Opinion
G059418
06-24-2021
MICHAEL COLACO et al., Plaintiffs, Cross-defendants, and Appellants, v. CAVOTEC SA et al., Defendants, Cross-complainants, and Appellants.
Stradling Yocca Carlson & Rauth, Jason de Bretteville and Lisa M. Northrup, for Plaintiffs, Cross-defendants and Appellants. Greenberg Gross, Alan A. Greenberg, Wayne R. Gross, and Deborah S. Mallgrave, for Defendants, Cross-complainants and Appellants.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County, No. 30-2012-00601735 Charles Margines, Judge. Affirmed.
Stradling Yocca Carlson & Rauth, Jason de Bretteville and Lisa M. Northrup, for Plaintiffs, Cross-defendants and Appellants.
Greenberg Gross, Alan A. Greenberg, Wayne R. Gross, and Deborah S. Mallgrave, for Defendants, Cross-complainants and Appellants.
OPINION
MOORE, ACTING P.J.
The parties are before us again, this time on appeal from a postjudgment order awarding attorney fees. In the prior appeal from the underlying judgment, we reversed a judgment wholly in favor of appellants Cavotec SA and Cavotec Inet U.S. Inc. (collectively Cavotec). We ordered the trial court to enter judgment in favor of appellant Inet Airport System, LLC (Inet), on claims arising from an asset purchase agreement, and in favor of Cavotec Inet U.S. Inc. (Cavotec Inet) on claims against appellant Michael Colaco arising from an employment contract. (Colaco v. Cavotec SA (July 11, 2018, G052619) [nonpub. opn.].)
After the trial court entered a new judgment in accordance with our prior opinion, the parties filed motions seeking attorney fees. The trial court found Inet was the prevailing party on the asset purchase agreement, and Cavotec Inet was the prevailing party on the employment contract. It awarded Inet $2 million in attorney fees, after applying a liability cap provision in the APA. It awarded Cavotec Inet $4.6 million in attorney fees. Both sides appealed.
As to Cavotec Inet's fee award, Inet and Colaco argue the trial court erred in (1) determining Cavotec Inet was the prevailing party on the employment contract, (2) declining to apply the liability cap to the fee award, and (3) calculating the fee amount. As discussed below, we find no error. Cavotec Inet prevailed on the claims arising from the employment contract, which is separate and independent from the asset purchase agreement. The liability cap did not apply to claims arising from the employment contract; it applied only to claims arising from the asset purchase agreement. Finally, appellants have not shown the trial court abused its discretion in determining the amount of fees.
As to Inet's fee award, Cavotec argues the trial court considered incorrect information when determining Inet was the prevailing party on the asset purchase agreement. We find no prejudicial error because even using Cavotec's purportedly correct figures, the trial court could still find Inet was the prevailing party. Inet and Colaco argue the trial court erred in applying the liability cap to Inet's fee award because an exception for intentional breaches applied. As discussed below, based on our independent review of the contractual language, we conclude the exception did not apply in this case. Accordingly, we affirm the court's order.
I
Factual and Procedural Background
A. Underlying Facts
In August 2011, Inet and Colaco, its sole shareholder and chief executive officer, entered into the “Asset Purchase Agreement and Plan of Reorganization” (APA) with Cavotec SA and its wholly owned subsidiary, Cavotec Inet. Under the APA, Inet agreed to sell substantially all of its assets to Cavotec, including Inet's long-term, in-process customer contracts. In exchange, Cavotec agreed to transfer to Inet 7.7 million shares of Cavotec SA stock, valued at $21 million, and make two $2 million “Performance Earn-out Payments” to Inet, one in August 2012 and another in August 2013. (Colaco v. Cavotec SA, supra, G052619.)
When the APA closed, Colaco became Cavotec Inet's president and a member of its board of directors. To govern the terms of Colaco's employment, he and Cavotec Inet entered into a “Contract of Employment” (Employment Contract) that required Colaco to “devote his best efforts and all his business time to the business and operations of [Cavotec Inet].” (Colaco v. Cavotec SA, supra, G052619.)
The in-process customer contracts were the primary assets Cavotec acquired under the APA. Inet could not transfer those contracts to Cavotec without the customers' consent, but the parties closed on the APA before any customer consented. Inet and Cavotec therefore executed an additional document entitled the “Guidelines for Contracts” (Guidelines). Under the Guidelines, Inet agreed to cooperate with Cavotec in obtaining each customer's consent and to continue performing each contract until the customer consented to the transfer. (Colaco v. Cavotec SA, supra, G052619.)
