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Dalgarn v. Robbins, Dalgarn, Berliner & Carson

Court of Appeals of California, Second District, Division One.
Nov 6, 2003
No. B151339 (Cal. Ct. App. Nov. 6, 2003)

Opinion

B151339.

11-6-2003

LEWIS M. DALGARN, Plaintiff and Respondent, v. ROBBINS, DALGARN, BERLINER & CARSON et al., Defendants and Appellants.

Jones & Lester, James G. Jones, Christian S. Molnar and Martin B. Snyder for Defendants and Appellants Robbins, Dalgarn, Berliner & Carson, Robert Berliner, M. John Carson and Billy A. Robbins. Michael S. Elkind, in pro. per., for Defendant and Appellant Michael S. Elkind. Leonard D. Messinger, in pro. per., for Defendant and Appellant Leonard D. Messinger. Lewis M. Dalgarn, in pro. per., for Plaintiff and Respondent.


Lewis Dalgarn, an attorney, filed this action against his former law firm and its partners, seeking a greater share of the firms profits and assets in an amount exceeding $1 million. The case was tried to the court over a period of two months and ended with a judgment in Dalgarns favor, consisting of $5,119 in principal and $3,435.61 in prejudgment interest. In subsequent proceedings, the trial court determined that Dalgarn was the prevailing party and awarded him costs and attorneys fees.

On appeal, defendants contend that Dalgarn was not entitled to anything. We conclude that the award of $5,119 is supported by substantial evidence, and Dalgarn is entitled to prejudgment interest and costs, but the trial court erred in awarding him attorneys fees because there is no prevailing party under Civil Code section 1717. We therefore affirm in part and reverse in part.

Civil Code section 1717 states in part: "In any action on a contract, where the contract specifically provides that attorneys 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 . . . shall be entitled to reasonable attorneys fees in addition to other costs."

BACKGROUND

In 1974, Dalgarns law firm merged with another firm. Dalgarn was a named partner in the new firm. In 1981, the firm changed its name to Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst (NRDBCW) and adopted a written partnership agreement. In November 1988, a new partnership agreement was adopted (hereafter 1988 Partnership Agreement).

In November 1991, three of NRDBCWs partners gave notice that they were leaving the firm on December 31, 1991. As of December 1991, one of the matters of unfinished business was a patent case, Fluke v. Talon, in which the firm was representing Talon on a contingent fee basis. Dalgarn was lead counsel on the case.

In anticipation of the departure of the three partners, the remaining partners decided to continue practicing together under the name Robbins, Dalgarn, Berliner & Carson (RDBC). On December 18, 1991, Dalgarn reached an agreement with the remaining partners with regard to his status after December 31, 1991. The agreement was set forth in a letter dated December 23, 1991 (hereafter Letter Agreement). Under the Letter Agreement, Dalgarn would be a partner in the "continuing firm," he would remain lead counsel on Fluke v. Talon, and he would be provided with various types of support on the case, for example, a secretary, a paralegal, and an associate.

With respect to compensation, the Letter Agreement provided that Dalgarn would be "compensated utilizing the distribution agreement as set forth in the [1988] Partnership Agreement . . . on [an] annualized basis, provided, however, that you will receive a minimum guarantee of $8,000.00 per month, paid monthly, for the calendar year 1992, or until the trial of the Fluke v. Talon litigation matter is completed, whichever occurs later." Finally, in connection with the departure of the three partners, the Letter Agreement required Dalgarn to execute another agreement, one between the partners who were leaving and the partners who were staying.

Effective December 31, 1991, the three "Quitting Partners" and the six "Continuing Partners" (including Dalgarn), executed an agreement, the stated purpose of which was as follows: "The Quitting Partners and the Continuing Partners have been engaged in the practice of law in the form of a partnership under the name and style of [NRDBCW] pursuant to a Partnership Agreement effective January 1, 1988 (herein the Partnership). . . . [& para;] . . . The Quitting Partners have elected to quit the Partnership effective December 31, 1991, and the Continuing Partners have elected to continue as the continuing firm. The parties desire by this Agreement to confirm the circumstances of such action and the continuation of the Partnership by the Continuing Partners."

The December 31, 1991 agreement (hereafter Continuation Agreement) contained provisions concerning the transfer of interests from the Quitting Partners to the Continuing Partners, the mutual release by all partners of any claims against one another, and the assumption of future liability by the Continuing Partners. The agreement also provided that all of the partners (Quitting and Continuing) had an ongoing duty to "cooperate with each other to assure that the [Fluke v. Talon] case is conducted in a professional manner in keeping with the obligation of the parties to the client and to each other and to this end shall regularly consult." The agreement ended with an attorneys fee provision, stating that if a party sought to enforce the agreement through arbitration or court proceedings, the prevailing party was entitled to an award of fees.

Dalgarn practiced with RDBC as a named partner from January 1, 1992 — the first day the firm did business — to March 31, 1993 — the day on which the firm dissolved. On April 1, 1993, a new partnership, Robbins, Berliner & Carson (RBC) commenced operation. Dalgarn, no longer a named partner, worked in an "of counsel" capacity at the new firm. Although Dalgarn left RBC in September 1994 to become a sole practitioner, he continued to use his office at RBC until the fall of 1995. In October 1997, RBC merged with another firm.

