Opinion
G056144 G058796
03-24-2021
WILLIAM F. DOHR, Individually and as Trustee, etc. et al. Plaintiffs and Appellants, v. SUSAN D. LINTZ, Defendant, Cross-complainant and Appellant; AMBERHILL DEVELOPMENT, LTD. et al., Cross-defendants and Appellants.
Palmieri, Tyler, Wiener, Wilhelm & Waldron, Charles H. Kanter and Erin K. Oyama for Defendant, Cross-Complainant and Appellant. Thomas Vogele & Associates, Thomas A. Vogele, Timothy M. Kowal; Jeff Lewis Law, Jeffrey Lewis and Sean C. Rotstan for Plaintiffs, Cross-defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2011-00502087) OPINION Appeals from postjudgment orders of the Superior Court of Orange County, William D. Claster, Judge. Affirmed. Palmieri, Tyler, Wiener, Wilhelm & Waldron, Charles H. Kanter and Erin K. Oyama for Defendant, Cross-Complainant and Appellant. Thomas Vogele & Associates, Thomas A. Vogele, Timothy M. Kowal; Jeff Lewis Law, Jeffrey Lewis and Sean C. Rotstan for Plaintiffs, Cross-defendants and Appellants.
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INTRODUCTION
Orders on two separate motions for attorney fees are the subject of these consolidated appeals. Susan Lintz appeals from an order granting a motion for attorney fees and awarding $795,728 to William F. Dohr. Dohr, Mark Child, and Amberhill Development, Ltd. (Amberhill) appeal from an order denying a second, separate motion for attorney fees that was brought after we had issued an unpublished opinion in a prior appeal, Lintz v. Dohr (July 23, 2019, G054929).
Dohr, Child, and Amberhill are referred to collectively as the Amberhill Parties.
In both motions, fees were sought pursuant to an attorney fees provision in a stock repurchase agreement, and, in the second motion, fees were also sought pursuant to a fee provision in a promissory note. The trial court awarded Dohr attorney fees because he had prevailed on causes of action brought derivatively by Lintz on behalf of Sterling Homes Corporation (Sterling) and those causes of action, the court concluded, were based on the stock repurchase agreement and therefore were on a contract under Civil Code section 1717 (section 1717).
We affirm both orders. The reasons for our decision, in summary, are as follows:
Lintz's Appeal. Lintz's derivative causes of action against Dohr were for breach of fiduciary duty, fraud, and fraudulent concealment. These causes of action were not on a contract: They were tort causes of action and did not seek to enforce or invalidate the stock repurchase agreement. But the attorney fees provision in the stock repurchase agreement was drafted broadly enough to authorize recovery of attorney fees incurred in connection with the derivative tort causes of action against Dohr. Lintz, though not a signatory to the stock repurchase agreement, is personally liable for the fees because, as a shareholder bringing a derivative lawsuit, she stands in the shoes of Sterling, which was a party to that agreement. Corporations Code section 800 does not limit Lintz's personal liability to a $50,000 bond she posted because section 800 is not the statutory basis for the award of attorney fees.
The Amberhill Parties' Appeal. The second motion for attorney fees was an untimely motion for reconsideration insofar as it sought to recover fees incurred by Child and Amberhill before the attorney fees order appealed by Lintz. The Amberhill Parties could not recover attorney fees in connection with the promissory note because (1) the motion for attorney fees, to the extent it was based on the promissory note, was untimely and (2) Lintz, in effect, had voluntarily dismissed before trial her cause of action to recover on the promissory note. The Amberhill Parties' success in Lintz v. Dohr, supra, G054929, did not permit them to renew their first attorney fees motion in its entirety. Although success in that appeal meant the Amberhill Parties could seek attorney fees incurred in connection with Lintz's first cause of action (an individual cause of action for breach of fiduciary duty), neither the attorney fees provision in the stock repurchase agreement nor the provision in the promissory note authorized recovery of those fees.
BACKGROUND FACTS
I. Stock Purchase Agreement and
Stock Repurchase Agreement
Robert Lintz, now deceased, was the father of Lintz and James Lintz. Robert Lintz was the founder and owner of Sterling, a real estate development company. Both Dohr and Lintz are directors of Sterling. Child was a Sterling director from 2000 to 2014. Amberhill is a development company that is owned by Dohr and operated by Dohr as president and Child as vice-president.
In January 1999, the Robert H. Lintz Living Trust, UDT February 26, 1988 (the Lintz Trust) sold 65,550 shares of stock (92 percent of outstanding shares) of Sterling to Riviera Holdings, LLC (Riviera), pursuant to a stock purchase agreement. In exchange, Riviera gave the Lintz Trust a promissory note in the face amount of $15 million. At the time, Dohr owned 50 percent of the membership interests in Riviera. Lintz has contended this sale was part of a complicated estate plan and Riviera was intended only to be a "safe interim owner" of the Sterling shares until they could be transferred to a family-owned company. Later, all of the Sterling shares owned by Riviera were transferred first to Dohr, and then from Dohr to the William Frederic Dohr Revocable Trust, established January 22, 1999 (the Dohr Trust).
In January 2003, the board of directors of Sterling approved the repurchase of 7,125 shares of its common stock from the Dohr Trust. This repurchase reduced the Dohr Trust's ownership interest in Sterling from 92 percent to 91.1 percent.
In April 2003, the Sterling Board of Directors approved the repurchase of 45,560 shares of its common stock from the Dohr Trust. This repurchase was made pursuant to a stock repurchase agreement entered into as of April 30, 2003 (the Stock Repurchase Agreement). The parties to the Stock Repurchase Agreement were Sterling and Dohr. Lintz, Child, and Amberhill were not parties to the Stock Repurchase Agreement.
The Stock Repurchase Agreement has two provisions that have been of particular importance to this litigation. First, the Stock Repurchase Agreement has a representation and warranty by Dohr that "Dohr is the sole owner of the Sterling Shares, beneficially and of record, free and clear of all liens, encumbrances, security agreements, options, or other claims." Second, the Stock Repurchase Agreement has an attorney fees provision that states: "If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of any alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled."
The Stock Repurchase Agreement reduced the Dohr Trust's ownership interest in Sterling from 91.1 percent to 69.3 percent. The ownership interests of Lintz and James Lintz increased to 15.35 percent each.
II. Creation of Atavus
Atavus Investments, LLC (Atavus) was created in 2004 "to conduct all the activities currently conducted by Sterling." Lintz had an 11.25 percent ownership position in Atavus, and Sterling had a 10 percent ownership interest.
Atavus is subject to an operating agreement (the Atavus Operating Agreement), section 3.2 of which provides that "Additional Capital Contributions" by Atavus members shall be entitled to accrue "Preferential Return" in an account identified as the "Preferred Return Account." Sterling contributed its minority-membership interests in several projects to Atavus and, in exchange, received a $7 million preferential capital account with a right to a preferential return. Section 4.1.1(ii) of the Atavus Operating Agreement provides that preferential return payments are entitled to priority over other payments to members.
III. Lintz's Loan to Amberhill
Sometime before 2008, Lintz loaned $320,000 to Amberhill. After paying $40,000 in principal on the indebtedness, Amberhill transferred the obligation to Atavus. (Lintz has maintained, however, that the transfer of this indebtedness to Atavus was improper and ineffective and that Amberhill has always been liable to repay the loan.) In February 2010, a promissory note in face amount of $280,000 (the Promissory Note), and having a maturity date of November 1, 2010, was made by Atavus payable to Lintz, the holder. The Promissory Note has this attorney fees provision: "Make[r] agrees to pay attorneys' costs and fees and all out-of-pocket expenses of Holder paid to others, which may be incurred in connection with the collection of this note."
PROCEDURAL HISTORY
I. Dohr's Complaint
Dohr and Sterling initiated the litigation by filing a complaint for declaratory relief against Lintz. After recounting the transactions, including the Stock Repurchase Agreement, by which the Dohr Trust acquired its Sterling shares, the complaint alleged: "An actual controversy has arisen and now exists between Plaintiffs and defendant Susan Lintz concerning the parties' respective rights and duties in that Plaintiffs contend that the Dohr Trust owns all legal, beneficial and equitable rights, title and interest in 12,865 share[s] of Sterling Homes stock representing 69.3% of outstanding shares, whereas Dohr is informed and believes, and thereon alleges, that Susan disputes these contentions and contends that Dohr and the Dohr Trust hold bare legal title to such shares and that she and Jim [Lintz] are the beneficial and equitable owners of all Sterling Homes shares."