After the deal closed, numerous disagreements arose between Colaco and Cavotec regarding Inet's business, the efforts of Colaco and Inet to obtain the customer consents, and whether Inet transferred all required customer payments to Cavotec. Based on these disagreements, Cavotec refused to make the first Performance Earn-out Payment when it came due, and it asked Colaco to step down as president of Cavotec Inet. In late August 2012, Cavotec SA's chairperson and its chief executive officer met with Colaco to discuss how they amicably could part ways. These discussions resulted in a one-page document entitled, “Memorandum of Understanding” (MOU). Under the MOU, Cavotec agreed to pay the first Performance Earn-out Payment and accelerate the second so that the entire $4 million would be paid by mid-September 2012. In return, Colaco agreed to immediately resign as both a director and president of Cavotec Inet, and to cooperate in completing the transition of Inet's business to Cavotec. (Colaco v. Cavotec SA, supra, G052619.)
A few days later, Cavotec locked Colaco out of its facilities because it suspected he was soliciting employees to start a competing business and destroying or stealing files. Cavotec paid the first Performance Earn-out Payment by the September date specified in the MOU and told Colaco it was withholding the second $2 million payment until it completed an investigation of Colaco's conduct. After completing its investigation, Cavotec refused to make the second payment because it concluded Inet had failed to forward customer payments it received on Cavotec's behalf. Cavotec also found Colaco had falsified invoices and backdated others to inflate the amount of customer payments Inet was entitled to retain, had instructed employees to send customers improper or defective products to damage Cavotec's business, and had sabotaged Cavotec by stealing and destroying files. (Colaco v. Cavotec SA, supra, G052619.)
B. Complaints and Jury Verdicts
In October 2012, Inet and Colaco filed a complaint, alleging Cavotec breached the APA as amended by the MOU. The complaint sought the second $2 million Performance Earn-out Payment and “general and special damages according to proof.” The complaint also alleged Cavotec SA fraudulently induced Colaco to enter into the MOU by falsely promising to make both Performance Earn-out Payments in September 2012.
Cavotec filed a cross-complaint against Inet and Colaco. Cavotec alleged Inet breached the APA and the Guidelines, and also alleged a common count for money had and received based on the postclosing customer payments Inet received on Cavotec's behalf, but failed to forward to Cavotec. Cavotec separately alleged Colaco breached his Employment Contract and the fiduciary duties he owed as an officer of Cavotec Inet, and converted certain of its funds for his personal use.
The trial court conducted a six-week jury trial. On the complaint, Inet and Colaco asked the jury to award nearly $3.8 million for Cavotec's breach of the APA and MOU based on Cavotec's failure to make the second, $2 million Performance Earn-out Payment and various other sums it failed to pay under those agreements. On the cross-complaint, Cavotec sought approximately $3.8 million it claimed Inet collected, but failed to pay to Cavotec under the APA and the Guidelines, plus approximately $15.4 million in lost profits stemming from Colaco's breach of fiduciary duty. (Colaco v. Cavotec SA, supra, G052619.)
The jury returned a verdict for Cavotec on the complaint, finding it was not liable to Inet or Colaco. On the cross-complaint, the jury returned a verdict for Cavotec and awarded about $1.3 million in damages against Inet and Colaco, jointly and severally. Specifically, the jury found (1) Inet was liable for breach of the APA and the Guidelines, and for money had and received; (2) Colaco was liable for breach of the Employment Contract, breach of fiduciary duty, and conversion. The jury also awarded Cavotec $2 million in punitive damages against Colaco. (Colaco v. Cavotec SA, supra, G052619.)
C. JNOV Motion and Prior Appeal
After the trial court entered judgment on the jury's verdict, Inet and Colaco filed a judgment notwithstanding the verdict (JNOV) motion. Colaco argued the various provisions in the APA barred the claim for breach of the Employment Contract and any punitive damage claim against him. Inet argued it was entitled to an offset for the second $2 million Performance Earn-out Payment Cavotec admittedly did not pay because Cavotec's obligation to make that payment was independent of Inet's obligation to turn over the customer payments it received. The trial court denied the JNOV motion, and Colaco and Inet appealed.