On December 29, 1995, Dalgarn filed this action against NRDBCW and its partners, seeking an accounting and declaratory relief. After two rounds of demurrers, Dalgarn filed a second amended complaint alleging that he had not been paid his share of the profits and assets of the firm. Dalgarn asserted causes of action for breach of fiduciary duty, an accounting, breach of the Continuation Agreement, and declaratory relief. Named as defendants were the Quitting Partners and the Continuing Partners. (For simplicity, we sometimes use the names of the two partner groups, not the law firms.)

Each of the partner groups — the Quitting Partners and the Continuing Partners — responded with a demurrer. Dalgarn filed opposition papers. On August 13, 1997, the trial court heard oral argument on the demurrers and took the matter under submission. By minute order dated August 18, 1997, the trial court sustained the demurrers without leave to amend as to certain causes of action.

The demurrer disposed of all causes of action against the Quitting Partners, and the trial court entered a judgment of dismissal in their favor. The demurrer of the Continuing Partners was only partially successful. They filed an answer to the second amended complaint and a cross-complaint against Dalgarn, seeking general and punitive damages for his alleged breach of fiduciary duty. Under the cross-complaint, the Continuing Partners faulted Dalgarns handling of the Fluke v. Talon litigation.

Dalgarn appealed the dismissal of the Quitting Partners. The appeal was briefed and argued before this court. On February 5, 1999, we filed a nonpublished opinion affirming the trial court (B117725). In the opinion, we stated that the Quitting Partners request for an award of appellate attorneys fees should be presented to the trial court on remand. (Typed opn., p. 12.)

On remand, the Quitting Partners sought attorneys fees incurred on the appeal. The motion was based on a provision in the Continuation Agreement, which provided: "Notwithstanding any other provision of law, should either party have to seek the assistance of . . . the Court to enforce this Agreement, the prevailing party shall be entitled to an award of its reasonable attorneys fees and costs by the Court . . . ." Dalgarn filed opposition papers.

By minute order dated July 1, 1999, the trial court granted the motion, awarding the Quitting Partners $20,000 in appellate attorneys fees, $4,500 in attorneys fees for preparing the motion, and costs incurred on the appeal in the amount of $ 1,043.40, for a total of $25,543.40. On August 20, 1999, the trial court filed a formal order to the same effect. Dalgarn appealed. We affirmed the trial court in a nonpublished opinion filed on March 27, 2001 (B134726). The litigation against the Quitting Partners came to an end.

Trial court proceedings went forward as to the Continuing Partners (hereafter defendants), who served Dalgarn with an "Offer to Compromise" pursuant to section 998 of the Code of Civil Procedure (hereafter section 998). The offer consisted of $100,000 in cash to be paid in installments, the forgiveness of a portion of the appellate attorneys fees already awarded against Dalgarn, and the interest on the award of fees. Dalgarn did not accept the offer.

Section 998 provides in part: "If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendants costs from the time of the offer." (Code Civ. Proc., § 998, subd. (c)(1).)

The case was tried to the court in two phases. Phase I was tried between June 29, 2000, and July 31, 2000. In that phase, the trial court addressed "[w]hat, if any, agreements written or otherwise control the rights of plaintiff?" and "[w]hat controls plaintiffs entitlement to firm assets, work-in-progress and goodwill?" At the conclusion of phase I, the trial court issued a statement of decision in which it found that Dalgarn was not entitled to any payment for goodwill or work-in-progress.

The trial court further found:

"[T]he agreement that controls the rights of plaintiff upon dissolution of the firm effective March 31, 1993, was the 1988 Partnership Agreement . . . as supplemented and amended by the Letter Agreement . . . and the Continuation Agreement . . . . [¶] . . .

"Upon dissolution of [RDBC], plaintiff was entitled to (1) an equal [one-sixth] share of the value of the physical assets of the partnership used commonly, less an equal share of the partnership liabilities . . . and (2) his formula share under the 1988 Partnership Agreement as amended and modified . . . of the then undistributed net income of [RDBC] for work done by the firm up to March 31, 1993, whether or not billed or collected before dissolution, less an equal share of its liabilities to the extent such share exceeded plaintiffs share of the physical assets of the partnership used commonly . . . ."

In phase II, which was tried between January 8, 2001, and January 31, 2001, the trial court determined the amount of compensation, if any, to which Dalgarn was entitled. At the end of that phase, the trial court found that, on the accounting claim, Dalgarn was owed $5,119, plus $3,435.61 in prejudgment interest, for a total of $8,554.61. The trial court rejected Dalgarns cause of action for breach of fiduciary duty and his claims for compensatory damages (loss of income) and punitive damages, finding that the unpaid sum ($5,119) was the result of an inadvertent error. The court also found that RDBC was not dissolved in bad faith or for the purpose of profiting at Dalgarns expense.

As to the value of RDBCs physical assets, the trial court found that Dalgarn had been paid a fair and reasonable amount as his one-sixth share, namely, $33,040. The trial court took note that "[u]nder this Courts Statement of Decision for Phase I of this trial, Plaintiffs share of the physical assets was to be reduced by his equal share of the partnerships liabilities (accounts payable) as of the date of dissolution." But the trial court declined to make such a reduction, expressly finding that defendants evidence of partnership liabilities was insufficient.