The complaint sought a declaration that "Dohr and the Dohr Trust own all legal, beneficial and equitable rights, title and interest in 12,865 shares of Sterling Homes common stock, representing 69.3% of the outstanding shares of common stock issued by Sterling Homes." The complaint sought attorney fees according to the fee provision in the Stock Repurchase Agreement.
II. Lintz's Cross-complaints
In response to the complaint, Lintz filed a cross-complaint against Dohr and others and, at the same time, filed a separate derivative complaint against the Amberhill Parties and other persons and entities not parties to this appeal. In the derivative complaint, she asserted the same claims made in the cross-complaint but as derivative claims on behalf of Sterling and Atavus. Lintz consolidated the claims of her cross-complaint and those of her derivative action in a second amended cross-complaint. Lintz subsequently filed third, fourth, fifth, and sixth amended cross-complaints.
Lintz's third amended cross-complaint asserted twelve causes of action, of which causes of action one through six and eight are relevant here. The first and second causes of action of the third amended cross-complaint were for breach of fiduciary duty. The first cause of action was brought by Lintz individually, and the second cause of action was brought by her derivatively on behalf of Sterling and Atavus. Both causes of action were based on the same allegations of wrongdoing, and both were asserted against the Amberhill Parties.
In the first and second causes of action, Lintz alleged: "Dohr has held himself out as the legal, beneficial and equitable owner of 68% (or more) of the stock of Sterling, and has asserted that Susan and her brother James are minority shareholders of Sterling with ownership interests of 16% (or less)." Lintz alleged that assertion was false and that she and her brother James were "in fact the 100% owners of Sterling today, and have been the 100% owners at all times since the nominal stock ownership position that Dohr once held as an accommodation to Robert Lintz ended effective December 31, 2002." She alleged that "[i]n document after document, and meeting after meeting" Dohr told the "false story" that he was "the beneficial owner of 68% of the stock of Sterling, when in truth and in fact, Dohr has never been a beneficial owner of Sterling Stock." She also alleged that the Stock Repurchase Agreement was "fraudulent."
The third and fourth causes of action were for fraud against the Amberhill Parties. The third cause of action was brought by Lintz individually, and the fourth cause of action was brought by Lintz derivatively on behalf of Sterling and Atavus. The fifth and sixth causes of action were for fraudulent concealment against the Amberhill Parties. The fifth cause of action was brought by Lintz individually, and the sixth cause of action was brought by Lintz derivatively on behalf of Sterling and Atavus.
The third through sixth causes of action were all based on the same allegations of wrongdoing. Those four causes of action incorporated the breach of fiduciary duty allegations from the first and second causes of action and included the core allegations that Dohr falsely held himself out as "the legal, beneficial and equitable owner of 68% (or more) of the stock of Sterling" and falsely claimed that "Susan and her brother James are minority shareholders of Sterling with ownership interests of 16% (or less)."
The eighth cause of action was against Amberhill for breach of contract and reformation of the Promissory Note. Lintz alleged Amberhill's transfer of the Promissory Note to Atavus was invalid and the Promissory Note was due and unpaid in the amount of $280,000 plus interest.
Lintz filed a fourth amended cross-complaint which, as relevant here, added Atavus as a "nominal party" cross-defendant to the eighth cause of action and amended the allegations of that cause of action to state that the Promissory Note "does not truly express the intention of the parties, which was that Amberhill, not Atavus, was the payor and obligor on the debt of $280,000 represented by the written note." Lintz filed a fifth amended cross-complaint that deleted the eighth cause of action. In the fourth and fifth amended cross-complaints, causes of action one through six remained essentially unchanged from the third amended cross-complaint. In each of the cross-complaints, Lintz sought only damages and costs of suit on causes of action one through six and (except for the fifth amended cross-complaint) $280,000 plus interest on cause of action eight.
III. Motion for Summary Judgment and Trial on
Statute of Limitations Defense
Dohr moved for summary judgment on his first amended complaint. He argued he was entitled to summary judgment because the stock purchase agreement and the Stock Repurchase Agreement clearly and explicitly established that he owned the Sterling shares.
In May 2014 the trial court issued an order granting Dohr's motion for summary judgment. The court found "the written agreements establishing Dohr's ownership of 12,745 shares of Sterling Stock (representing 68.6506% of the outstanding shares) are clear and unequivocal."
A bench trial was conducted on Dohr's statute of limitations defense to the claims made in Lintz's fifth amended cross-complaint. In October 2014, the trial court issued an order finding that the statute of limitations barred Lintz's claims against Dohr and Child for all allegedly wrongful acts alleged in the fifth amended complaint that took place before August 22, 2007.
IV. Lintz's Sixth Amended Cross-complaint
After the ruling on the statute of limitations trial, Lintz filed a sixth amended cross-complaint. Although the sixth amended cross-complaint kept the allegations that Dohr had held himself out as the owner of 68 percent of Sterling shares, those allegations were no longer alleged to constitute a breach of fiduciary duty or to be fraudulent. The bases of causes of action one through six instead were allegations that included: (1) Atavus paid Sterling $4 million from the sale proceeds of an entity called Regent Ontario, LLC without first repaying Lintz for the $280,000 loan; (2) Sterling had a fiduciary duty to distribute to its shareholders the $4 million received from Atavus but instead distributed the money in ways that benefitted only the Amberhill Parties; (3) Dohr and Child engaged in deceit by misrepresenting the structuring of Sterling and Atavus in 2003 and concealing the sale of Regent Ontario, LLC; and (4) Amberhill improperly borrowed money from Atavus and then falsely recorded payments of principal.
Lintz added a new eighth cause of action for money lent against Amberhill and Atavus. She alleged that Amberhill had become indebted to her in the sum of $280,000 plus interest and had purported to assign this debt to Atavus.
V. Trial
In October and November 2016, the matter was tried to the court on Lintz's sixth amended cross-complaint. (Lintz v. Dohr, supra, G054929.) The court found in favor of Lintz on her cause of action for breach of fiduciary duty and in favor of the Amberhill Parties on all of her other claims. In a statement of decision, the court found that the Amberhill Parties had breached their fiduciary duties by causing Atavus to make the payment of $4 million to Sterling without first paying off the $280,000 loan from Lintz. (Ibid.) The court found that Lintz's damages for breach of fiduciary duty were $280,000 plus interest because Atavus should have paid that amount to Lintz before making the $4 million payment to Sterling. (Ibid.) The trial court found against Lintz on her cause of action against Amberhill for money lent because the evidence established she had consented to the transfer of the note from Amberhill to Atavus. (Ibid.)
Lintz appealed from the judgment, as did the Amberhill Parties. (Lintz v. Dohr, supra, G054929.) In Lintz v. Dohr, supra, G054929, a panel of this court reversed the judgment in favor of Lintz and otherwise affirmed.
VI. Motions for Attorney Fees
After entry of judgment, but before the decision in Lintz v. Dohr, supra, G054929, was issued, the Amberhill Parties moved to recover their attorney fees pursuant to section 1717 and the fee provision in the Stock Repurchase Agreement. They asked for $2,208,512.50 in fees. We refer to this motion as the first attorney fees motion.
By order entered on February 5, 2018, the trial court granted the first attorney fees motion as to Dohr only and awarded him $795,728. We refer to this order as the first attorney fees order. The court found that Dohr was the prevailing party on Lintz's derivative claims that were "based on" the Stock Repurchase Agreement. The court did not award attorney fees based on Dohr's first amended complaint. The court found that Dohr was entitled to recover attorney fees only through November 21, 2014 because by that date the derivative claims challenging the validity of the Stock Repurchase Agreement had been resolved against Lintz. Although Lintz was not a party to the Stock Repurchase Agreement, the court concluded that under Brusso v. Running Springs Country Club, Inc. (1991) 228 Cal.App.3d 92 she was liable for the attorney fees imposed in connection with the derivative causes of action. Amberhill and Child were not entitled to recover attorney fees because, the court found, neither was a party to the Stock Repurchase Agreement.