On appeal, this Court rejected Colaco's contention the jury's award of the same amount of damages to Cavotec for Inet's breach of the APA and for Colaco's breach of the Employment Agreement meant the jury held Colaco liable for Inet's breach. “Rather, it simply means the breach of those separate agreements resulted in the same damages, nothing more.” (Colaco v. Cavotec SA, supra, G052619.) Interpreting the APA together with the Employment Contract, we concluded “the APA governed the terms of Cavotec's purchase of Inet's assets and the Employment Contract governed the terms of Colaco's employment with Cavotec.” Thus, “Inet's obligations under the APA are separate from Colaco's obligations under the Employment Contract. The breach of these separate obligations by two distinct parties gave rise to separate causes of action.” (Ibid.) Accordingly, the exclusive remedy provision of the APA did not apply to the claims against Colaco for breach of the Employment Contract. We similarly rejected Colaco's contention that the punitive damages waiver in the APA prevented the jury from awarding punitive damages against him on Cavotec's breach of fiduciary duty claim. “As explained above, Colaco's liability to Cavotec does not arise under the APA, but rather the common law fiduciary duties he owed as an officer of Cavotec and [under] the Employment Contract.” (Ibid.)
We, however, determined “Cavotec's obligation to make the final $2 million Performance Earn-out Payment was independent of Inet's obligation to forward to Cavotec any postclosing customer payments.... Inet's breach of the APA and Guidelines by failing to forward certain customer payments to Cavotec therefore did not excuse Cavotec from its obligation to make the final Performance Earn-out payment. Instead, Inet's breach resulted in a damage award on Cavotec's breach of contract claim alleged in the cross-complaint. Cavotec was still required to make the final Performance Earn-out Payment and the undisputed evidence shows Cavotec breached the APA by failing to make that payment.” (Colaco v. Cavotec SA, supra, G052619.) We concluded the trial court should have granted Inet's JNOV motion, and remanded the matter to the trial court with “instructions to enter a new judgment in favor of Inet and against Cavotec for $687,000 in compensatory damages on Inet's complaint; [and] in favor of Cavotec and against Colaco for $2 million in punitive damages on Cavotec's cross-complaint.” (Ibid.)
D. Motions for Attorney Fees
After the trial court entered a new judgment in accordance with our instructions, both sides filed motions for attorney fees. Inet and Colaco argued they were entitled to approximately $8.5 million in attorney fees because they “secured the sole net compensatory damages award on the contract claims asserted in the action.” Cavotec Inet argued it was entitled to approximately $4.6 million in attorney fees because it prevailed against Colaco on the contract claims arising from the Employment Contract. At the trial court's request, Cavotec also submitted supplemental briefing on the allocation of attorney fees between the claims arising from the APA and the claims arising from the Employment Contract. Cavotec asserted “a substantial majority of the fees incurred in this case were incurred in connection with the Employment Contract, not the APA, ” and argued the application of a 0.25 negative multiplier would “take[] the allocation issue into account.”
The trial court determined Cavotec Inet was the prevailing party on the claims arising from the Employment Contract, and awarded it approximately $4.6 million in attorney fees. In calculating this amount, the trial court applied a 0.25 negative multiplier. As to the claims arising from the APA, the trial court determined Inet was the prevailing party. It stated: “Plaintiff Inet sought $2 million on the complaint, and after appeal, was awarded $2 million. Defendant Cavotec Inet sought $12 million for the various breaches of the Plaintiffs' obligations under the asset purchase agreement to get the Inet customers to consent to the assignment of their contracts to Cavotec Inet, and received damages of $1.3 million. Thus, ... Plaintiff Inet was 100 [percent] successful on its claims under the APA and Defendant Cavotec Inet was only 9.23 [percent] successful on its claims under the APA. Under either measure, the Court does not find that there was no prevailing party under the APA. The Court finds that Plaintiff Inet was the prevailing party under the APA.”
The court then applied the loss limitations provision of the APA to the fee award. It noted the provision caps the amount of losses for a breach of contract, including damages and attorney fees, to $4 million, unless the breach is based on “‘fraud, intentional misrepresentation or intentional breach of a covenant.'” After noting there were no findings of fraud, intentional misrepresentation or intentional breach of a covenant, the court awarded Inet $2 million in attorney fees.
II
Discussion
The parties sought attorney fees pursuant to Civil Code section 1717 (section 1717), which provides: “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.” As noted, the trial court found Inet was the prevailing party on the APA and awarded it $2 million in attorney fees. It found Cavotec Inet was the prevailing party on the Employment Contract, and awarded it $4.6 million in attorney fees. Both sides contend the trial court erred in determining “the party prevailing on the contract, ” and Inet and Colaco challenge the amount of attorney fees. We generally review the trial court's determination as to the prevailing party on the contract and the reasonableness of attorneys' fees for an abuse of discretion. (See PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095; Nasser v. Superior Court (1984) 156 Cal.App.3d 52, 59.) However, to the extent our review requires interpreting section 1717 and contractual provisions, our review is de novo. (Khan v. Shim (2016) 7 Cal.App.5th 49, 55.)
