Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of San Diego County Super. Ct. No. GIC865355, William R. Nevitt, Jr., Judge.
HALLER, Acting P. J.
Otay River Constructors (Otay) brought a declaratory relief action against South Bay Expressway and California Transportation Ventures, Inc. (together Expressway), seeking a declaration as to the meaning of a contractual provision in the parties' agreement. The court sustained Expressway's demurrer without leave to amend based on the court's determination that it was not the appropriate forum to provide an interpretation of the parties' agreement. (See Code Civ. Proc., § 1061.) The trial court found Expressway was the prevailing party and granted Expressway attorney fees of $37,987.75 under Civil Code section 1717.
South Bay Expressway was formerly named San Diego Expressway.
On appeal, Otay challenges only the attorney fees award. Otay contends the court abused its discretion in finding that Expressway was the prevailing party. We reject this contention and affirm.
FACTUAL AND PROCEDURAL SUMMARY
This appeal arises from the same factual and procedural background of a recently published decision. (Otay River Constructors v. San Diego Expressway (2008) 158 Cal.App.4th 796 (Otay River I).) For convenience of the reader, we restate the relevant facts and procedure in this opinion.
In connection with its development of two related highway projects in San Diego County, Expressway entered into two design-build contracts with Otay, a general contractor. The two contracts are referred to as the Gap/Connector Contract and the Toll Road Contract (together the Design-Build Contracts). The parties then entered into a third agreement called the Coordination Agreement, to ensure that the Design-Build Contracts "complement[ed] and supplement[ed] one another" and operated in a coordinated manner to allow completion of the two related projects.
Each contract contained a dispute resolution provision. The Gap/Connector Contract provided that disputes would be resolved by project and executive level negotiations and then by a nonbinding Dispute Resolution Board and, if necessary, litigation. The Toll Road Contract contained similar dispute resolution procedures, but did not allow litigation and required binding arbitration. Disputes under the Coordination Agreement were governed by the dispute resolution provision of the Toll Road Contract, i.e., binding arbitration. Section 7(e) of the Coordination Agreement provided that Otay waived certain claims arising before February 15, 2003.
In July 2005, Otay initiated arbitration proceedings against Expressway, claiming that Expressway breached the Gap/Connector Contract in two separate ways (the Claims). Otay argued that the Claims presented a dispute under the Coordination Agreement and therefore binding arbitration was the appropriate procedure to resolve the Claims.
Expressway objected to the arbitration based on its assertion that the Claims arose out of the Gap/Connector Contract, which did not provide for arbitration. But Expressway also asserted a waiver defense based on Section 7(e) of the Coordination Agreement, and argued that this waiver defense was arbitrable. Expressway thus sought arbitration for its Section 7(e) contractual limitations defense, but a different procedure for Otay's affirmative Claims.
In response, Otay filed a petition in superior court to compel arbitration of the Claims under the Coordination Agreement, arguing that the disputes arose under the Coordination Agreement and must be arbitrated (the Otay River I action). Expressway opposed the petition. The trial court (Judge Francis Devaney) denied the petition, finding Otay's Claims were not subject to arbitration and instead were subject to the internal dispute resolution procedures of the Gap/Connector Contract. (Otay River I, supra, 158 Cal.App.4th at p. 801.) The court did not reach the issue of whether the Section 7(e) defense was subject to arbitration. Otay did not appeal from the order denying its motion to compel arbitration. (Ibid.)
Expressway moved for attorney fees, claiming it was the prevailing party on the contract because it obtained a final order denying Otay's arbitration petition. (Otay River I, supra, 158 Cal.App.4th at p. 801.) The trial court denied the motion on the ground that Expressway was not a prevailing party because the parties contemplated additional litigation pertaining to Otay's Claims. (Ibid.) Expressway appealed this attorney fees ruling. (Ibid.)