In addition, the trial court found that defendants cross-complaint was without merit because (1) it was barred by the statute of limitations, and (2) defendants failed to prove that Dalgarn had breached a fiduciary duty. As the trial court explained: "This Cross-Complaint is barred by the statute of limitations. Defendants filed their Cross-Complaint on September 12, 1997, more than four years after the dissolution of the law firm . . . . Even if not time-barred, Cross-Complainants claims fail for lack of proof. Whether or not [Dalgarn] breached his fiduciary duty to Defendants when he [did not seek attorneys fees from the opposing party] in the Fluke v. Talon case is an issue which was not addressed by any independent expert testimony, and a breach was not proven."

On March 1, 2000, the trial court entered judgment in conformity with its decisions in phase I and phase II. The parties then filed cross-motions for costs and attorneys fees. Defendants moved to vacate the judgment. By orders dated June 22, 2001, the trial court denied defendants motions and found that Dalgarn was the prevailing party, awarding him $21,091.86 in costs and $250,000.00 in attorneys fees. Defendants filed a timely appeal from the judgment and the orders.

I

DISCUSSION

"A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness." (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) We review the trial courts resolution of factual issues under the substantial evidence test. (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) Under that test, "`[t]he power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, to support the trial courts findings." (Estate of Leslie (1984) 37 Cal.3d 186, 201.)

In determining whether a party is the "prevailing" party for purposes of awarding costs and attorneys fees, we review the trial courts decision for an abuse of discretion. (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109; Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1143.) Similarly, we accord substantial deference to the trial courts discretion in fixing the amount of costs and attorneys fees. (PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1094-1095; Melnyk v. Robledo (1976) 64 Cal.App.3d 618, 623-624.) The trial courts conclusions of law are reviewed de novo. (Masonite Corp. v. Superior Court (1994) 25 Cal.App.4th 1045, 1050-1051.)

A. Dalgarns Recovery on the Accounting Claim

In phase I and phase II, the trial court found that, upon dissolution of RDBC on March 31, 1993, Dalgarn was entitled to his formula share under the 1988 Partnership Agreement, as supplemented and amended, and a one-sixth share of the value of the partnerships physical assets, less a one-sixth share of the partnerships liabilities, or accounts payable.

The trial courts award was based on the testimony of defendants accounting expert, Steven Franklin, who stated that Dalgarn was entitled to additional compensation under his formula share. With respect to physical assets, in September 1993, the partnership had paid Dalgarn $33,040 for his one-sixth share. But Franklin testified at trial that Dalgarn was entitled to only $21,361 in light of the partnerships liabilities, resulting in an overpayment of $11,679. According to Franklin, that overpayment, together with Dalgarns share of the partnerships lease liability, meant that Dalgarn owed the partnership $ 154,185.

Franklins testimony notwithstanding, the trial court did not make any reduction for partnership liabilities, stating: "The documents evidencing the dollar amounts of the accounts payable had been in the possession of Defendants, but were unavailable and not produced at trial. The Court finds that the evidence of accounts payable, which was presented at trial, was speculative and unreliable. The Court therefore finds that there was no satisfactory proof of any specific amount and will, therefore, not make a deduction." After concluding that Dalgarn was not liable for overhead or the partnerships lease, the trial court awarded him $5,119 on the accounting claim.

1. Insufficient Evidence

Defendants argue that the trial court should have considered all evidence of the partnerships liabilities, found that Dalgarns share of liabilities exceeded the value of the physical assets, and rendered a decision in their favor. We conclude that the record supports the trial courts decision.

"[I]t is not . . . within our province to reweigh the evidence . . . . `The credibility of the witnesses and the weight to be given their testimony are committed exclusively to the trier of fact." (In re Gary G. (1981) 115 Cal.App.3d 629, 635-636.) More specifically, we do not "reweigh either the qualifications or the credibility of . . . expert witnesses." (In re Katrina W. (1994) 31 Cal.App.4th 441, 447.)

Franklin relied on the firms 1992 tax return and the December 31, 1992 profit distribution report in calculating RDBCs liabilities as of the date of dissolution (March 31, 1993). On cross-examination, Franklin testified:

"Q. As part of the analysis that you and your staff performed that led to the [calculation of partnership liabilities], were any invoices reviewed?

"A. No.

"Q. Were any canceled checks reviewed?

"A. No.

"Q. Were any vendor files reviewed?

"A. No.

"Q. Were any records of payment reviewed?

"A. No.

"Q. Were any accounts payable ledgers or reports reviewed?

"A. No."

Franklin stated that he considered several line items from the 1992 tax return in determining the partnerships liabilities, for example, office supplies, maintenance and repair, library, pension, travel, advertising, and postage. In general, he took the annual figures from the tax return, divided them by 12, and assumed that the resulting number was the amount due and unpaid as of March 31, 1993. Franklins testimony continued:

"Q. . . . With respect to any of those items and all of them collectively, have you seen any documentation that shows whether any amount was actually due for those line items as of March 31, 1993?

"A. No.

"Q. For any and all of those items, have you seen any documentation that shows whether any amount was actually paid for those line items by RDBC after March 31, 1993?"

"A. No. Just wasnt possible.

"Q. It wasnt possible because the only thing you had to look at was the tax return, right?

"A. Well, we inquired as to where we could get copies of all of the original documents. [¶] [T]he computer copies were destroyed in 1997. [¶] The rest of the materials . . . were boxed up and sent to the three partners [who went to another firm]. [& para;] We have asked them to provide these documents. They said they could not locate them is my understanding. So Im assuming — its been eight years after the fact. Its very unusual that businesses would keep records this long, and I dont know that — my belief is and my understanding is that they no longer exist."

