Opinion
B228028
08-31-2011
LYDIA MERTZ, as Trustee, etc., Plaintiff and Respondent, v. RAFFY KARAMANOUKIAN et al., Defendants and Appellants.
William Elperin, for Appellants. Vickman & Associates, James A. Vickman, for 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC414497)
APPEAL from a judgment of the Superior Court of Los Angeles County. Susan Bryant-Deason, Judge. Reversed in part and affirmed in part.
William Elperin, for Appellants.
Vickman & Associates, James A. Vickman, for Respondent.
Raffy Karamanoukian and Hratch Karamanoukian appeal from that part of the judgment awarding attorney's fees to Lydia Mertz after she prevailed at trial in a dispute over the return of money held in escrow as part of a real estate purchase agreement. Because Mertz failed to propose mediation of the dispute before suing, as required by contract in order to obtain her attorney's fees, we reverse the judgment only insofar as it awarded those fees, and otherwise affirm.
FACTS AND PROCEDURAL HISTORY
Raffy Karamanoukian and Hratch Karamanoukian bought commercial real property in Sunland from Lydia Mertz. Their agreement, dated October 5, 2007, was on a California Association of Realtors form designated as "COMMERCIAL PROPERTY PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS." It included an attorney's fee provision that awarded those fees to the prevailing party in "any action, proceeding, or arbitration between Buyer and Seller arising out of this agreement . . . ." (Italics added.) However, a separate provision conditioned the right to attorney's fees on having at least offered to mediate a dispute: "Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action. . . . If, for any dispute or claim to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney fees, even if they would otherwise be available to that party in any such action." (Italics added.)
Raffy and Hratch Karamanoukian are brothers. We will sometimes refer to them collectively as Karamanoukian. Lydia Mertz was the seller in her capacity as the trustee of the Theodore C. Mertz and Lydia Mertz Revocable Family Trust.
A Mertz family member was a holdover tenant on the property. The purchase agreement provided that Mertz would credit Karamanoukian $18,000 to cover three months rent for that tenant. Another $100,000 would be held in escrow to make sure "the property is vacated and clear of all debris, at 90 days from close of escrow" (the holdback provision).
The parties signed supplemental escrow instructions concerning the holdback provision in a document dated October 24, 2007. The document stated that the parties had entered into an "agreement/addendum outside of this escrow . . . [which] shall constitute the entire understanding between the parties. In the event of a conflict between said agreement/addendum and these Escrow Instructions, the terms of the agreement/addendum shall prevail as between the parties."
The supplemental escrow instructions directed the escrow to withhold $100,000 of the purchase price. If the tenant did not vacate the property within 90 days of the close of escrow, Karamanoukian was entitled to receive from those funds the amount needed to cover any costs incurred in order to evict the tenant and clean up the property. Karamanoukian was required to submit invoices or receipts to prove those costs. Any funds remaining would be returned to Mertz.
The addendum was attached to the supplemental escrow instructions. It was titled, "ADDENDUM TO COMMERCIAL PROPERTY PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (NON-RESIDENTIAL)." The first paragraph said that the addendum was "dated as of the date set forth [in the purchase agreement,] to which this Addendum is attached. The promises, covenants, agreements and declarations made and set forth herein are intended to and shall have the same force and effect as if set forth at length in the body of the Printed Form [purchase agreement]. Unless otherwise indicated, capitalized terms used herein shall have the same meaning ascribed to them in the Printed Form. In the event of any conflict between the Printed Form and this Addendum, then the terms of this Addendum shall govern and control. The Printed Form and this Addendum are collectively referred to herein as this 'Agreement'." The addendum then set out the terms of both the $18,000 rental credit and the holdback provision, including a requirement that Karamanoukian instruct the escrow to release any remaining holdback funds to Mertz once the tenant left the property and the clean-up was finished. However, no timeframe for giving that notice was set forth.
The addendum included an attorney's fee provision that stated, "In the event either party hereto commences litigation against the other to enforce its rights hereunder, the prevailing party in such litigation shall be entitled to recover from the other party its reasonable attorneys' fees and expenses incidental to such litigation." The addendum said nothing about mediation.
In May 2008, Mertz sued Karamanoukian for the return of the holdback funds, alleging that Karamanoukian never submitted receipts for clean-up costs, and never directed the escrow to release those funds, even though the tenant had left the property. Karamanoukian cross-complained, alleging that Mertz failed to disclose numerous material defects in the property, did not leave the property in the proper condition as required by the supplemental escrow instructions, and did not authorize the escrow to disburse any of the holdback funds.
After a bench trial, the court awarded $88,700 of the holdback funds to Mertz, and the remaining $11,300 to Karamanoukian. Mertz then brought a motion for attorney's fees, claiming she was the prevailing party and was therefore entitled to them under the attorney's fee provisions of both the purchase agreement and the addendum.
Karamanoukian opposed the motion because Mertz never offered to mediate the dispute, as required by the purchase agreement. Mertz's trial court reply brief did not dispute her failure to propose mediation before she sued. Instead, Mertz argued that because the addendum itself did not include the mediation provision, the addendum's attorney's fee provision was in conflict with the purchase agreement and the mediation requirement did not apply. The trial court agreed, finding that "the addendum trumps the original agreement . . . [because] . . . it just changes the terms," and that as a result "it's like [the mediation provision] didn't exist." In August 2010, the trial court then entered an amended judgment that awarded Mertz attorney's fees of nearly $73,000.