While the Otay River I appeal was pending, the parties engaged in the internal dispute resolution procedures provided in the Gap/Connector Contract in an attempt to resolve Otay's Claims. In March 2006, some of those claims were allegedly denied, in part, because the Section 7(e) defense had not yet been resolved in arbitration.
Several weeks later, Otay brought an independent declaratory relief action that is the subject of the current appeal. In its amended complaint, Otay sought a judicial declaration that the Section 7(e) defense must always be litigated in the same forum with the substantive claims arising under the Gap/Connector Contract, or the Section 7(e) arbitration must always be stayed pending resolution of the affirmative claims. Specifically, Otay sought an order that: (1) "the 7(e) Defense must be resolved only in the forums where an affirmative claim is pending, or if that is not possible, that arbitration of the 7(e) Defense be stayed pending resolution of the affirmative claims"; and/or (2) "[certain specified Otay claims] and future Gap/Connector Disputes be resolved, together with any asserted 7(e) Defense, according to the Gap/Connector Contract dispute resolution procedures, or if that is not possible, that arbitration of the 7(e) Defense be stayed pending resolution of the underlying claims." Otay also sought "attorney fees and costs of suit as allowed by law . . . ."
Expressway demurred to this complaint. Expressway argued the parties had expressly agreed to arbitrate the Section 7(e) defense even if the affirmative claims were subject to the internal dispute mechanism, and the court was the improper forum for deciding the contractual interpretation issue because the issue of arbitrability of the Section 7(e) defense is a matter for the arbitrator's determination. Expressway thus maintained that the court had no subject matter jurisdiction of the issue, and/or that it should decline to exercise its authority to issue declaratory relief under Code of Civil Procedure section 1061, particularly because the requested relief was contrary to the parties' express agreements. Code of Civil Procedure section 1061 provides: "The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances."
The court (Judge William Nevitt, Jr.) sustained the demurrer without leave to amend. The court stated: "The declarations prayed for in the [first amended complaint] are not necessary and are not proper under all the circumstances. (Code Civ. Proc., § 1061.) The requested declarations would have this Court decide matters of procedure for other forums; and even assuming that were proper, this Court has no ability to foresee the ramifications and consequences in the other forums of such declarations (that would purportedly restrict those other forums). [¶] The court need not, and does not, address [Expressway's] contention that the Court lacks subject matter jurisdiction."
Expressway then sought attorney fees under the attorney fees provisions in the parties' contracts. (Civ. Code, § 1717.) The relevant provisions provide that the prevailing party "in any proceeding" shall be entitled to recover attorney fees.
Otay opposed the attorney fees motion on several grounds, including that Expressway was not the "prevailing party" because: (1) there was no final ruling on the substantive contract claims between the parties; and (2) the court's ruling was procedural and did not constitute a ruling on the merits of the action. In support of these arguments, Otay submitted its counsel's declaration stating that another trial judge (Judge Joan Lewis), presiding over certain specific disputes between the same parties in a different action, had recently ordered the Section 7(e) defenses to be heard together with the affirmative claims.
Otay also argued the contracts authorize an attorney fees award only for "Disputes," and its declaratory relief action did not constitute a "Dispute" within the meaning of the contract. However, because Otay does not reassert this argument on appeal, we do not discuss the argument in this opinion.
After considering this evidence and counsels' arguments, and holding a hearing on the attorney fees issue, the court (Judge Nevitt) found Expressway was the prevailing party entitled to attorney fees and awarded Expressway $37,987.75 in fees.
Otay appealed. While this appeal was pending and after the parties filed their appellate briefs, this court filed Otay River I, in which we reversed the superior court's (Judge Devaney) order denying Expressway's attorney fees request after Expressway successfully challenged Otay's motion to compel arbitration. (Otay River I, supra, 158 Cal.App.4th at pp. 808-809.) We held that a party who obtains "an order denying the petition to compel arbitration is a prevailing party in the action on the contract even though the merits of the parties' underlying contractual disputes have not yet been resolved." (Id. at p. 799.) We specifically rejected Otay's arguments that Expressway was not the prevailing party because the outcome was "only an interim procedural victory" for Expressway. (Id. at p. 807.) We thereafter gave the parties in the current appeal the opportunity to file supplemental briefs addressing the impact of Otay River I on the appellate issues in this case.