Lintz appealed from the first attorney fees order. That appeal was docketed as case No. G056144.
In November 2019, after Lintz v. Dohr, supra, G054929 was issued, the Amberhill Parties filed another motion for attorney fees, which we refer to as the second attorney fees motion. In the second attorney fees motion, the Amberhill Parties sought to recover $926,170 in attorney fees in three categories: (1) fees incurred by Child and Amberhill "defending against claims concerning the [Stock Repurchase Agreement] and claims factually intertwined with the [Stock Repurchase Agreement] claims"; (2) fees incurred defending against Lintz's claims arising out of the Promissory Note; and (3) appellate fees incurred in Lintz v. Dohr, supra, G054929.
The trial court denied the second attorney fees motion by order entered in January 2020. We refer to this order as the second attorney fees order. In the second attorney fees order, the trial court concluded that Amberhill and Child's request for attorney fees was an improper and untimely motion for reconsideration of the first attorney fees order. The court concluded that Lintz's sixth amended cross-complaint, which was filed after trial on Dohr's statute of limitations defenses, did not assert any claims related to the Stock Repurchase Agreement. The Amberhill Parties could not recover attorney fees under the Promissory Note because none of them was a party to it and, had Lintz sued and recovered under the Promissory Note, she would have been entitled to recover attorney fees only from Atavus, the maker of the note.
The Amberhill Parties appealed from the second attorney fees order. That appeal was docketed as case No G058796. We ordered consolidation of case No. G056144 and case No. G058796.
DISCUSSION
I. Standard of Review
An order granting or denying an award of attorney fees after trial is reviewed under the abuse of discretion standard. (Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 751 (Mountain Air); Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175; Soni v. Wellmike Enterprise Co. Ltd. (2014) 224 Cal.App.4th 1477, 1481.) Under the abuse of discretion standard, the trial court's factual findings are reviewed under the substantial evidence standard while the court's legal conclusions are reviewed de novo. (Soni v. Wellmike Enterprise Co. Ltd., supra, at p. 1481; County of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1230; Pellegrino v. Robert Half Internat., Inc. (2010) 182 Cal.App.4th 278, 287-288.)
The determination of entitlement to attorney fees is reviewed de novo if based on a written contract and there is no conflict in any extrinsic evidence presented to clarify or interpret the contract. (Hanna v. Mercedes-Benz USA, LLC (2019) 36 Cal.App.5th 493, 507 (Hanna); see Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955 ["When no extrinsic evidence is introduced, or when the competent extrinsic evidence is not in conflict, the appellate court independently construes the contract"]; see also Mountain Air, supra, 3 Cal.5th at p. 751 [entitlement to fees is reviewed de novo if material facts are not in dispute].)
"The normal rules of appellate review apply to an order granting or denying attorney fees; i.e., the order is presumed correct, all intendments and presumptions are indulged to support the order, conflicts in the evidence are resolved in favor of the prevailing party, and the trial court's resolution of factual disputes is conclusive." (Apex LLC v. Korusfood.com (2013) 222 Cal.App.4th 1010, 1017.) "The reviewing court will infer all findings necessary to support the order, and all findings, express or implied, are reviewed under the substantial evidence standard." (Ibid.)
II. Attorney Fees Under Section 1717
Attorney fees are recoverable as costs when authorized by contract. (Code Civ. Proc., §§ 1021, 1033.5, subd. (a)(10)(A).) Code of Civil Procedure section 1021 leaves the "measure and mode of compensation" for attorney fees to the agreement of the parties. "[A]ny inquiry begins with the language of the attorney fees provision itself." (Mountain Air, supra, 3 Cal.5th at p. 760.)
Section 1717 governs fee awards for contractual fee-shifting clauses when an action is on a contract. Section 1717, subdivision (a) awards attorney fees in "any action on a contract," when the contract provides for an award of attorney fees, to "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."
"[T]o invoke section 1717 and its reciprocity principles a party must show (1) he or she was sued on a contract containing an attorney fee provision; (2) he or she prevailed on the contract claims; and (3) the opponent would have been entitled to recover attorney fees had the opponent prevailed." (Brown Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809, 820 (Brown Bark).)
The term "on a contract" must be construed liberally. (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 240.) The term "on a contract" is not limited to a lawsuit seeking damages for breach of contract, but includes any action that "'involves'" a contract "in the sense that the action (or cause of action) arises out of, is based upon, or relates to an agreement by seeking to define or interpret its terms or to determine or enforce a party's rights or duties under the agreement." (Id. at pp. 240, 241-242.) The basis of the cause of action, not the remedy, is the correct focus in determining whether an action is on a contract within the meaning of section 1717. (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc., supra, at p. 241.) "To determine whether an action is on the contract, we look to the complaint and focus on the basis of the cause of action. [Citations.] Any action that is based on a contract is an action on that contract regardless of the relief sought." (Brown Bark, supra, 219 Cal.App.4th at p. 821.)
III. Lintz's Appeal
A. Lintz's Derivative Causes of Action Against Dohr
Were Not on a Contract
1. Lintz Pleaded Derivative Tort Causes of Action Against Dohr
In the first attorney fees order, the trial court awarded Dohr $795,728 on the ground he was the prevailing party on Lintz's derivative causes of action (the second, fourth, and sixth causes of action) and those causes of action were based on the Stock Repurchase Agreement. But Lintz did not sue Dohr (or Child or Amberhill) for breach of, to enforce, or to define or interpret the terms of a contract. She sued the Amberhill Parties, individually and derivatively on behalf of Sterling, for breach of fiduciary duty (first and second causes of action), fraud (third and fourth causes of action), and fraudulent concealment (fifth and sixth causes of action).
Section 1717 applies only to actions on a contract and does not extend to tort causes of action. (Santisas v. Goodin (1998) 17 Cal.4th 599, 615 (Santisas); see Stout v. Turney (1978) 22 Cal.3d 718, 730 [tort action for fraud arising out of a contract is not an action on a contract under section 1717].) "Although the phrase 'on a contract' in Civil Code section 1717 has been liberally construed, it does not stretch to tort claims." (Orozco v. WPV San Jose, LLC (2019) 36 Cal.App.5th 375, 408 (Orozco); see Brown Bark, supra, 219 Cal.App.4th at p. 820 ["Tort and other noncontract claims are not subject to 1717"]; Kangarlou v. Progessive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1178 [tort claims are not actions on a contract under section 1717]; Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 708 [section 1717 does not apply to tort claims].)
Whether a complaint pleads contractual causes of action is not dispositive; instead, "courts look to the gravamen of the overall action." (Orozco, supra, 36 Cal.App.5th at p. 409; see Hyduke's Valley Motors v. Lobel Financial Corp. (2010) 189 Cal.App.4th 430, 436 [section 1717 inapplicable because gravamen of the action was not to enforce rights under a contract with an attorney fees provision].) "Whether an action is based on contract or tort depends upon the nature of the right sued upon, not the form of the pleading or relief demanded. If based on a breach of promise it is contractual; if based on breach of a noncontractual duty it is tortious." (Arthur L. Sachs, Inc. v. City of Oceanside (1984) 151 Cal.App.3d 315, 322.)
The term gravamen has been defined as "the 'material part of a grievance, charge, etc.'" (Lindros v. Governing Bd. of the Torrance Unified School Dist. (1973) 9 Cal.3d 524, 540, fn. 13) and is determined by the primary right alleged to have been violated rather than the remedy sought (McDowell v. Watson (1997) 59 Cal.App.4th 1155, 1159).
Lintz's causes of action for breach of fiduciary duty, fraud, and fraudulent concealment sounded in tort because the right sued upon was the right to be free from tortious misconduct; i.e., breaches of fiduciary duty, fraud, and fraudulent concealment. The gravamen of those causes of action was not to enforce rights under the Stock Repurchase Agreement. Lintz alleged that the Amberhill Parties, over many years, had committed numerous acts, in many situations not limited to the Stock Repurchase Agreement, that were alleged to constitute breaches of noncontractual duties or to be fraudulent. The cross-complaints have page after page of allegations of wrongdoing unrelated to the Stock Repurchase Agreement and constituting breaches of noncontractual duties.