In light of the foregoing circumstances, the trial court, sitting as the trier of fact, could properly conclude that the evidence of partnership liabilities was insufficient. Franklins request that defendants provide him with supporting data — documents other than the tax return and the profit distribution report — strongly suggests that the requested data was necessary to obtain reliable figures. And Franklin admitted that he had no proof that his numbers represented the actual amount due as of March 31, 1993. It was just as likely that the firm had made payment on the items before the end of the month as after.

Defendants contend that the trial court imposed an unrealistic evidentiary burden on them by requiring source, or supporting, documents. It is not surprising, they say in the opening brief, that "cancelled checks or invoices for a Firm that dissolved and liquidated in early 1993 were not available in 2001 (almost 8 years and 2 law firms later)."

Our review of the record yields a different time line. Dalgarns original complaint, filed on December 29, 1995, sought an accounting as to NRDBCW and its partners for the period ending December 31, 1991. The first amended complaint, filed on February 24, 1997, added an accounting claim against RDBC and its partners covering January 1, 1992, to March 31, 1993 (the date of RDBCs dissolution). The first amended complaint also added an accounting claim against RBCs partners (the successors to RDBC) for matters assumed by RBC on April 1, 1993 (the first day of its operation).

In phase I, the trial court ruled that the statute of limitations and laches barred Dalgarns recovery of monies allegedly due before February 24, 1993, leaving only the new causes of action in the first amended complaint to be tried, and only then as to monies owed on and after February 24, 1993. Given that the first amended complaint was filed on February 24, 1997, the period of document retention — beginning on February 24, 1993 — was four years at the most, not eight.

Further, defendants offer no authority for the proposition that a four-year period (or any other period) of document retention is inequitable, making our consideration of the point unnecessary. (See Interinsurance Exchange v. Collins (1994) 30 Cal.App.4th 1445, 1448; Dills v. Redwoods Associates, Ltd. (1994) 28 Cal.App.4th 888, 890, fn. 1.) Accordingly, the trial court properly exercised its role as the trier of fact in concluding that defendants did not make a sufficient showing as to partnership liabilities.

2. Expert Testimony

Defendants contend that the trial court was bound to accept Franklins testimony about partnership liabilities because he was an expert witness whose testimony was uncontradicted. We disagree.

"Ordinarily, where a professional person is accused of negligence in failing to adhere to accepted standards within his profession the accepted standards must be established only by qualified expert testimony . . . unless the standard is a matter of common knowledge . . . . [W]hen the matter in issue is within the knowledge of experts only and not within common knowledge, expert evidence is conclusive and cannot be disregarded." (Huber, Hunt & Nichols, Inc. v. Moore (1977) 67 Cal.App.3d 278, 313, citations omitted.)

But "the stated principle — uncontroverted expert opinion testimony may be `conclusive on the jury — is actually the `single exception to the general rule that `expert testimony, like any other, may be rejected by the trier of fact, so long as the rejection is not arbitrary. . . . Thus, [a]s a general rule, "[p]rovided the trier of fact does not act arbitrarily, [it] may reject in toto the testimony of a witness, even though the witness is uncontradicted. . . ." . . . This rule is applied equally to expert witnesses . . . [¶] . . . even where the [plaintiff] does not call any opposing expert and the expert testimony is not contradicted." (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 632-633, citations omitted.)

The present case does not involve the negligence of a professional or a matter exclusively within the knowledge of experts. The trial court was competent to decide whether defendants documentation of partnership liabilities was sufficient.

B. Award of Prejudgment Interest

In addition to awarding the principal sum of $5,119, the trial court awarded prejudgment interest in the amount of $3,435.61, calculated at 10 percent per annum. Section 3287 of the Civil Code provides that "[e]very person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt." (Civ. Code, § 3287, subd. (a).)

Defendants argue that Dalgarns damages were not certain or capable of being made certain other than by the trial courts statement of decision. They do not contest that any interest due would accrue at 10 percent per annum. (See Childrens Hospital & Medical Center v. Bonta´ (2002) 97 Cal.App.4th 740, 772-775.)

"`"The test for recovery of prejudgment interest under [Civil Code] section 3287, subdivision (a) is whether defendant actually know[s] the amount owed or from reasonably available information could . . . have computed that amount. . . ." . . . "The statute . . . does not authorize prejudgment interest where the amount of damage, as opposed to the determination of liability, `depends upon a judicial determination based upon conflicting evidence and it is not ascertainable from truthful data supplied by the claimant to his debtor. . . ." . . . Thus, where the amount of damages cannot be resolved except by verdict or judgment, prejudgment interest is not appropriate. . . ." (Childrens Hospital & Medical Center v. Bontá, supra, 97 Cal.App.4th at p. 774, citations and italics omitted.)

"[C]ourts have reasoned that `where an accounting is required in order to arrive at a sum justly due, interest is not allowed. . . . [& para;] Disallowing prejudgment interest in an accounting action is consistent with the principle . . . that no prejudgment interest is `allowable when damages cannot be computed except on conflicting evidence . . . ." (Chesapeake Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, 908, italics added.) "Although an accounting action is prima facie evidence a claim is uncertain, [courts have] not foreclose[d] the possibility of prejudgment interest in an accounting action where equity demands such an award." (Id. at p. 909.) "A partner may collect interest where partnership funds have been wrongfully withheld . . . ." (Luchs v. Ormsby (1959) 171 Cal.App.2d 377, 388.)