DISCUSSION
Civil Code section 1717 governs awards of attorney fees based on a contract and authorizes an attorney fee award to a prevailing party "[i]n any action on a contract . . . to enforce that contract" if the contract provides for an award of attorney fees. (Civ. Code, § 1717, subd. (a).) A declaratory relief action that seeks to establish the parties' rights under a contract is an action to enforce the contract. (See Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 710-711; Harbour Landing-Dolfann, Ltd. v. Anderson (1996) 48 Cal.App.4th 260, 263; Milman v. Shukhat (1994) 22 Cal.App.4th 538, 545.) Civil Code section 1717 thus permits an award of attorney fees to the party who prevails in a declaratory relief action.
Otay does not challenge these well-settled principles. Otay argues instead that the court abused its discretion in determining that Expressway was the prevailing party in this action.
"[T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract . . . ." (Civ. Code, § 1717, subd. (b)(1).) The court has broad discretion "to determine who, if anyone, is the party prevailing on the contract." (Otay River I, supra, 158 Cal.App.4th at p. 806; see Hsu v. Abbara (1995) 9 Cal.4th 863, 871 (Hsu); Acree v. General Motors Acceptance Corp. (2001) 92 Cal.App.4th 385, 400.) "[W]e will not overturn that determination 'absent a clear abuse of discretion.' " (Acree, supra, 92 Cal.App.4th at p. 400.)
However, in certain circumstances, a successful party is entitled to attorney fees as a matter of right. (Hsu, supra, 9 Cal.4th at p. 872; Otay River I, supra, 158 Cal.App.4th at p. 806.) "When a party obtains a simple, unqualified victory by completely . . . defeating all contract claims in the action . . ., section 1717 entitles the successful party to recover reasonable attorney fees incurred in . . . defense of those claims." (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.) "[W]hen the decision on a litigated contract claim 'is purely good news for one party and bad news for the other . . .,' " the successful litigant is the prevailing party. (Otay River I, supra, 158 Cal.App.4th at p. 806.) " 'Thus, when a defendant defeats recovery by the plaintiff on the only contract claim in the action, the defendant is the party prevailing on the contract under [Civil Code] section 1717 as a matter of law. [Citations.]' " (Ibid., italics omitted, citing Hsu, supra, at p. 876.)
Under these principles, the trial court properly found Expressway was the prevailing party in this action. Otay sought to obtain an order that would require the parties to litigate the Section 7(e) defense together with any affirmative claims or with affirmative claims arising under the Gap/Connector Contract, and Otay sought to make this order applicable to all future contractual disputes between the parties. Expressway opposed this relief on various grounds, including that this issue was not an appropriate question for the court to decide, and instead the issue should be determined by the arbitrator or at the particular forum where the contract was being litigated. The court agreed with Expressway that it was not the appropriate forum to decide the issue, and exercised its discretion under Code of Civil Procedure section 1061 to decline to provide a contract interpretation that would be applicable in all future disputes.
Thus, Expressway was the prevailing party because it obtained a "'"simple, unqualified win"' on the only . . . claim at issue in the action" —whether Otay was entitled to a declaration ordering that the Section 7(e) defense must always be litigated with Otay's affirmative claims in every future dispute involving these contracts. (Otay River I, supra, 158 Cal.App.4th at p. 807.)