Lintz's fifth amended cross-complaint described Dohr's representation that he was the legal, beneficial, and equitable owner of 68 percent of Sterling shares as "the single most significant misrepresentation." But that representation was not the only act of alleged wrongdoing and was not alleged to have been made solely in connection with the Stock Repurchase Agreement. Lintz fairly described the gravamen of her tort causes of in action in the summary of the fifth amended cross-complaint as follows: "Dohr and his wrongdoer colleagues have engaged in a persistent and continuing pattern and practice of misrepresentation and concealment with respect to the looting described in the Cross[-]Complaint, and created an array of related alter ego entities to cover up what they [had] been doing."
Further, Lintz's claim that Dohr was merely the nominal owner of the Sterling shares was not based on the Stock Repurchase Agreement: The Stock Repurchase Agreement did not create or define the nature of Dohr's ownership interest in Sterling stock. Lintz's claim that Dohr was the nominal owner of the Sterling shares was based upon Robert Lintz's complicated estate plan, under which, Lintz claimed, Dohr was to be merely an interim owner of the shares.
To be sure, the Stock Repurchase Agreement was part of the pattern and practice of misconduct alleged in Lintz's cross-complaints. In the Stock Repurchase Agreement, Dohr made the representation and warranty that he "is the sole owner of the Sterling Shares, beneficially and of record, free and clear of all liens, encumbrances, security agreements, options or other claims." Lintz claimed that representation was false, and her individual and derivative causes of action alleged, among other things, that the Stock Repurchase Agreement was fraudulent. But she did not allege that Dohr breached the Stock Repurchase Agreement, and she did not seek contract damages or rescission. In opposition to the first motion for attorney fees, Lintz argued that she had never sought contract remedies but had asserted the Stock Repurchase Agreement and its related documents were the product of fraud and breach of fiduciary duty. "'[A] cause of action does not warrant a recovery under Civil Code section 1717 merely because a contract with an attorney's fees provision is part of the backdrop of the case.'" (Orozco, supra, 36 Cal.App.5th at p. 408.)
A tort action for fraud arising out of a contract or for fraudulent inducement to enter a contract is not an action on the contract under section 1717. (Stout v. Turney, supra, 22 Cal.3d at p. 730; Orozco, supra, 36 Cal.App.5th at pp. 409-411; see 7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, § 182, p. 733.) While an action for rescission is considered to be "on a contract" for purposes of section 1717, "an action for fraud seeking damages sounds in tort, and is not 'on a contract.'" (Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 549.)
2. Lintz Did Not Seek to Invalidate the Stock Repurchase Agreement
The Amberhill Parties assert that throughout the litigation Lintz sought to invalidate the Stock Repurchase Agreement. To determine whether an action is on a contract, we look to the pleadings (Brown Bark, supra, 219 Cal.App.4th at p. 821), and nowhere in any of Lintz's cross-complaints is there an attempt to invalidate the Stock Repurchase Agreement. The Amberhill Parties argue that Lintz's cross-complaints refer to the Stock Repurchase Agreement "almost too many times to count," but referring to the Stock Purchase Agreement does not mean her tort claims are really contract claims. A party alleging fraud in the inducement of a contract may elect the contract remedy of rescission, or affirm the contract and seek tort damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645; see 7 Witkin, Cal. Procedure, supra, Judgment, § 182 at p. 733.) Lintz's derivative causes of action sought tort damages, not rescission of the Stock Repurchase Agreement.
The recent opinion in Yoon v. Cam IX Trust (2021) 60 Cal.App.5th 388 (Yoon) does not alter our conclusion. In Yoon, the plaintiff sued the assignee of a note and deed of trust secured by the plaintiff's home and the loan servicer in connection with a trustee's sale of the home. (Id. at p. 391.) The plaintiff alleged negligence, fraud, statutory claims, and causes of action to set aside the trustee's sale and to quiet title, but by the time the case went before a jury, the plaintiff had abandoned all claims except those for negligence and fraud. (Ibid.) The plaintiff asserted that the defendants had failed to properly review his request for a short sale and falsely told him the foreclosure sale date had been postponed for several days. (Ibid.) After the jury found in favor of the defendants, they sought, and the trial court granted, attorney fees pursuant to section 1717 based on attorney fees provisions in the promissory note and the deed of trust. (Ibid.)
The Court of Appeal rejected the plaintiff's argument that the negligence and fraud claims were not "on a contract" within the meaning of section 1717. (Yoon, supra, 60 Cal.App.5th at p. 392.) The gravamen of the lawsuit was "an effort to avoid the enforcement of the note and deed of trust" and the lawsuit had arisen out of "defendants' alleged conduct in the course of enforcing the terms of those documents." (Ibid. at p. 392.) Although the plaintiff had asserted tort causes of action, his lawsuit was "on a contract" because it "sought to avoid his obligations under the note by making claims [the] defendant acted negligently and fraudulently during the foreclosure process." (Id. at p. 393.) In addition, at trial the plaintiff had relied on the notice provisions of the note and deed of trust when he contended the defendants had sent a foreclosure option notice to the wrong address. (Ibid.)
This case is unlike Yoon because Lintz never sought to invalidate the Stock Repurchase Agreement or avoid Sterling's obligations under it. In Yoon, the core allegations of fraud and negligence were based on the defendants' actions in enforcing the promissory note and deed of trust. In contrast, Lintz's core allegation of her fraud and breach of fiduciary duty causes of action—that Dohr claimed to be the legal and equitable owner of 68 percent of Sterling shares—was alleged to have been made in many different contexts, most preceding the date of the Stock Repurchase Agreement, and as part of a pattern and practice of tortious conduct spreading over many years.
3. Dohr's Complaint Did Not Provide a Basis for Recovering Attorney Fees
Dohr's complaint sought a declaration that Dohr was the legal, beneficial, and equitable owner of 68 percent of Sterling shares of stock, and recited the attorney fees provision in the Stock Repurchase Agreement. Dohr prevailed on his complaint and he cites this victory as proof he obtained an unqualified win on "contract claims" related to the Stock Repurchase Agreement. He also cites affirmative defenses alleged in Lintz's answer as reflecting her attempts to invalidate that agreement.
The trial court did not award attorney fees to Dohr for prevailing on his complaint. Instead, the court found that Dohr was the prevailing party under the Stock Repurchase Agreement "only with respect to the derivative claims brought by Lintz on behalf of Sterling." The Amberhill Parties' first motion for attorney fees claimed entitlement to fees as the prevailing party on Lintz's derivative causes of action.
Further, the parties to the Stock Repurchase Agreement are Sterling and Dohr: Lintz is not a party. Dohr sued Lintz individually and did not make alter ego or other allegations that might have made her personally bound by the attorney fees provision in the Stock Repurchase Agreement. On appeal, Dohr does not argue mutuality or any other basis for making Lintz, as a nonsignatory to the Stock Repurchase Agreement, personally liable for attorney fees on his complaint. Lintz answered Dohr's complaint and alleged affirmative defenses in her individual capacity, not derivatively on behalf of Sterling. Because Lintz is not a party to the Stock Repurchase Agreement, neither Dohr's complaint nor her answer and affirmative defenses could have made her liable under that agreement's attorney fees provision. (Real Property Services Corp. v. City of Pasadena (1994) 25 Cal.App.4th 375-379-380.)
B. The Attorney Fees Provision in the Stock Repurchase Agreement
Authorizes Recovery on Tort Causes of Action
Because Lintz asserted only tort causes of action against Dohr, he could not recover attorney fees based on section 1717. This conclusion does not, however, end the analysis: A contractual attorney fees provision may, if worded broadly enough, permit an award of fees to a party prevailing on tort causes of action. (Santisas, supra, 17 Cal.4th at p. 608.) "[P]arties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract." (Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1341.) The determination whether an attorney fees provision extends to tort causes of action is subject to the traditional rules of contract interpretation. (Mountain Air, supra, 3 Cal.5th at p. 752; Santisas, supra, at p. 608.)
