Opinion
F073781
02-20-2018
CITY OF DINUBA, Plaintiff and Respondent, v. KULDIP THUSU, Defendant and Appellant.
Doerksen Taylor Stokes, Charles L. Doerksen and Michael J. Fletcher for Defendant and Appellant. Betts & Rubin, James B. Betts and Joseph D. Rubin, 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. VCU252803)
OPINION
APPEAL from a judgment of the Superior Court of Tulare County. Lloyd L. Hicks, Judge. (Retired Judge of the Tulare Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Doerksen Taylor Stokes, Charles L. Doerksen and Michael J. Fletcher for Defendant and Appellant. Betts & Rubin, James B. Betts and Joseph D. Rubin, for Plaintiff and Respondent.
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I. INTRODUCTION
A jury found in favor of respondent City of Dinuba (City) and awarded it a judgment of $47,900 against appellant Dr. Kudlip Thusu (Thusu), based on the breach of a written guaranty. City sought attorney fees based on a contractual attorney fees provision in the guaranty. The trial court found City to be a prevailing party and awarded it $100,152 in fees. Thusu appeals and contends that it was an abuse of discretion for the trial court to find City to be a prevailing party and entitled to attorney fees as it only recovered some, but not all, of the damages requested against Thusu. After independently reviewing the record, we conclude that the trial court did not abuse its discretion in finding City to be a prevailing party. Accordingly, we affirm the judgment.
II. FACTUAL BACKGROUND
A. Lease and Guaranty
City and Thusu entered into discussions to lease space in City's Vocational Education Center. On September 13, 2011, City entered into a lease with Universal, Inc. to rent the Vocational Education Center for 10 years. At no time did an entity named Universal, Inc. exist. Thusu was the president and chief executive officer of Universal Biopharma Research Institute, Inc. (Biopharma). Universal Biopharma Research Institute Inc. was also referred to as Universal Biopharma or Biopharma. Regardless, Thusu signed the lease agreement and a later amendment to the lease, representing himself as the president of Universal, Inc.
Thusu also executed a personal guaranty to the lease agreement. The guaranty contained an attorney fees clause, which stated that "the unsuccessful party in such action shall pay to the prevailing party therein a reasonable attorney's fee which shall be fixed by the court."
Rent on the lease was deferred from November 2011 to March 2013. Starting in March 2013, Thusu or one of the entities he controlled, failed to make rent payments. Following the failure to pay rent under the lease, City filed an unlawful detainer action against Universal, Inc. and a breach of contract claim against Thusu under the guaranty. In both pleadings, City claimed $59,793 in damages for past due rent and late charges for five months, from March to July 2013. City also sought repossession of the premises, forfeiture of the lease agreement and future rents for the remainder of the lease at a monthly rate of $11,863.84 for rent and monthly late charges of $118.64. On August 1, 2013, City amended the complaint against Universal Inc. to name Biopharma instead.
The parties stipulated to consolidate the actions as the subject property was no longer in possession of Thusu or one of his entities. The trial court granted consolidation and proceeded to trial.
B. Trial and Verdict
On the first day of trial, City filed a second amended complaint alleging damages of $1,250,883.28, a figure that would include past rent due and future amounts owing under the lease. However, at trial, City did not seek future damages on the lease or guaranty. The court instructed the jury that City was seeking "damages for past due rent."
At closing argument, City described the damages being sought. City requested a total of $212,261 in damages for past due rent. Of the total rent requested, $142,356 was a result of the failure to pay for 12 months of deferred rent and $59,792 was for the failure to pay for five months of rent from March to July 2013, after the deferral period ended. Thusu, in his defense, argued that he was fraudulently induced to enter into the guaranty, and that the jury should not find it enforceable. Alternatively, Thusu contended that if the jury found the guaranty enforceable, that he was not liable for the deferred rents, and only should be found liable for $59,792, the five months of past due rent.
The jury returned a verdict that Biopharma was not a party to the lease and, therefore, not liable to City for rent under the lease agreement. However, the jury found there was an enforceable contract between City and Thusu on the guaranty and awarded City $47,900 in unpaid rent.
No explanation was given as to how the jury reached its monetary award of $47,900. It is noted that the amount correlates to four months of unpaid rent and late fees.
C. Request for Attorney Fees
The trial court identified City as a prevailing party in its lawsuit against Thusu on the guaranty. Pursuant to the judgment, City filed a motion requesting $100,152 in attorney fees on November 9, 2015. Thusu filed an opposition, arguing that City was not a prevailing party because it only recovered a fraction of the amount requested in its amended complaint. After hearing argument, the trial court held City to be a prevailing party and awarded the full amount of the requested attorney fees. Thusu filed the instant appeal.