Whether equity requires an award of prejudgment interest "present[s] a question calling for judicial discretion in determining what equity require[s]. This, therefore, we think presented an issue peculiarly for the trial court to determine insofar as the allowance of interest upon the amount ultimately found due be concerned . . . ." (Stockton Theatres, Inc. v. Palermo (1953) 121 Cal.App.2d 616, 632.)

The trial court calculated damages based upon the testimony of defendants expert. More likely than not, if the trier of fact accepts the damages figures proffered by defendants, then defendants "`"actually [knew] the amount owed or . . . could . . . have computed that amount. . . ."" (Childrens Hospital & Medical Center v. Bonta´, supra, 97 Cal.App.4th at p. 774.) Nor does it matter that, at trial, defendants may have presented more than one way of calculating damages, with differing results. (See id. at pp. 772-774.)

Here, in arriving at the damages award ($5,119), the trial court accepted Franklins straightforward application of the 1988 Partnership Agreement, the Letter Agreement (dated December 23, 1991), canceled checks, and profit distribution reports for March 31, 1993, and the years ending December 31, 1993, to December 31, 1996. The trial court implicitly found that the award of prejudgment interest was equitably necessary. We are in no position to say otherwise.

Finally, "`. . . where there is a large discrepancy between the amount of damages demanded in the complaint and the size of the eventual award, that fact militates against a finding of the certainty mandated by [Civil Code section 3287]." (Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948, 961.) But Dalgarn did not specify any amount in alleging his accounting claim. And although his attorney requested $313,919 on the accounting claim in closing argument (and $742,470 on other claims), the amount due was nevertheless "capable of being made certain by calculation." (Civ. Code, § 3287, subd. (a).)

C. Award of Costs and Attorneys fees

The trial court awarded Dalgarn $21,091.86 in costs and $250,000 in attorneys fees. Defendants challenge both rulings.

1. Costs under the Code of Civil Procedure

The trial court awarded Dalgarn costs pursuant to sections 1032, 1033.5, and 1034 of the Code of Civil Procedure. Defendants contend that the trial court abused its discretion in awarding costs. Not so.

"Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." (Code Civ. Proc., § 1032, subd. (b).) "`Prevailing party includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant." (Id., subd. (a)(4).) Here, Dalgarn was the prevailing party. He obtained a money judgment against all defendants and prevailed on every cause of action in defendants cross-complaint.

For their part, defendants point out that Dalgarns recovery — $8,554.61 — could have been obtained in a limited civil case, where the maximum recovery is $25,000. (See Code Civ. Proc., § 86.) As provided by statute, "[c]osts or any portion of claimed costs shall be as determined by the court in its discretion in a case other than a limited civil case . . . where the prevailing party recovers a judgment that could have been rendered in a limited civil case." (Id., § 1033, subd. (a), italics added.) Consequently, Dalgarn is not entitled to costs as a matter of right. Rather, the trial court has discretion in the matter.

In exercising its discretion, the trial court should consider "`plaintiffs assessment of his chances of recovery beyond the jurisdiction of [a limited civil case] when he filed his action — whether reasonable and in good faith — the amount of the recovery —looked at in relationship to the maximum amount of [a limited civil case] — and the amount of costs incurred . . . ." (Dorman v. DWLC Corp. (1995) 35 Cal.App.4th 1808, 1816, italics omitted.)

We conclude that the trial court acted within its discretion in awarding costs. First, as the trial court found, this action could not have been brought as a limited civil case because (1) Dalgarns claims involved the dissolution of a partnership where the total assets of the partnership exceeded $25,000, and (2) defendants cross-complaint sought relief other than indemnity. (See Code Civ. Proc., § 86, subd. (a)(2), (7).)

The trial court also determined that "plaintiff had a reasonable good faith belief that his case was worth more than $25,000, especially in view of [defendants CCP] 998 offer[, which exceeded $ 100,000]." And we note that although Dalgarns recovery of $ 8,554.61 on the accounting claim was significantly less than the $25,000 maximum for limited civil cases, his costs (excluding attorneys fees) totaled $21,792 and were substantially less than the combined costs of defendants, around $113,500.

2. Defendants Offer to Compromise

On September 23, 1999, defendants served a section 998 offer to compromise in the amount of — according to defendants — $113,300.19, consisting of cash, a waiver of appellate attorneys fees previously awarded by the trial court, and interest on those fees. If Dalgarn did not obtain a "judgment" more favorable than defendants offer, he could not recover his postoffer costs and attorneys fees and would be liable for defendants postoffer costs and fees. (See Code Civ. Proc., § 998, subds. (c)(1), (e).)

The purpose of section 998 is to "encourage settlement by providing a strong financial disincentive to a party — whether it be a plaintiff or a defendant — who fails to achieve a better result than that party could have achieved by accepting his or her opponents settlement offer." (Bank of San Pedro v. Superior Court (1992) 3 Cal.4th 797, 804.) "The basic premise of section 998 is that plaintiffs who reject reasonable settlement offers and then obtain less than the offer should be penalized for continuing the litigation. The harsh result of section 998 is that the plaintiff not only loses the right to recover his or her [postoffer] costs, but must also pay the defendants postoffer costs." (Meister v. Regents of University of California (1998) 67 Cal.App.4th 437, 450.) Simply put, section 998 "penalizes a plaintiff who fails to accept what, in retrospect, is seen to have been a reasonable offer." (Harvard Investment Co. v. Gap Stores, Inc. (1984) 156 Cal.App.3d 704, 713.)