Does the attorney fees provision of the Stock Repurchase Agreement permit recovery of attorney fees incurred in connection with tort causes of action? We invited the parties to submit letter briefs on that issue and two others. We agree with the Amberhill Parties that the attorney fees provision of the Stock Repurchase Agreement extends to fees incurred in connection with tort causes of action.
We invited letter briefs on three issues: "1. Does the attorney fees provision, section 7, of the Stock Repurchase Agreement entered into as of April 30, 2003, permit recovery of attorney fees incurred in connection with tort causes of action? [¶] 2. Assuming the answer to the first issue is yes, may Susan D. Lintz be held personally liable for attorney fees incurred in connection with tort causes of action, not subject to Civil Code section 1717, that were brought derivatively on behalf of Sterling Homes Corporation? [¶] 3. Does Brusso v. Running Springs Country Club, Inc. (1991) 228 Cal.App.3d 92, apply to attorney fees incurred in connection with tort causes of action, not subject to Civil Code section 1717?"
We interpret the attorney fees provision de novo because no extrinsic evidence of its meaning was presented. (Hanna, supra, 36 Cal.App.5th at p. 507.) The attorney fees provision of the Stock Repurchase Agreement permits the prevailing party to recover fees "[i]f any legal action or other proceeding is brought for the enforcement of this Agreement, or because of any alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement." (Italics added.) The term "because of" in common usage "'connotes a causal link.'" (Mountain Air, supra, 3 Cal.5th at p. 757.) "[T]he term 'in connection with' is broad, and has been interpreted to extend to both contract and tort claims in a contractual attorney fees provision." (Ibid.; see Cruz v. Ayromloo (2007) 155 Cal.App.4th 1270, 1277 [a lease provision awarding attorney fees to the prevailing party in an action "instituted in connection with this Agreement" extended to tort cause of action].)
The attorney fees provision in the Stock Repurchase Agreement is drafted broadly and does not limit recovery of attorney fees to contract claims; instead, it extends to any litigation—contract or tort—brought because of a misrepresentation made in connection with the Stock Repurchase Agreement. The Stock Repurchase Agreement includes a representation and warranty made by Dohr that he is "the sole owner of the Sterling Shares, beneficially and of record, free and clear of all liens, encumbrances, security agreements, options or other claims." Lintz's causes of action for breach of fiduciary duty, fraud, and fraudulent concealment sought damages suffered "because of" Dohr's representation that he was the legal, beneficial, and equitable owner of 68 percent of the shares of Sterling stock. That alleged misrepresentation was made in connection with the Stock Repurchase Agreement. Thus, the attorney fees provision of the Stock Repurchase Agreement provided a basis for awarding attorney fees incurred in connection with Lintz's derivative, tort causes of action.
At oral argument, counsel for the Amberhill parties argued the trial court improperly apportioned fees only to the Stock Repurchase Agreement, and only to as to Dohr, and that all fees should have been awarded. The Amberhill Parties did not appeal the first attorney fees order and cannot now seek a greater recovery. Moreover, this argument was not made in the Amberhill Parties' appellate briefs and is therefore forfeited. (Roberts v. Assurance Co. of America (2008) 163 Cal.App.4th 1398, 1408.)
C. Lintz Is Personally Liable for Attorney Fees Awarded to Dohr
Although the attorney fees provision of the Stock Repurchase Agreement permitted recovery of fees incurred in connection with Lintz's derivative causes of action, Lintz did not sign and is not a party to that agreement. May Lintz be held personally liable for attorney fees incurred in connection with those derivative tort causes of action? We conclude she may.
A plaintiff, such as Lintz, who brings a shareholder derivative lawsuit is enforcing corporate causes of action and stands in the shoes of the corporation. (Frederick v. First Union Securities, Inc. (2002) 100 Cal.App.4th 694, 697; McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378, 383.) The plaintiff bringing a shareholder derivative lawsuit is the nominal plaintiff: The corporation is the ultimate beneficiary of the lawsuit and the real plaintiff in the action. (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1003.) A nonsignatory who stands in the shoes of a party to the contract will be bound by an attorney fees provision in the contract. (Apex LLC v. Korusfood.com, supra, 222 Cal.App.4th at pp. 1017-1018.) "In that situation, the nonsignatory party is liable for attorney fees if it would have been entitled to attorney fees if it prevailed." (Id. at p. 1018.)
In Frederick v. First Union Securities, Inc., supra, 100 Cal.App.4th at page 696 a client agreement between the defendant and a corporation included an arbitration clause. The trial court denied the defendant's petition to compel arbitration of a shareholder derivative suit brought on behalf of the corporation. (Id. at p. 697.) The Court of Appeal reversed and held the shareholder who brought the derivative lawsuit was bound by the arbitration clause in the client agreement. "[T]he corporation was bound by the client agreement, and plaintiff, in his representative capacity, is also bound." (Id. at p. 698.)
Sterling was bound by the Stock Repurchase Agreement, and Lintz, as a plaintiff bringing a derivative lawsuit on behalf of Sterling, is also bound by that agreement. If Lintz had prevailed on her derivative causes of action, she would have been able to recover attorney fees from Dohr under the attorney fees provision of the Stock Repurchase Agreement.
The trial court relied on Brusso v. Running Springs Country Club, Inc., supra, 228 Cal.App.3d 92 (Brusso) to conclude that Lintz was personally liable for attorney fees incurred by Dohr in connection with the derivative causes of action. In Brusso, minority shareholders (the plaintiffs) sued the majority shareholders, officers, and directors of a corporation (the defendants) for shareholder derivative causes of action, including a breach of contract cause of action. (Id. at p. 96.) The defendants filed a cross-complaint against the plaintiffs. (Ibid.) The trial court ruled for the defendants on the complaint and for the plaintiffs on the cross-complaint. (Ibid.) The court granted the defendants' motion for attorney fees pursuant to section 1717 based on attorney fees provisions in contracts that were the subjects of the breach of contract cause of action. The court concluded the plaintiffs individually, and not the corporation, were liable for fees and costs. (Id. at pp. 99-100.)
Several of the plaintiffs challenged the order awarding attorney fees on the ground they did not sign any of the three contracts sued upon. (Brusso, supra, 228 Cal.App.3d at pp. 108-109.) The Court of Appeal held that those plaintiffs could be held liable for payment of fees to the defendants, who were parties to the contract, for two reasons. (Id. at p. 109.) First, the court explained that denying attorney fees to the defendants would be unfair: "Defendants here were sued on contracts containing attorney's fees provisions and were forced to defend the contract causes of action. It would be 'extraordinarily inequitable' to deny them attorney's fees because plaintiffs who are not signatories chose to sue on the contracts in an action on behalf of the corporation when the corporation would not bring suit itself. [Citation.] After all, although the nonsignatory plaintiffs here did not claim a right to fees on the contract, they would have paid for defendants' attorney's fees under Corporations Code section 800 if they had been required to post a bond." (Brusso, supra, at p. 110, fn. omitted.)
Second, the court explained that the plaintiffs were liable for fees under the mutuality of remedy principle of section 1717: "Here, . . . the nonsignatory plaintiffs would have had a right to receive fees under the substantial benefit doctrine had they prevailed. [Citations.] That is, had defendants lost, they would have been liable to plaintiffs for damages and fees under the contract, thereby creating a benefit to the corporation in the form of a common fund from which all plaintiffs could have recovered their fees. Therefore . . . the trial court correctly awarded fees to the signatory defendants from the nonsignatory plaintiffs under the mutuality theory of Civil Code section 1717, doing so on the grounds that, had plaintiffs prevailed, they would have been entitled to attorney's fees pursuant to the substantial benefit doctrine." (Brusso, supra, at p. 111, fn. omitted.)
The third issue on which we invited supplemental briefing was whether Brusso applies to attorney fees incurred in connection with tort causes of action, which are not subject to section 1717. We conclude the holding of Brusso—that shareholder derivative plaintiffs who are not contract nonsignatories may be liable for attorney fees—does apply to tort causes of action.