III. DISCUSSION
This appeal addresses a single issue—whether the trial court abused its discretion in finding City a prevailing party and therefore entitled to attorney fees. Thusu contends that despite City's monetary recovery at trial, the trial court erred in finding it to be a prevailing party. However, Thusu does not challenge the underlying judgment nor does he challenge the amount of attorney fees awarded.
A. Standard of Review
We review the trial court's determination of the prevailing party for abuse of discretion. (Almanor Lakeside Villas Owners Assn. v. Carson (2016) 246 Cal.App.4th 761, 774.) "'"The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court."'" (Goodman v. Lozano (2010) 47 Cal.4th 1327, 1339.) "A merely debatable ruling cannot be deemed an abuse of discretion. [Citations.] An abuse of discretion will be 'established by "a showing the trial court exercised its discretion in an arbitrary, capricious, or patently absurd manner that resulted in a manifest miscarriage of justice."'" (People v. Bryant, Smith and Wheeler (2014) 60 Cal.4th 335, 390.)
B. Law Regarding Prevailing Parties
California follows the "American rule," under which each party to a lawsuit must pay its own attorney fees unless a contract or statute or other law authorizes a fee award. (Code Civ. Proc., §§ 1021, 1033.5, subd. (a)(10); Musaelian v. Adams (2009) 45 Cal.4th 512, 516.)
Here, both parties agree that the attorney fees clause of the guaranty is governed by Civil Code section 1717. Section 1717, subdivision (a), provides in part: "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, 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."
The attorney fees clause of the guaranty states: "In the event any action is brought by [City] against [Thusu] hereunder to enforce the obligation of [Thusu], the unsuccessful party in such action shall pay to the prevailing party therein a reasonable attorney's fee which shall be fixed by the court."
Subdivision (b)(1) of Civil Code section 1717 provides: "The court, upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section, whether or not the suit proceeds to final judgment. Except as provided in paragraph (2) [relating to voluntary dismissals and settlements], the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. The court may also determine that there is no party prevailing on the contract for purposes of this section."
"The trial court ruling on a motion for fees under [Civil Code] section 1717 is vested with discretion in determining which party has prevailed on the contract, or that no party has." (DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968, 973 (DisputeSuite.com).) "If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees." (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.) A party who obtains an unqualified victory on a contract dispute, including a defendant who defeats recovery by the plaintiff on the plaintiff's entire contract claim, is entitled as a matter of law to be considered the prevailing party for purposes of Civil Code section 1717. (Hsu v. Abbara (1995) 9 Cal.4th 863, 876.) But "'when the results of the [contract] litigation are mixed,' the trial court has discretion under the statute to determine that no party has prevailed." (DisputeSuite.com, supra, at p. 973.)
"'[I]n deciding whether there is a "party prevailing on the contract," the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by "a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions."'" (DisputeSuite.com, supra, 2 Cal.5th at p. 974.)
C. Analysis
Thusu's contention is simple. City recovered $47,900, when the greatest total damages sought in its amended complaint was $1,250,883.28. The amount of $47,900 is less than 4 percent of the total damages sought and less than half of the $100,152 awarded to City as attorney fees. Thusu argues that the trial court abused its discretion in finding that City was a prevailing party in light of such limited monetary recovery.
It is without question that City's objective in this action was to obtain monetary recovery from Thusu on his personal guaranty on the lease. At the time of trial there were three categories of damages under the lease that were potentially recoverable: past due rent, deferred rent payments, and future rent payments. The total of past due rent was $59,792 and the total of deferred rent was $142,356. Therefore, the remainder of the total rent alleged in the second amended complaint was over $1 million in future rent payments for the remaining years of the lease.
No explanation is revealed, but City did not seek damages for future rent at trial. The jury instructions discuss past due rent and at closing argument no mention of such damages were made by City. Accordingly, at trial City only sought roughly $200,000 in damages from past due rent, of which roughly three-quarters resulted from months of deferred rent and one-quarter from past due rent. Ultimately, the jury returned a verdict finding that there was an enforceable guaranty between City and Thusu, but only finding Thusu liable for approximately four months' rent. It appears that the jury agreed with City that Thusu was liable for the majority of the unpaid rent, but that he was not liable for the months of deferred rent. The jury, therefore, agreed with one of the two theories of liability presented by City, however, the amount recovered on that theory was only roughly one-quarter of the total amount requested at trial.
At trial, Thusu contended that he should not be at all liable to City as he was fraudulently induced to sign the agreements. During closing argument, his counsel presented a fallback argument that if Thusu was bound by the guaranty, then he should only be liable for the past due rent as the months of deferred rent were forgiven. It is unclear why the jury only awarded City the majority of the past due rent; however, it is clear that City obtained litigation objectives, proving the guaranty was enforceable and recovering rents due based on the guaranty.