A second amended judgment reducing Mertz's cost award was entered in December 2010.
Karamanoukian contends on appeal that the trial court erred because the mediation requirement in the purchase agreement does not conflict with the addendum's attorney's fee provision, and therefore survived the parties' execution of the addendum.
DISCUSSION
Mediation/attorneys fee provisions like the one at issue here promote the strong public policy in favor of mediation. (Lange v. Schilling (2008) 163 Cal.App.4th 1412, 1417.) Mertz does not dispute the validity of the purchase agreement's mediation provision, and it is clear that if the provision applies, it will bar her ability to recover her attorney's fees. (Id. at pp. 1416-1417.) Instead, she contends the provision does not apply because it is in conflict with the addendum, which provided for attorney's fees to the prevailing party but omitted the mediation provision contained in the purchase agreement.
We follow the usual rules of contract interpretation when determining whether attorney's fees are allowed under the parties' agreements. (Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328, 1337.) Where there is no extrinsic or conflicting evidence concerning the interpretation of the agreement, we exercise independent review. (Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 880.)
Raffy Karamanoukian submitted a declaration in opposition to the fee motion stating that the addendum's attorney's fee provision was included "out of an abundance of caution, to provide attorneys [sic] fees to cover all provisions of the Addendum. It was never intended to cover the mediation requirements in the Contract, nor was it intended to eliminate the mediation provision in the Contract in general or as it relates to attorney's fees."
When Karamanoukian raised the issue at the hearing on the attorney's fee motion, the trial court did not directly address it, but said that the addendum trumped the original agreement and that the parties had agreed to the changed terms. Mertz asks us to disregard the evidence because it reflects only Karamanoukian's uncommunicated, subjective intent concerning the addendum's attorney's fee provision. We agree. (Alex Robertson Co. v. Imperial Casualty & Indemnity Co. (1992) 8 Cal.App.4th 338, 346.) As a result, there was no extrinsic evidence for us to consider, and we interpret the contracts based solely on their terms.
The mutual intention of the parties at the time a contract was formed governs the interpretation of the contract. (Civ. Code, § 1636.) When interpreting contracts, the language used controls if it is clear and explicit. We view the contract language as a whole, and avoid a piecemeal, strict construction approach. If possible, we give effect to every provision and avoid rendering any part of an agreement surplusage. (Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.) If an agreement can be interpreted in two ways, we should construe it in the way that makes the agreement lawful, operative, definite, and capable of being put into effect, while avoiding an interpretation that would make the agreement unjust, inequitable, or that would lead to an absurd result. (Ibid.)
When several contracts relating to the same subject matter are executed by the same parties, all the contracts are considered together with the same effect as if they had been incorporated in one document. (Civ. Code, § 1642; Versaci v. Superior Court (2005) 127 Cal.App.4th 805, 814.) This rule applies whether the documents were executed at the same time, or at different times, so long as the later document is in fact a part of the same transaction. An express statement of incorporation is not required, but in order for one contract to be incorporated into another, the reference must be clear and unequivocal. (Ibid.)Whether one document is incorporated into another depends on the intent of the parties at the time of contracting. We look to the language of the contract to determine the parties' intent, although extrinsic evidence may be allowed. (Ibid.)
The parties' intent to incorporate the addendum into the original purchase agreement seems clear. The purchase agreement provides for the $100,000 holdback, while the addendum clarifies and expands how that holdback will work. The addendum states that it is to be given the same date as the purchase agreement, that its terms are to be construed as if they were set forth in the purchase agreement, and that the purchase agreement and the addendum are "collectively referred to" as the agreement. We therefore construe the addendum and the original purchase agreement as if they were one contract.
Mertz contends that the two documents must be considered separately because the addendum deals with the $18,000 rental allowance and the $100,000 holdback provision, while those issues are "nowhere addressed or referenced in the initial Agreement." As noted above, she is wrong. Paragraph 35.F. of the original purchase agreement provides for both, the rental allowance and the holdback.
The mediation provision states that it applies to any dispute arising out of "this Agreement." Because the addendum, by its own terms, is referred to collectively with the purchase agreement as one agreement, and is to be construed as if its terms were set forth within the purchase agreement, we conclude that the addendum is part of "this agreement" to which the mediation provision applies.
We disagree with Mertz's contention that the addendum is in conflict with the purchase agreement because the addendum provided for attorney's fees, but did not also include mediation as a prerequisite to recover such fees. Mertz solely focuses on the addendum's provision that its terms govern in the event of a conflict with the purchase agreement. She overlooks the addendum's final provision, which states that "[u]nless otherwise modified by this Amendment, all other terms and conditions of the Agreement [which means the combined purchase agreement and addendum] shall remain the same." This is consistent with the purchase agreement, which provides that it may be modified only in writing. The addendum was silent on the topic of mediation and therefore never modified the mediation provision.
Finally, the addendum's attorney's fee provision is not inconsistent with the purchase agreement's mediation provision. To the contrary, applying the mediation requirement to the addendum is entirely consistent with the purchase agreement, which is the source of the holdback provision.
DISPOSITION
The amended judgment is reversed to the extent it awarded attorney's fees to Mertz. In all other respects, the judgment is affirmed. The Karamanoukians shall recover their appellate costs.
RUBIN, J. WE CONCUR:
BIGELOW, P. J.
GRIMES, J.