In determining whether Dalgarn obtained a judgment more favorable than defendants offer, we consider the amount of the judgment and Dalgarns preoffer costs and attorneys fees. Postoffer costs and attorneys fees are excluded. (See Heritage Engineering Construction, Inc. v. City of Industry (1998) 65 Cal.App.4th 1435, 1441-1442.)

The trial court awarded Dalgarn $5,119, plus prejudgment interest ($ 3,435.61) on his accounting claim. By defendants calculation, Dalgarns preoffer interest was $2,700.72, and his preoffer costs were $8,922.48. Dalgarn claimed $144,375.94 in preoffer attorneys fees. Based on these amounts, the judgment was $ 161,118.14, considerably more than defendants offer of $113,300.19.

But defendants contend that Dalgarns preoffer attorneys fees ($144,375.94) included work that should have been excluded for purposes of section 998, namely, tasks related to amending complaints, opposing successful demurrers, pursuing an unsuccessful appeal, and opposing a summary judgment motion brought by parties other than defendants. That work totaled $32,191.20 in attorneys fees. Assuming for the sake of argument that defendants are correct, the judgment would be in the amount of $128,926.94 ($161,118.14 minus $32,191.20 equals $128,926.94) and would still exceed defendants offer ($113,300.19).

In a novel attempt to reduce the judgment even more, defendants note that Dalgarn sought a total of $332,167.44 in attorneys fees (preoffer and postoffer), and the trial court awarded $ 250,000 — 24.8 percent less than what Dalgarn requested. Defendants then apply that percentage to Dalgarns preoffer attorneys fees, yielding $84,433.61 in allowable preoffer fees. That amount, plus the $5,119 recovery, preoffer interest ($ 2,700.72) and preoffer costs ($8,922.48), comes to $101,175.81, which is $12,124.38 less than defendants section 998 offer.

There are several problems with defendants approach. First, defendants simply assert, without citation of authority and legal analysis, that preoffer attorneys fees should be reduced in accordance with the ratio of fees awarded to fees sought. That lack of authoritative analysis is reason alone to reject defendants assertion. (See Interinsurance Exchange v. Collins, supra, 30 Cal.App.4th at p. 1448;Dills v. Redwoods Associates, Ltd., supra, 28 Cal.App.4th at p. 890, fn. 1.)

Second, the approach is unrealistic. It would require the party receiving a section 998 offer to be prescient. Under defendants approach, Dalgarn should have foreseen in October 1999 — when he declined the section 998 offer — that his request for attorneys fees in June 2001 would be reduced by 24.8 percent. Defendants do not attempt to explain how Dalgarn could have predicted such a result.

Third, the trial court did not indicate how much of the $250,000 award was attributable to preoffer work. For all we know, the trial court awarded Dalgarn 100 percent of his preoffer fees and reduced only the postoffer fees. The trial courts order is presumed to be correct. (See In re Marriage of Arceneaux, supra, 51 Cal.3d at p. 1133.) Defendants, as appellants, have the burden of showing error. (See Frank and Freedus v. Allstate Ins. Co. (1996) 45 Cal.App.4th 461, 474.) They have not done so.

Finally, the record indicates that the trial judge was thoroughly familiar with the application of section 998. He explained: "Defendants argue that the Code of Civil Procedure Section 998 offer was not exceeded by the judgment. However, when preoffer costs and attorneys fees are considered, the total judgment will exceed the 998 offer. Code of Civil Procedure Section 998 has been amended to not allow postoffer costs, so the preoffer costs and attorneys fees should be included. Including preoffer costs, plaintiffs judgment did exceed the 998 offer."

It follows that section 998 did not preclude Dalgarn from recovering postoffer costs and attorneys fees, nor did it entitle defendants to such a recovery.

3. Prevailing Party on the Contract

A motion for attorneys fees under a contractual fee provision is governed by Civil Code section 1717, subdivision (a), which provides: "In any action on a contract, where the contract specifically provides that attorneys 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 attorneys fees in addition to other costs." (Italics added; hereafter section 1717.)

a. Action on a Contract

If a cause of action is "on a contract," and the contract provides that the prevailing party shall recover attorneys fees incurred to enforce the contract, then attorneys fees must be awarded on the contract claim in accordance with section 1717. (Santisas v. Goodin (1998) 17 Cal.4th 599, 615-617.) In determining whether any of the parties causes of action are "on a contract," the gravamen of the claim is controlling, not the title used in the complaint. (See Harbour Landing-Dolfann, Ltd. v. Anderson (1996) 48 Cal.App.4th 260, 263; Milman v. Shukhat (1994) 22 Cal.App.4th 538, 543-545.)

Defendants contend that Dalgarns action was not "on a contract," and section 1717 therefore does not apply. This contention fails for two reasons.

For one thing, "[t]he argument is presented for the first time in appellants reply brief, and they have offered no explanation for their earlier omission. `We do not entertain issues raised for the first time in a reply brief, in the absence of a showing of good cause why such issues were not raised in the opening brief." (City of Costa Mesa v. Connell (1999) 74 Cal.App.4th 188, 197.)