The question before us is whether the trial court abused its discretion in finding that City was the prevailing party. Civil Code section 1717, subdivision (b)(1) defines the prevailing party as "the party who recovered a greater relief in the action on the contract." As noted in Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1151: "Because the statute allows such discretion, it must be presumed the trial court has also been empowered to identify the party obtaining 'a greater relief' by examining the results of the action in relative terms: the general term 'greater' includes '[l]arger in size than others of the same kind' as well as 'principal' and '[s]uperior in quality.'"
The decision in de la Cuesta v. Benham (2011) 193 Cal.App.4th 1287 (de la Cuesta) is instructive. The case also involved a lease dispute. The tenant asserted she owed nothing under the lease due to water leaks on the premises, and at trial the landlord was awarded only 70 percent of the alleged rent owed. (Id. at p. 1290.) The trial court found that there was no prevailing pary. (Ibid.) Upon review, the appellate court found it was an abuse of discretion not to find the landlord a prevailing party and reversed the judgment. (Ibid.) In acknowledging that the landlord did not attain a complete victory and obtain a judgment for all damages, the court explained "there is the reality of litigation, almost universally recognized: Attorneys tend to err on the side of overstating the extent of the claims being presented on their client's behalves. If anything short of 'complete victory' allows the trial court unrestricted freedom to ignore the substance of a result, then trial courts have the freedom to nullify the normal expectations of parties who enter into contracts with prevailing party attorney fee clauses." (de la Cuesta, supra, at p. 1295.)
The court in de la Cuesta further explained the problem with only looking towards the maximal claims asserted to determine if the party prevailed: "Consider: Most of the time, attorneys have an incentive to assert the maximal claims possible on behalf of their clients. (Sometimes they get sued themselves if they don't!) But if anything less than complete victory means that a client loses what would otherwise have been 'prevailing party' status under [Civil Code] section 1717, the attorney is crunched into a dilemma. Risk a malpractice suit by not asserting maximal claims, or risk a malpractice suit by forfeiting 'prevailing party' status under [Civil Code] section 1717 by asserting maximal claims." (de la Cuesta, supra, 193 Cal.App.4th at p. 1296, fn. 5.) --------
In reviewing the details of the case, the court in de la Cuesta reviewed the relative extent of the success of each party in comparison to its basic litigation position. (de la Cuesta, supra, 193 Cal.App.4th at p. 1296.) The court found that the tenant asserted "the extreme position" that she owed nothing due to water and sewage leaks and that the landlord received $70,000 of the roughly $100,000 sought in the trial. (Ibid.) In addition, the court relied on other "'"equitable considerations,"'" including the fact that the action caused the tenant to vacate the premises and that the tenant failed to prove his fraud claims. (Ibid.) Accordingly, the court found that it was an abuse of discretion to find that the landlord was not a prevailing party and reversed the determination of the trial court. (Id. at pp. 1299-1300.)
Regardless how it is viewed, Thusu is correct that City received a smaller share of its maximal recovery than found in de la Cuesta. While the amount of recovery is a factor to examine in determining the prevailing party, there is no formulaic cutoff to rely upon to determine that a party failed to recover sufficient damages to be considered a prevailing party. (See e.g., Scott Co. v. Blount, Inc., supra, 20 Cal.4th at p. 1109 [finding trial court did not abuse its discretion in finding the plaintiff a prevailing party when they recovered $440,000 despite attempting to prove over $2 million in damages].)
Even though City listed a maximal amount of damages in its amended complaint that included over $1 million in future rent, City did not attempt to recover that amount at trial. As alluded to by the court in de la Cuesta, the maximal damages requested is not always the appropriate measure to compare recovery to determine success in litigation. It is clear in this case that even if City had a viable theory of recovery of the future rent, it forwent those claims at trial. Instead, it attempted to recover $212,000 based on two theories: failure to pay overdue rent and failure to pay deferred rent. Thusu argued that he owed neither unpaid rent nor deferred rent. The jury found that Thusu owed the majority of the unpaid rent.
We do not find that the trial court exceeded the bounds of reason in finding City a prevailing party on the guaranty. Thusu has not established that the trial court exercised its discretion in an arbitrary, capricious, or patently absurd manner that resulted in a manifest miscarriage of justice. (People v. Bryant, Smith and Wheeler, supra, 60 Cal.4th at p. 390.) City obtained a judgment against Thusu for some, but not all, of the damages it sought under the guaranty, despite Thusu's contentions that the guaranty was not enforceable and he owed nothing. City did not receive the most favorable results possible, but succeeded in the primary objectives of its litigation. The trial court did not abuse its discretion in finding City a prevailing party.
DISPOSITION
The judgment is affirmed. City is entitled to its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
/s/_________
MEEHAN, J. WE CONCUR: /s/_________
LEVY, Acting P.J. /s/_________
DETJEN, J.