Because section 1717 does not apply to tort causes of action, its mutuality of remedy principle does not permit recovery of attorney fees by a noncontracting party in a tort cause of action. (Topanga and Victory Partners v. Toghia (2002) 103 Cal.App.4th 775, 780.)
Brusso concluded it would be inequitable to deny the defendants attorney fees inasmuch as the plaintiffs brought a shareholder derivative suit after the corporation had declined to do so. Had the corporation brought the lawsuit and lost, it would have been liable for the defendants' attorney fees. When shareholders bring a derivative action on behalf of the corporation, they are asserting corporate causes of action and stand in the shoes of the corporation: The shareholders become, in effect, parties to the relevant contract. This reasoning applies to tort as well as contract causes of action that fall within the scope of a contractual attorney fees provision.
The second reason given by the Brusso court is based entirely on section 1717. We agree with the Amberhill Parties that Brusso's holding "does not find its strongest support in section 1717." The substantial benefit doctrine relied on by the Brusso court results in recovery of attorney fees by a prevailing plaintiff in a shareholder derivative lawsuit only if a court finds that the corporation received "'substantial benefit'" from the litigation. (Fletcher v. A. J. Industries, Inc. (1968) 266 Cal.App.2d 313, 320.) Brusso incorrectly suggests that recovery of attorney fees under the substantial benefit doctrine is automatic. (Brusso, supra, 228 Cal.App.3d at p. 111 ["the nonsignatory plaintiffs would have had a right to receive fees under the substantial benefit doctrine had they prevailed"].) In contrast, the required standard to invoke the mutuality of remedy principle is that the defendant "would have been liable" for attorney fees if the plaintiff had prevailed. (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129.)
When shareholders bring a derivative action on behalf of the corporation, they are asserting corporate causes of action and stand in the shoes of the corporation: The shareholders become, in effect, parties to the relevant contract.
D. Corporations Code Section 800 Does Not Limit Lintz's Liability for
Attorney Fees to $50,000
Lintz argues her liability for attorney fees, if any, is limited by Corporations Code section 800 (section 800) to $50,000. "Section 800 addresses the terms and conditions under which a shareholder derivative action may be maintained." (West Hills Farms, Inc. v. RCO Ag Credit, Inc. (2009) 170 Cal.App.4th 710, 715 (West Hills).) "'[T]he essential purpose of the section 800 bond statute is to create a deterrent to unwarranted shareholder derivative lawsuits by providing a mechanism for securing a prevailing defendant's expenses up to $50,000.'" (Ibid.)
Pursuant to section 800, a plaintiff shareholder may be required to post a bond as security for a defendant's anticipated litigation costs, including attorney fees. (§ 800, subds. (c), (d).) If the court determines, after an evidentiary hearing, that the party seeking the bond has established "a probability in support" of any ground on which the bond is sought, then the court fixes the amount of the bond, which must not exceed $50,000. (Id., subd. (d).) Unless the bond is furnished within a reasonable time, set by the court, the action must be dismissed as to the defendant which sought the bond. (Ibid.) Here, the trial court granted Sterling's motion for bond pursuant to section 800, and Lintz posted a $50,000 bond.
We conclude that section 800 does not impose a limit on the amount of attorney fees that are recoverable when there is a statutory basis for recovery independent of the bond. Our conclusion is based on an analysis of four opinions: Freeman v. Goldberg (1961) 55 Cal.2d 622; Alcott v. M. E .V. Corp. (1987) 193 Cal.App.3d 797 (Alcott); Brusso, supra, 228 Cal.App.3d 92; and West Hills, supra, 170 Cal.App.4th 710.
In Freeman, supra, 55 Cal.2d 622, 623, the trial court dismissed a derivative action after the plaintiffs had failed to post a bond as security for expenses pursuant to Corporations Code former section 834 (the predecessor to section 800). The prevailing defendants filed a cost bill that included a request for attorney fees. (Freeman, supra, at p. 623.) On appeal from an order relating to the plaintiff's motion to tax costs, the question arose whether attorney fees were recoverable in the absence of a bond or any other statutory basis for recovery. (Id. at p. 625.) The defendants contended former section 834 constituted a statutory basis for recovering fees. (Freeman, supra, 55 Cal.2d at pp. 625-626.) The Supreme Court concluded that former section 834 "contains no provision for an award of attorney's fees where, as here, security is not furnished and the action is dismissed on that ground." (Freeman, supra, 55 Cal.2d at p. 626.) Recovery could be made only by recourse to the security because "the liability and remedy are created by statute." (Ibid.)
In Alcott, supra, 193 Cal.App.3d 797, 798-799, the trial court awarded attorney fees under section 800 even though the prevailing defendants did not bring a motion to require a bond and no bond was ever posted. In the appeal from the order granting attorney fees, the Court of Appeal noted that section 800 was susceptible of two interpretations: "(1) Attorneys' fees are recoverable only out of the security, if posted; (2) Prevailing defendants are entitled to their attorneys' fees." (Alcott, supra, 193 Cal.App.3d at p. 799.) Because the California Supreme Court had adopted the first construction in Freeman, the Alcott court concluded that section 800 was a "'security'" statute, not a "'liability'" statute, and no attorney fees were recoverable in the absence of a bond. (Alcott, supra, at p. 800.) The court then addressed and rejected the defendants' argument they were entitled to recover attorney fees under Civil Code section 1717. (Alcott, supra, at p. 801.)
At first glance, it looks as though Freeman and Alcott might be saying that in a shareholder derivative action, attorney fees, pursuant to any statutory authority, are only recoverable if a bond is posted under section 800 and are strictly limited to the amount of the bond. Lintz claims those cases so hold. But closer scrutiny yields the correct interpretation: Section 800 creates an independent right to recover, and liability for, attorney fees only up to the amount of any bond that is posted. If a bond is not posted, then there is no liability for attorney fees created by section 800. Neither Freeman nor Alcott forecloses recovery of attorney fees in the absence of a bond or in an amount greater than the bond if there is an independent statutory basis for recovery. In other words, in the absence of statutory authorization for attorney fees, section 800 authorizes attorney fees up to the amount of the bond; if there is a statutory basis for attorney fees (e.g., Code of Civil Procedure section 1033.5, subd. (a)(10)), then section 800 does not serve as a limit on the amount of recovery.
This interpretation is borne out by Brusso, supra, 228 Cal.App.3d 92 and West Hills, supra, 170 Cal.App.4th 710. In Brusso, the plaintiffs argued on appeal that section 800 was the exclusive source for an award of attorney fees in shareholder derivative lawsuits and, therefore, the trial court erred by granting fees based on section 1717. (Brusso, supra, 228 Cal.App.3d at pp. 100-101.) The Court of Appeal, affirming the award of attorney fees, concluded that Corporations Code section 800 and Civil Code section 1717 were not mutually exclusive. (Brusso, supra, 228 Cal.App.3d at p. 102.) Because the right to a bond under section 800 is not absolute, but discretionary with the trial court, "section 800 cannot have exclusive jurisdiction over the rights of parties to fees in a shareholder derivative action." (Brusso, supra, at p. 102.)
Brusso harmonized Corporations Code section 800 and Civil Code section 1717 in this way: "[S]ection 1717 can fill the gap left by section 800 because section 1717 is mandatory and, as here, the underlying theory of the case is breach of contract." (Brusso, supra, at p. 102.) In addition, the court reasoned, "as section 800 is merely procedural, it may be invoked to enable plaintiffs to pursue their right of action; but once that is done, it need not be the sole ground for awarding fees where the theory of the case is breach of contract and where Civil Code section 1717 provides for attorney's fees in such cases." (Ibid.)
In Brusso the Court of Appeal also concluded it would be "manifestly unfair" to deny the defendants their attorney fees on the ground that section 800 was the exclusive source for their recovery. (Brusso, supra, 228 Cal.App.3d at p. 105.) "If the trial court were only empowered to grant attorney's fees and costs from a section 800 bond, then defendants would be unable to recover their fees and costs. This would be a harsh result in view of the contracts' provisions for fees and because defendants diligently brought two motions for bonds under Corporations Code section 800." (Ibid.) The Brusso court analyzed Freeman and Alcott and concluded "it cannot be said that these cases stand for the rule that where security is not required in the first place, prevailing defendants may not recover any attorney's fees, even if authorized by another statute." (Id. at pp. 105-106.)