Second, in an earlier appeal (B134726), we addressed this issue with respect to Dalgarns causes of action against the Quitting Partners and concluded that all of those claims were "on a contract." We see no reason on this appeal to treat Dalgarns claims against the present defendants (the Continuing Partners) any differently. As we explained in our nonpublished opinion filed on March 27, 2001:

"An analysis of Dalgarns causes of action indicates that they were all `on a contract.

"In the first cause of action, labeled `breach of fiduciary duty, Dalgarn alleged that, after December 31, 1991, (1) the Quitting Partners did not assist him in Fluke v. Talon, (2) he was forced to assume a `disproportionate burden in working on the case, and (3) the Quitting Partners had been unjustly enriched thereby. As relief, Dalgarn sought to recover from the Quitting Partners their pro rata share of the reasonable value of his services on the Fluke case for the period after December 31, 1991.

"In the second cause of action, for breach of contract, Dalgarn alleged that the Quitting Partners had breached the December 31, 1991 continuation agreement. More specifically, Dalgarn asserted that the continuation agreement contained an implied term that the Quitting Partners would compensate him for the reasonable value of his services on Fluke v. Talon. As relief, Dalgarn sought to recover from the Quitting Partners their pro rata share of the reasonable value of his services on the Fluke matter for the period before and after December 31, 1991.

"The third cause of action, for declaratory relief, alleged that the effect of the continuation agreement was to dissolve [NRDBCW] as of December 31, 1991. Dalgarn sought a declaration of his right to receive a `distributive share of the firms profits and assets for the period up to and including December 31, 1991. For the period thereafter, Dalgarn sought his share of profits attributable to work in progress as of December 31, 1991.

"The last cause of action sought an accounting with respect to the alleged dissolution of [NRDBCW] on December 31, 1991.

"In sum, the allegations of the second amended complaint support the conclusion that all of the causes of action were based on a contract theory. . . .

"`All of Dalgarns claims are premised on the theory that, despite the [Quitting Partners] departure from [NRDBCW] on December 31, 1991, they are still liable to him for a pro rata share of the value of the work he performed before and after that date. . . . We conclude that the December 23, 1991 letter agreement and the December 31, 1991 continuation agreement preclude Dalgarns claims.

"`His claim for compensation before January 1, 1992, is governed by the continuation agreement. . . .

"`Dalgarns claim for compensation after December 31, 1991, is governed by the letter agreement to which he and the `Continuing Partners were parties. . . .

"`As we see it, the continuation agreement and the letter agreement must be construed together in determining Dalgarns ability to recover from [the Quitting Partners]. Not only did the letter agreement require that Dalgarn sign the continuation agreement, but the second amended complaint specifically alleged that the letter agreement was executed in contemplation of [the Quitting Partners] departure, as provided for in the continuation agreement. In these circumstances, the two agreements should be viewed in tandem as relating to a single transaction. . . . [¶] . . .

"`In short, the gravamen of Dalgarns causes of action rested on the parties contracts, i.e., the letter agreement and the continuation agreement. The merits of his claims were intertwined with both agreements. Thus, the trial court properly determined that Civil Code section 1717 governed [the Quitting Partners] entitlement to attorneys fees." (Typed opn., at pp. 6-9, fn. omitted.)

In the proceedings giving rise to the present appeal, the trial court stated in phase I, "the agreement that controls the rights of plaintiff upon dissolution of the firm effective March 31, 1993, was the 1988 Partnership Agreement . . . as supplemented and amended by the Letter Agreement . . . and the Continuation Agreement . . . ." Thus, as was the case with the Quitting Partners, Dalgarns causes of action against the Continuing Partners for breach of fiduciary duty and an accounting are "on a contract."

In phase II, the damages phase, the trial court made reference to "equity" but expressly relied, in part, on the Letter Agreement in awarding Dalgarn additional compensation. The trial court cited the Continuation Agreement as the basis for awarding attorneys fees. In the prior appeals, those two agreements were viewed together in awarding attorneys fees. The same rule will now be applied to determine if Dalgarn is entitled to fees against the Continuing Partners.

b. "Prevailing" Party

"[T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract." (& sect; 1717, subd. (b)(1).) "[I]n determining litigation success, courts should respect substance rather than form, and to this extent should be guided by `equitable considerations." (Hsu v. Abbara (1995) 9 Cal.4th 863, 877, italics omitted.) "[T]he prevailing party for the award of costs under section 1032 [of the Code of Civil Procedure] is not necessarily the prevailing party for the award of attorneys fees in contract actions under section 1717 [of the Civil Code]." (Sears v. Baccaglio, supra, 60 Cal.App.4th at p. 1142.) And "the party recovering `greater relief in the action on the contract under section 1717 . . . does not necessarily mean the party receiving the greater monetary judgment." (Sears at p. 1154.)

"As one Court of Appeal has explained, `[t]ypically, a determination of no prevailing party results when both parties seek relief, but neither prevails, or when the ostensibly prevailing party receives only a part of the relief sought. . . . By contrast, when the results of the litigation on the contract claims are not mixed — that is, when the decision on the litigated contract claims is purely good news for one party and bad news for the other — the Courts of Appeal have recognized that a trial court has no discretion to deny attorney fees to the successful litigant. 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 section 1717 as a matter of law. . . . Similarly, a plaintiff who obtains all relief requested on the only contract claim in the action must be regarded as the party prevailing on the contract for purposes of attorney fees under section 1717. . . . [& para;]

"[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." (Hsu v. Abbara, supra, 9 Cal.4th at pp. 875-876, italics in original, citations omitted.)