Otay nonetheless contends that Expressway was not the prevailing party because it obtained "only" an "[i]nterim [p]rocedural [v]ictory" in the overall contract dispute. However, as we held in Otay River I, the fact that the parties have not fully litigated the merits of their contract dispute does not preclude a prevailing party determination if the court has entered a judgment reflecting "the final resolution of a discrete legal proceeding." (Otay River I, supra, 158 Cal.App.4th at p. 807.) In this case, the court entered a final judgment dismissing Otay's claims. Although the trial court did not reach the merits of the contract dispute, it issued a final judgment refusing to grant Otay's requested relief in a discrete legal action. As we noted in Otay River I, "[t]he cases cited by Otay for the proposition that a procedural victory does not qualify as the type of win for a mandatory attorney fee award are inapposite because these cases did not involve the final resolution of a discrete legal proceeding." (Ibid.)
Seeking to distinguish Otay River I, Otay argues that Expressway was not the prevailing party in this case because it "obtained only judicial abstention" and the judgment "did not resolve anything between the parties" because the meaning of the Section 7(e) provision still needs to be resolved. Otay contrasts these circumstances with the situation in Otay River I where Expressway obtained a concrete legal victory—the denial of Otay's motion to compel arbitration and consequent requirement that the parties submit Otay's claims to internal dispute resolution procedures.
The argument is unavailing. A judgment dismissing an action under the trial court's equitable authority (Code Civ. Proc., § 1061) means Otay did not obtain the only relief sought in the action. Although the result was "procedural" in the context of the overall contract dispute, it was a substantive unqualified loss on the merits of the declaratory relief claim. Otay focuses on Expressway's "failure to obtain any victory." However, Expressway was not the party seeking a declaration or any other form of affirmative relief. Instead, it opposed Otay's request for a declaration on the meaning of a contractual provision that would govern in every dispute between the parties. Expressway was successful in this opposition and obtained precisely what it was seeking—a dismissal of the declaratory relief action. A party who successfully defends a lawsuit is the prevailing party even if the party does not obtain any specific affirmative relief in the action. (See Deane Gardenhome Assn. v Denktas (1993) 13 Cal.App.4th 1394, 1398.) For purposes of Civil Code section 1717 "prevailing party" analysis, the issue is whether the party achieved his or her litigation objectives. (See Scott Co. v. Blount, Inc., supra, 20 Cal.4th at p. 1109.) In this case, the court did not abuse its discretion in finding Expressway satisfied this standard.
In its supplemental brief, Otay argues that the judgment was "meaningless" because Otay could have simply "filed the same action in a different court days after the judging, hoping for a different result." Even assuming Otay's hypothetical is consistent with res judicata principles, it is unlikely Otay would have found a judgment in its favor in this action to be "meaningless." A central purpose of Civil Code section 1717 is "to ensure mutuality of remedy for attorney fee claims." (Exarhos v. Exarhos (2008) 158 Cal.App.4th 938, 944.) In this case, Otay would undoubtedly consider itself a prevailing party if it had obtained a judicial declaration interpreting Section 7(e) in a manner that would require the parties to consolidate the defense with other litigated claims in every case. Thus, when Expressway was successful in opposing that form of relief, it was likewise entitled to attorney fees.
In this regard, we are unpersuaded by Otay's reliance on its counsel's declaration describing a ruling by a different trial judge (Judge Lewis) in a different action to show that Otay ultimately obtained the relief it desired and therefore Expressway was not a prevailing party. First, the relief sought in that action was not the same as in this action. Here, Otay sought a sweeping, unqualified declaration as to the meaning of a contract provision. The court declined to issue such a broad declaration, and instead found that the determination was better suited to the forum where the contract was being litigated and/or in arbitration proceedings. The fact that Otay may have obtained a more limited ruling in a specific litigation bolsters a conclusion that this declaratory relief litigation was unnecessary and that Expressway was the prevailing party in defeating the action. The critical point is that Otay filed an action seeking an order applying to every future dispute between the parties involving these contracts, and thus put Expressway to the expense of defending the action to preclude the trial court from granting such broad relief. The court did not abuse its discretion in finding that Expressway was a prevailing party under these circumstances.
DISPOSITION
Order affirmed. Respondents are entitled to their costs on appeal.
WE CONCUR: McDONALD, J., McINTYRE, J.