In West Hills, a prevailing defendant in a derivative lawsuit moved to recover all of its attorney fees and costs (over $350,000) pursuant to section 800. (West Hills, supra, 170 Cal.App.4th at p. 713.) The trial court awarded the defendant only $50,000 in fees and costs because that was the amount of the bond posted pursuant to section 800. (West Hills, supra, at p. 714.) On appeal, the defendant argued that section 800 provided an independent basis for recovering all attorney fees and costs incurred by a prevailing defendant in a derivative lawsuit. (West Hills, supra, at p. 717.) The Court of Appeal disagreed. The court concluded that section 800 was a bond or security statute and "[t]here is simply nothing in the language of section 800 to suggest that the Legislature intended to create an independent basis for recovery of attorney fees or costs apart from recourse to the bond." (West Hills, supra, p. 717.) After addressing Freeman and Alcott, the court concluded those cases "are in agreement with the limited construction that we have adopted here." (Id. at p. 719.)
In two bookend footnotes the West Hills court precisely stated that section 800 does not preclude recovery of attorney fees that are based on a different statute. Near the outset of its opinion, the West Hills court stated: "We address here only the question of fees and costs pursuant to section 800. To the extent that attorney fees or costs may be independently recoverable under a contract or another statute, liability for such fees or costs would not be limited by the amount of the bond." (West Hills, supra, 170 Cal.App.4th at p. 713, fn. 3.) Near the end of the opinion, in the final numbered footnote, the court stated: "If a prevailing defendant desires to recover attorney fees or costs independent of the bond, or beyond the amount of the bond, it would have to look to legal or statutory authority other than section 800." (Id. at p. 719, fn. 11.)
In this case, the statutory authority for recovery of attorney fees other than section 800 is Code of Civil Procedure section 1033.5, subdivision (a)(10)(A), which makes attorney fees allowable as costs when authorized by contract. The contract is the Stock Repurchase Agreement, which authorized recovery of attorney fees incurred in connection with Lintz's derivative tort causes of action. Dohr's recovery of attorney fees pursuant to the attorney fees provision of the Stock Repurchase Agreement therefore is not limited to or by the $50,000 bond posted pursuant to section 800.
IV. The Amberhill Parties' Appeal
A. Background
The Amberhill Parties, in their appeal from the second attorney fees order, contend the trial court erred by (1) construing the second attorney fees motion as an untimely and meritless motion for reconsideration and (2) denying recovery of fees incurred by the Amberhill Parties in successfully defending against Lintz's causes of action arising out of or related to the Promissory Note.
In the second attorney fees motion, the Amberhill Parties sought $926,170 in fees based on the fee provision in the Stock Repurchase Agreement and the fee provision in the Promissory Note. Those fees were broken down into three categories: (1) attorney fees incurred by Child and Amberhill, but not previously awarded, defending against claims concerning or factually intertwined with the Stock Repurchase Agreement; (2) fees incurred in defending against claims arising out of the Promissory Note; and (3) fees incurred in prevailing on the appeal in Lintz v. Dohr, supra, G054929.
The Amberhill parties derived the figure of $926,170 by first calculating the total amount of attorney fees incurred to date in the litigation (including the appeal) based on the hourly rate previously approved by the trial court. That figure was $1,721,898. From that amount was subtracted the amount of attorney fees awarded to the Amberhill Parties in the first attorney fees order ($795,728) to reach the figure of $926,170.
In the second attorney fees order, the trial court concluded that the second attorney fees motion, insofar as it sought fees incurred by Child and Amberhill, was an improper motion for reconsideration. The court explained that it previously had ruled that Child and Amberhill were not entitled to recover attorney fees because they were not parties to the Stock Repurchase Agreement. The trial court concluded that Dohr could not recover additional attorney fees incurred on appeal in Lintz v. Dohr, supra, G054929 because the appeal and the judgment that was appealed from were not related to the Stock Repurchase Agreement. The court denied recovery of attorney fees based on the Promissory Note on the ground that neither Dohr nor Child nor Amberhill was a maker of the note.
B. The Second Motion for Attorney Fees Was an Untimely
Motion for Reconsideration
The second motion for attorney fees was a motion for reconsideration to the extent it sought to recover fees incurred by Child and Amberhill before the first attorney fees order. In the first attorney fees order, the trial court concluded that Dohr was entitled to recover attorney fees under the Stock Repurchase Agreement only through November 21, 2014 because by that date the derivative claims challenging the validity of the Stock Repurchase Agreement had been resolved against Lintz. The trial court found that Child and Amberhill were not entitled to attorney fees because neither was a party to the Stock Repurchase Agreement.
The second motion for attorney fees sought to recover fees incurred by Child and Amberhill before November 21, 2014. That request was identical to the one made in the first attorney fees motion. Indeed, in the second attorney fees motion, the Amberhill Parties asked the court to "revisit its prior fee award" and to "award the 50% of fees it cut from phase 1 of trial." A motion seeking identical relief to a prior motion is, by definition, a motion for reconsideration. (Code Civ. Proc., § 1008, subd. (b).) As a motion for reconsideration, the second motion for attorney fees was, to say the least, untimely. (Id., § 1008, subd. (a).)
C. The Amberhill Parties Could Not Recover Attorney Fees Incurred in
Connection With the Promissory Note
The second motion for attorney fees, insofar as it sought fees based on the fee provision in the Promissory Note, was untimely. In the first motion for attorney fees, the Amberhill Parties could have sought, but did not seek, attorney fees based on the fee provision in the Promissory Note. The Amberhill Parties concede the first motion for attorney fees did not invoke the fee provision of the Promissory Note. Yet, at the time they brought the first attorney fees motion, they had prevailed on causes of action two through six and the common count for money lent. To the extent the Amberhill Parties could have recovered attorney fees incurred in connection with the common count, or any of the causes of action on which they had prevailed, the motion requesting such fees had to have been filed and served within the time for filing a notice of appeal from the judgment. (Cal. Rules of Court, rule 3.1702(b)(1).)
The Promissory Note's attorney fees provision made only the maker of the note liable for fees incurred in collecting the note. Section 1717, subdivision (a) made this provision reciprocal.
The Amberhill Parties argue at some length they are entitled to recover attorney fees under the common count for money lent because it was simply another means of attempting to recover on the Promissory Note. They prevailed on the common count at trial: If they believed they could recover attorney fees incurred in the common count, they could and should have requested them in the first motion for attorney fees.
The Amberhill Parties assert that "[a]fter trial, in post-trial briefing, Lintz sought to enforce the note against Dohr, Child, and Amberhill." The record citation offered in support of that assertion is to a passage from Lintz's posttrial reply brief, filed before the trial court rendered a decision, in which Lintz argues that she is owed $280,000 from Amberhill on her common count for money lent.
In addition, the Amberhill Parties were not entitled to recover attorney fees in defending against Lintz's attempt to recover on the Promissory Note because Lintz, in effect, voluntarily dismissed her claims for recovery on the note. Section 1717, subdivision (b)(2) provides: "Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section." Thus, "[w]hen a plaintiff files a complaint containing causes of action within the scope of section 1717 (that is, causes of action sounding in contract and based on a contract containing an attorney fee provision), and the plaintiff thereafter voluntarily dismisses the action, section 1717 bars the defendant from recovering attorney fees incurred in defending those causes of action, even though the contract on its own terms authorizes recovery of those fees." (Santisas, supra, 17 Cal.4th at p. 617.)
Lintz's initial complaint, initial cross-complaint, and first through fourth amended cross-complaints had a cause of action to recover on the Promissory Note. Each of those pleadings had allegations that the Amberhill Parties were alter egos of each other and all were liable on the note. However, the fifth amended cross-complaint omitted altogether the cause of action to recover on the Promissory Note that had been asserted, in some form, in the prior cross-complaints and Lintz's complaint.