A. Cavotec Inet's Fee Award
Inet and Colaco contend the trial court erred in determining Cavotec Inet was the prevailing party on the Employment Contract. They argue the court should have performed a collective contract analysis because the APA and Employment Contract are “a single, interdependent... transaction among common parties, ” and that under the collective contract analysis, Inet was the sole prevailing party on the contract. We disagree.
“When an action involves multiple, independent contracts, each of which provides for attorney fees, the prevailing party for purposes of Civil Code section 1717 must be determined as to each contract regardless of who prevails in the overall action.” (Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 491, citing Hunt v. Fahnestock (1990) 220 Cal.App.3d 628, 630.) Here, this Court previously determined the APA and the Employment Agreement are “separate agreements.” (Colaco v. Cavotec SA, supra, G052619.) “[T]he APA governed the terms of Cavotec's purchase of Inet's assets and the Employment Contract governed the terms of Colaco's employment with Cavotec, ” and “Inet's obligations under the APA are separate from Colaco's obligations under the Employment Contract. The breach of these separate obligations by two distinct parties gave rise to separate causes of action.” (Ibid.) Thus, the APA and Employment Contract are independent contracts for the purposes of section 1717.
Citing IMO Development Corp. v. Dow Corning Corp. (1982) 135 Cal.App.3d 451, Inet and Colaco argue the APA and Employment Contract should be treated as a single contract for the purposes of determining the fee award. IMO, however, is distinguishable because it never referenced section 1717, and predated section 1717's 1987 amendments substituting “party prevailing on the contract” for “prevailing party” throughout the section. (Stats. 1987, ch. 1080, § 1, pp. 3648-3649.) More important, this Court previously determined the APA and Employment Contract should not be treated as a single contract when we determined that the APA and Employment Contract were “separate agreements” and that various contractual provisions in the APA did not apply to claims arising from the Employment Contract. (Colaco v. Cavotec SA, supra, G052619.)
Inet and Colaco also challenge the amount of attorney fees awarded to Cavotec. They contend the trial court erred in not applying a $4 million liability cap, found in section 7.5 of the APA, to Cavotec Inet's fee award. We disagree. Section 7.5 of the APA provides in relevant part: “The maximum aggregate amount of indemnifiable Losses which may be recovered from (i)... Colaco arising out of or relating to the causes set forth in... Section 7.2(b)(i) and Section 7.2(b)(ii) shall be Four Million Dollars ($4,000,000) (the ‘Cap').” Section 7.2(b) provides: “Colaco shall save, defend, indemnify and hold harmless the Buyer and its Affiliates and the respective Representatives, successors and assigns of each of the foregoing from and against any and all Losses, incurred, sustained or suffered by any of the foregoing as a result of or arising out of: [¶] (i) any breach of any representation or warranty made by Colaco contained in this Agreement; [¶] (ii) any breach of any covenant or agreement by Colaco contained in this Agreement.” (Italics added.) Thus, the liability cap only applies to losses arising from claims brought under the APA; it does not apply to attorney fees arising from claims brought under the Employment Contract.
Finally, appellants contend the trial court erred in awarding approximately the same amount of fees to Cavotec Inet for prevailing on the Employment Contract that it previously awarded when Cavotec Inet prevailed on both the APA and the Employment Contract. In the prior fee award, the trial court applied a 0.25 negative multiplier based on Cavotec's “lack of success on the tort claims and the difference between the award and the amount demanded.” Appellants argue “the only way [the new fee award] could be correct is if Cavotec incurred no attorneys' fees in litigating the claims under the APA.” Not so. In the prior fee motion, Cavotec Inet may have requested a lesser amount of fees than it was entitled to receive, or the trial court (a different judge) erred in calculating the previous fee amount. Inet and Colaco argue the trial judge applied the same 0.25 negative multiplier based on the same reasoning of the prior judge. Our review of the minute order shows the trial court recited the prior reasoning, but did not expressly adopt it. Additionally, in the instant fee motion, Cavotec Inet argued a 0.25 negative multiplier effectively allocated the fees among the claims arising from the APA and the Employment Contract. The trial court did not abuse its discretion in applying the 0.25 negative multiplier to determine the amount of fees incurred in litigating the claims arising from the Employment Contract.
