaza's and Kelsey's copies of the purchase agreement, taken together, include three different versions of page 2. Both copies inexplicably include two different versions of page 2, but they are not the same different versions.
The printed version of section 6.2, without any changes, provides: "SELLER CARRIES BACK SECOND: The balance of the purchase price shall be paid as follows: A portion of the balance of the purchase price in the amount of one million seven hundred thirty thousand dollars ($ 1,730,000) shall be evidenced by a promissory note secured by a second deed of trust to be executed by Buyer [i.e., Mayhew Plaza] in favor of Seller [i.e., Hemet West] and delivered to Seller upon the Closing Date. Said note shall bear interest at the rate of five percent (5%) per year, fixed and shall be payable as follows: interest only. Said note shall be due and payable March 1, 2018 calendar months from the Closing Date [sic] and shall be prepayable, principal and/or interest, at any time, and from time to time, in whole or in part, without premium, notice, or penalty. Said note shall be on standard title company forms and shall not be assumable."
The underlined portions represent blanks in the form filled in with typewriting.
The first page 2 of Kelsey's copy makes the following change to section 6.2: at the very end, the period after "assumable" is replaced with a comma, and "unless the assignee is a former partner or family member in which case it is assumable." is handwritten in. The Buyer's initials appear next to the handwriting, and the Seller's initials may be there as well. The Buyer's initials also appear at the bottom of the page; the Seller's initials space is blank.
The second page 2 of Kelsey's copy does not include the handwritten language about the former partner or family member. Instead, the last printed sentence is completely crossed out, and the words "Ed Paul modifies" (or maybe "modified") are handwritten in. In addition, the words "payable monthly" are written in the margin and circled, and an arrow is drawn indicating that these words are to follow the words "interest only" in the printed section. There are no initials next to section 6.2, and both the Buyer's initials and the Seller's initials appear at the bottom of the page. This version also includes some handwritten notations to other sections.
Mayhew Plaza's copy of the purchase agreement also contains two versions of page 2. The first page 2 of Mayhew Plaza's copy duplicates the first page 2 of Kelsey's. The second page 2 is yet another version. The last sentence of section 6.2 is not crossed out. There is no reference to Ed Paul. There are no handwritten notations to sections other than section 6.2. The handwritten and circled words "payable monthly" occur in the margin, but in addition to the arrow connecting the words to "interest only," another line appears to connect "payable monthly" to the prior section, 6.1. Or this line may be part of an initial, as it somewhat resembles the Buyer's initial at the bottom of the page. Both the Buyer's and Seller's initials appear at the bottom of this page.
With one exception, every page of both copies of the purchase agreement other than the first page 2 versions set out above includes both the Buyer's and the Seller's initials at the bottom.
Page 7, the last page, submitted only by Mayhew Plaza, also lacks Seller's initials at the bottom. --------
Even if we could tell which version of section 6.2 is the correct one - and we cannot - none of them would make Coult a third-party beneficiary of the entire purchase agreement. "A third party beneficiary may enforce a contract made expressly for his or her benefit. [Citation.] It is also true that a party not named in the contract may qualify as a beneficiary under it where the contracting parties must have intended to benefit the unnamed party and the agreement reflects that intent. [Citation.] 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. [Citation.]" [¶] . . . 'A third party should not be permitted to enforce covenants made not for his benefit, but rather for others. He is not a contracting party; his right to performance is predicated on the contracting parties' intent to benefit him. [Citations.] As to any provision made not for his benefit but for the benefit of the contracting parties or for other third parties, he becomes an intermeddler. Permitting a third party to enforce a covenant made solely to benefit others would lead to the anomaly of granting him a bonus after his receiving all intended benefit.' [Citation.]" (Sessions Payroll Management, Inc. v. Noble Construction Co. (2000) 84 Cal.App.4th 671, 680, italics added.)
Kelsey submitted no evidence showing that the contracting parties, Mayhew Plaza and Hemet West, intended to benefit Coult individually by any of the versions of section 6.2. But even assuming that one of the versions of section 6.2 was so intended - and this is by no means clear - it does not follow that the attorney fee provision was intended to benefit him as well. In Whiteside v. Tenet Healthcare Corp. (2002) 101 Cal.App.4th 693, the contract at issue was between Tenet and Blue Shield. Whiteside, as a Blue Shield subscriber, was entitled to benefit from the contract as it pertained to health insurance payments to Tenet for his medical care. But he was not entitled to benefit from the attorney fee provision in the contract between Blue Shield and Tenet. (Id. at p. 709.) That portion of the contract was not intended to benefit him.
Kelsey also argues that Mayhew Plaza is "estopped" to claim he is not entitled to attorney fees because it demanded attorney fees as part of its complaint. We can make no sense of this argument. If Mayhew Plaza prevails in its tort action against Hemet West, it would be entitled to recover its attorney fees from Hemet West under the Code of Civil Procedure as an element of its costs. It would be the prevailing party (Code Civ. Proc., § 1032, subd. (a) (4)) in a tort action ["litigation"] that arose "between . . . the parties" to a contract ["hereto"] that authorized attorney fees to the prevailing party ["[i]n any litigation"]. (Code Civ. Proc., § 1033.5, subd. (a)(10)(A).) So of course the complaint would include a prayer for fees. This demand does not create a right to fees for either Coult or Kelsey.
DISPOSITION
The order is reversed. The court is directed to enter an order denying the motion for attorney fees. Appellant is to recover its costs on appeal.
BEDSWORTH, J. WE CONCUR: O'LEARY, P. J. GOETHALS, J.