The omission from the fifth amended cross-complaint of the cause of action to recover on the Promissory Note constituted a voluntary dismissal of it. "It has long been the rule that an amended complaint that omits defendants named in the original complaint operates as a dismissal as to them." (Fireman's Fund Ins. Co. v. Sparks Construction, Inc. (2004) 114 Cal.App.4th 1135, 1142.) A request for dismissal is unnecessary because the amended complaint itself constitutes the request for dismissal. (Ibid.; see Kuperman v. Great Republic Life Ins. Co. (1987) 195 Cal.App.3d 943, 947 [filing of amended complaint omitting a defendant as a party effected a dismissal of that defendant from the action].) An amended complaint supersedes the original one, which "'ceases to perform any function as a pleading.'" (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 884.) Thus, an amended complaint that omits an entire cause of action has the same effect as the dismissal of a defendant from a cause of action. (JKC3H8 v. Colton (2013) 221 Cal.App.4th 468, 477.)
D. Success on Appeal Did Not Entitle the Amberhill Parties to Renew
Their Entire Attorney Fees Request
The Amberhill Parties argue their win in Lintz v. Dohr, supra, G054929 increased their level of success, and "[t]his increase in the level of success is grounds [for] renewing their request in the trial court for a fee award." In support of this argument, they cite Center for Biological Diversity v. County of San Bernardino (2010) 188 Cal.App.4th 603 (Center for Biological Diversity). While that case does support allowing the Amberhill Parties to seek attorney fees on Lintz's individual breach of fiduciary duty cause of action, it does not support wholesale renewal of the first attorney fees motion.
On Lintz's first cause of action, the trial court found the Amberhill Parties had breached their fiduciary duties by causing Atavus to make the payment of $4 million to Sterling without first paying off the $280,000 loan from Lintz. In Lintz v. Dohr, supra, G054929 we reversed the judgment on the first cause of action on the ground that neither Atavus nor Amberhill owed fiduciary duties to creditors, which is the role in which Lintz had recovered $280,000.
In Center for Biological Diversity, the Court of Appeal held that the trial court had jurisdiction to consider a motion for supplemental attorney fees under Code of Civil Procedure section 1021.5, the codification of the private attorney general doctrine, based on the plaintiffs' greater success on appeal. (Center for Biological Diversity, supra, 188 Cal.App.4th at pp. 611-613.) The trial court had granted the plaintiffs relief on one of three issues but rejected their two challenges based on the California Environmental Quality Act (CEQA). (Id. at p. 609.) The plaintiffs moved for attorney fees while their appeal from the judgment was pending; the trial court awarded less than the amount sought due to the limited relief granted. (Id. at p. 609.) The plaintiffs appealed from the postjudgment order on their motion for attorney fees but ultimately dismissed that appeal. (Ibid.) On appeal from the judgment, the plaintiffs obtained a reversal on their two CEQA claims. Following remand, the plaintiffs brought a motion for supplemental attorney fees seeking fees incurred in both the appeal and in the trial court. (Id. at p. 610.) The trial court determined it lacked jurisdiction to consider the motion for supplemental fees because the plaintiffs had dismissed their appeal of the postjudgment order on their motion for attorney fees. (Id. at p. 611.)
The Court of Appeal concluded the trial court's jurisdictional finding was erroneous. (Center for Biological Diversity, supra, 188 Cal.App.4th at p. 613.) The plaintiffs' request for supplemental attorney fees was based on achieving a greater success at trial on the CEQA issues and did not "challenge or potentially tamper with" the postjudgment order partially granting the first fee motion. (Ibid.) As successful CEQA litigants, the plaintiffs were entitled to recover attorney fees if they met the criteria of Code of Civil Procedure section 1021.5, and the plaintiffs ultimately succeeded on their CEQA claims. (Center for Biological Diversity, supra, at p. 613.)
Center for Biological Diversity, assuming it is not limited to attorney fees under Code of Civil Procedure section 1021.5, supports the proposition that the Amberhill Parties could bring a motion for supplemental fees, but only for fees incurred in connection with Lintz's first cause of action, which was an individual cause of action seeking damages for breach of fiduciary duty. The opinion in Lintz v. Dohr, supra, G054929, resulted in the reversal of the judgment in favor of Lintz on her first cause of action, and therefore in that respect, and only in that respect, the Amberhill Parties had an increase in success as a result of the appeal. (See Center for Biological Diversity, supra, 188 Cal.App.4th at p. 613). Accordingly, the Amberhill Parties could bring a second motion to recover fees incurred in connection with Lintz's first cause of action.
E. The Amberhill Parties Are Not Entitled to Recover Attorney Fees
Incurred in Connection with Lintz's First Cause of Action
1. The Claim Is Forfeited
The Amberhill Parties have forfeited the argument they may recover attorney fees incurred in connection with Lintz's first cause of action. An argument not separately raised under its own heading and supported by cogent argument and citation to authority is deemed waived. (Winslett v. 1811 27th Avenue LLC (2018) 26 Cal.App.5th 239, 248, fn. 6; Pizarro v. Reynoso (2017) 10 Cal.App.5th 172, 179; Roe v. McDonald's Corp. (2005) 129 Cal.App.4th 1107, 1114; see Cal. Rules of Court, rule 8.204(a)(1)(B).) Neither appellate brief filed by the Amberhill Parties has a separate heading, cogent argument, or citation to authority devoted to an argument that they are entitled to recover attorney fees in connection with Lintz's first cause of action.
The only arguments made by the Amberhill Parties that are related to attorney fees incurred in connection with Lintz's first cause of action are that the factual basis for that cause of action was "the loan evidenced by the 2010 promissory note" and that all of Lintz's theories of recovery were "brought as a note-holder." Those propositions are decidedly incorrect. Lintz alleged the Amberhill Parties had committed numerous acts alleged to have constituted breaches of fiduciary duty or to be fraudulent.
2. The Attorney Fees Provisions Did Not Apply or Did Not Permit Recovery
Neither the attorney fees provision of the Stock Repurchase Agreement nor the attorney fees provision in the Promissory Note permitted recovery of fees on Lintz's first cause of action. Lintz was not a party to the Stock Repurchase Agreement and therefore was not subject to its attorney fees provision with respect to her individual causes of action. In the first attorney fees order, the trial court concluded that Child and Amberhill were not entitled to attorney fees based on the Stock Repurchase Agreement because they were not parties to it. The Amberhill Parties' success in Lintz v. Dohr, supra, G054929 had no effect on that soundness of that conclusion and was not a proper ground for a motion for reconsideration or renewal of the first attorney fees motion.
Lintz's first cause of action was not connected with collection on the Promissory Note. Lintz asserted the proper measure of damages for breach of fiduciary duty was 15.674 percent of the $4 million paid by Atavus to Sterling, or $626,990. This was the common measure of damages for all six of her tort claims. The trial court rejected Lintz's damages calculation and made the decision instead to award her $280,000 in damages and interest on the basis that amount should have been paid to her before Atavus paid $4 million to Sterling.
F. The Amberhill Parties Have Forfeited Any Claim to Attorney Fees
Incurred in the Prior Appeal
The second motion for attorney fees requested fees incurred in prevailing on the appeal in Lintz v. Dohr, supra, G054929. The trial court denied those fees on the ground the appeal and the judgment that had been appealed were not related to the Stock Repurchase Agreement. The Amberhill Parties do not challenge that ruling: Their appellate briefs do not have a separate heading, argument, or citation to authority devoted to an argument that they are entitled to recover attorney fees incurred on the appeal in Lintz v. Dohr, supra, G054929. Any such argument is therefore forfeited. (Winslett v. 1811 27th Avenue LLC, supra, 26 Cal.App.5th at p. 248, fn. 6; Pizarro v. Reynoso, supra, 10 Cal.App.5th at p. 179; Roe v. McDonald's Corp., supra, 129 Cal.App.4th at p. 1114; see Cal. Rules of Court, rule 8.204(a)(1)(B).)
DISPOSITION
The order granting the first motion for attorney fees and the order denying the second motion for attorney fees are affirmed. In the interest of justice, no party may recover costs on appeal.
FYBEL, J. WE CONCUR: O'LEARY, P. J. IKOLA, J.