The prior fee award was reversed when this Court reversed the prior judgment. (See Colaco v. Cavotec SA (July 11, 2018, G053122) [nonpub. opn.].)
B. Inet's Fee Award
Cavotec contends the trial court erred in determining Inet was the prevailing party on the APA, arguing the trial court considered incorrect information in making its determination. As noted, in determining Inet was the prevailing party on the APA, the trial court found “Plaintiff Inet sought $2 million on the complaint, and after appeal, was awarded $2 million. Defendant Cavotec Inet sought $12 million for the various breaches of the Plaintiffs' obligations under the asset purchase agreement to get the Inet customers to consent to the assignment of their contracts to Cavotec Inet, and received damages of $1.3 million. Thus, ... Plaintiff Inet was 100 [percent] successful on its claims under the APA and Defendant Cavotec Inet was only 9.23 [percent] successful on its claims under the APA.” Cavotec argues the trial court should have found “Inet recovered $2 million out of $3,777,000 (i.e., 52.3 percent), while Cavotec Inet recovered $1,313,000 out of $3.8 million (i.e., 34.6 percent).” Inet disputes these figures. We need not resolve the factual dispute because even if Cavotec's figures are correct, Cavotec failed to show the trial court's reliance on erroneous information was prejudicial. Cavotec has not shown there is a reasonable chance the trial court would reach a different result. It raised the same argument below as it does on appeal, but the trial court rejected the argument. The trial court determined Inet was the prevailing party based on its greater success in terms of dollar amount and percentage. Using Cavotec's figures, the trial court would still find Inet was the prevailing party because Inet achieved greater success based on dollar amount and percentage ($2 million versus about $1.3 million; 52.3 percent versus 34.6 percent). Accordingly, Cavotec has not shown the trial court prejudicially erred in determining Inet was the prevailing party on the APA.
Inet and Colaco contend the trial court erred in applying the $4 million liability cap to Inet's fee award because Cavotec's failure to make the second Performance Earn-out Payment was an intentional breach of a covenant. We find no error.
Section 7.5 of the APA provides the “maximum aggregate amount of indemnifiable Losses which may be recovered from... (ii) the Buyer and/or MSL arising out of or relating to the causes set forth in Section 7.3(a) and Section 7.3(b) shall be the Cap [$4 million]; provided that the... Cap shall not apply to Losses arising out of or relating to Excluded Liabilities, the Assumed Liabilities or to the breach of any representation or warranty based on fraud, intentional misrepresentation or intentional breach of a covenant.” Section 7.3 provides: “The Buyer and MSL shall, severally (and not jointly), save, defend, indemnify and hold harmless the Seller and its Affiliates and the respective Representatives, successors and assigns of each of the foregoing from and against any and all Losses incurred, sustained or suffered by any of the foregoing as a result of or arising out of: [¶] (a) any breach of any representation or warranty made by the Buyer or MSL contained in this Agreement or any schedule, certificate or other document delivered pursuant hereto or in connection with the transactions contemplated hereby or thereby; [¶] (b) any breach of any covenant or agreement by the Buyer or MSL contained in this Agreement or any schedule, ce1iificate or other document delivered pursuant hereto or in connection with the transactions contemplated hereby or thereby; [¶] and (c) after the Closing, any Assumed Liability.” When the contractual provisions are interpreted together, Cavotec is liable for losses arising out of: (1) “any breach of any representation or warranty” made by Cavotec; (2) “any breach of any covenant or agreement” by Cavotec; or (3) “Assumed Liability.” The liability cap applies to claims under (1) or (2), but not (3). In addition, the liability cap does not apply to claims under (1) - for “breach of any representation or warranty” - if the breach of representation or warranty is “based on fraud, intentional misrepresentation or intentional breach of a covenant.” The phrase “intentional breach of a covenant” modifies “breach of any representation or warranty.” Thus, absent a finding of a breach of a representation or warranty, the liability cap would apply even if there was an intentional breach of a covenant.
Here, the judgment in accordance with our prior opinion established Cavotec breached an independent covenant or obligation under the APA when it failed to make the final Performance Earn-out Payment. (Colaco v. Cavotec SA, supra, G052619.) However, there is no finding Cavotec breached a representation or warranty. Thus, the exception to the liability cap for breaches of representation or warrant based on an intentional breach of a covenant does not apply.
In light of our conclusion the exception did not apply based on our independent review of the contractual language, we need not address whether Cavotec's breach of the APA was intentional.
III
Disposition
The order is affirmed. The parties are to bear their own costs.
WE CONCUR: FYBEL, J., GOETHALS, J.