The trial court ruled that Dalgarn was the prevailing party because he obtained a monetary recovery on his accounting claim and prevailed on the causes of action in defendants cross-complaint. We conclude that the trial court abused its discretion in that regard.

In the operative complaint at the time of trial, Dalgarn alleged that all of RDBCs partners, including himself, were "entitled by law to an equal share of the RDBC Partnerships profits and an equal share of the RDBCs Partnerships assets upon dissolution, specifically including undistributed profits, future profits derived from continuing work on unfinished business of the RDBC Partnership, and good will." He alleged causes of action for breach of fiduciary duty and an accounting.

The trial courts findings after phase I substantially limited Dalgarns claims. The court found that he was not entitled to profits for "work performed on existing matters after the date of dissolution" because "[n]ever, in the firms history, was compensation paid for work-in-progress." Nor was Dalgarn entitled to payment for goodwill given that "[t]he partnership agreement provide[d] . . . that goodwill shall be valued at zero," and "[n]o value had ever been assigned to, or paid for, firm goodwill." Finally, Dalgarns claim for financial and physical assets was restricted to physical assets because "`common assets in the dissolution clause of the 1988 Partnership Agreement . . . are the same as `the physical assets of the Partnership . . . and do not refer to financial assets as urged by plaintiff."

Undaunted, Dalgarn entered phase II and sought $1,056,389 in compensation, consisting of $313,919 on the accounting claim, $ 512,045 for loss of income, $230,425 in prejudgment interest on lost income, and an unspecified amount of punitive damages on the fiduciary duty claim. He ended up with $5,119 on the accounting claim, plus $3,435.61 in prejudgment interest. That was it.

At the same time, defendants did not walk away the victor. Their expert witness testified that Dalgarn was not entitled to an award in any amount and that he owed defendants $ 154,185. But Dalgarn came away with a monetary recovery. And defendants cross-complaint, which alleged a breach of fiduciary duty and sought an award of compensatory and punitive damages, was adjudicated in Dalgarns favor based on a lack of proof and the statute of limitations.

We conclude that "the results of [this] litigation [are] so equivocal as to . . . require that no party be found to have prevailed for purposes of attorney fees under section 1717." (Hsu v. Abbara, supra, 9 Cal.4th at p. 874.) "The judgment as well as this opinion must be considered good news and bad news to each of the parties . . . ." (Id. at pp. 874-875.)

To summarize, after a two-month trial on the merits, the trial court rejected Dalgarns cause of action for breach of fiduciary duty and also ruled that he was not entitled to compensatory or punitive damages. Dalgarn sought $ 1,056,389 in compensation but recovered only $5,119 plus $3,435.61 in prejudgment interest. He incurred more than $330,000 in attorneys fees in pursuit of that minimal sum. (See Berkla v. Corel Corp. (9th Cir. 2002) 302 F.3d 909, 918-920 [plaintiff who sought $1.2 million in damages and recovered $ 23,502 was not prevailing party under section 1717 (applying California law)].)

As for defendants, they argued in the trial court that Dalgarns compensation should have been offset by his share of the firms liabilities (accounts payable) and by a prior payment for the value of physical assets, such that he owed them several hundred thousand dollars. In the face of that argument, a recovery by Dalgarn in any amount does not look so paltry. In addition, defendants argued before the trial court, and this court, that Dalgarn was not entitled to prejudgment interest under the Civil Code (determined to be $3,435.61) or costs under the Code of Civil Procedure (determined to be $21,091.86). They lost on both arguments. Like Dalgarn, defendants did not prevail on their cause of action for breach of fiduciary duty and did not recover compensatory or punitive damages. Unlike Dalgarn, they also failed on their accounting claim.

In sum, the outcome on the contract claims was mixed. Neither side achieved all of its goals. Both enjoyed limited success. There was no prevailing party for purposes of recovering attorneys fees under section 1717.

Defendants contend that if there is no prevailing party for purposes of section 1717, Dalgarns preoffer attorneys fees should not be considered under section 998 in determining whether the judgment was more favorable than defendants offer. We disagree. The analysis under section 998 does not turn on which party, if any, "prevailed" under section 1717. (See Scott Co. v. Blount, Inc., supra, 20 Cal.4th at p. 1114.)

III

DISPOSITION

The judgment is affirmed. The postjudgment orders are modified to reflect that none of the parties are entitled to attorneys fees under Civil Code section 1717 and, as so modified, are affirmed. The parties are to bear their own costs and attorneys fees on appeal.

We concur: SPENCER, P. J. and ORTEGA, J.


Summaries of

Dalgarn v. Robbins, Dalgarn, Berliner & Carson

Court of Appeals of California, Second District, Division One.
Nov 6, 2003
No. B151339 (Cal. Ct. App. Nov. 6, 2003)
Case details for

Dalgarn v. Robbins, Dalgarn, Berliner & Carson

Case Details

Full title:LEWIS M. DALGARN, Plaintiff and Respondent, v. ROBBINS, DALGARN, BERLINER…

Court:Court of Appeals of California, Second District, Division One.

Date published: Nov 6, 2003

Citations

No. B151339 (Cal. Ct. App. Nov. 6, 2003)