Opinion
C048826. C049809.
2-17-2009
FEATHER RIVER STATE BANK, Cross-Complainant, Cross-Defendant and Appellant, v. VINCENT DUDASH, III, Cross-Complainant, Cross-Defendant and Respondent. FEATHER RIVER STATE BANK, Cross-Complainant and Appellant, v. VINCENT DUDASH, III, Cross-Defendant and Respondent.
Not to be Published
A group of investors banded together to finance the construction of a three-story office building. Unbeknownst to the group, their leader purportedly managed to funnel off the proceeds of a $2.45 million construction loan. The messy aftermath of a real estate deal gone wrong spawned this contentious litigation. Numerous parties were not paid for their construction work, and numerous other parties were left holding the proverbial bag as guarantors of the loan.
The debacle spawned the lawsuits that are central to the present appeal: a suit between the lending bank and the investors who guaranteed repayment of the loan, and a suit between the general contractor and the bank.
The investors, who formed Grass Valley Community Services Center LLC (Center) and who individually guaranteed the construction loan, sued Feather River State Bank (Bank) and Placer Title Company (Placer Title) (sometimes collectively, Bank) for fraud, negligence, and breach of contract. Bank cross-complained against the guarantors to enforce the individual guarantees. This lawsuit ended with a directed verdict in favor of Bank.
Bank also sued Vincent Dudash, who replaced the original general contractor, J. L. Bray and Son (Bray). Bank sought to enforce a completion guaranty signed by Dudash. Dudash cross-complained against Bank and Center to foreclose mechanics liens upon the unpaid amounts due him and his subcontractors. The trial court found in favor of Dudash, awarding him $284,171 in lien payments and $250,000 in attorney fees.
Plaintiff Center and members Ron Sykora and the Flemings appealed the judgment in favor of Bank. The parties subsequently stipulated to dismissal of the appeal. With the dismissal, we are left with Banks appeal of the judgments declaring the guaranty of completion unenforceable, foreclosing the mechanics lien, and awarding attorney fees in favor of Dudash. Bank contends the court erred in gauging the consideration necessary for enforcement of the guaranty of completion, the court failed to correctly analyze the mechanics lien, and the court abused its discretion in awarding attorney fees. Dudash seeks the recovery of sanctions against Bank. We shall affirm the trial courts judgment but deny the request for sanctions.
FACTUAL AND PROCEDURAL BACKGROUND
Many of the following facts pertain to the dismissed appeal. However, they are necessary to put the present appeal in context.
Center was formed to finance and manage construction of a three-story office building in Grass Valley. An operating agreement established Center as a limited liability corporation and Country Club Office Park (Country Club) as its managing member, vested with sole authority for day-to-day management and to negotiate loans for Center.
Isabel Gahan was Country Clubs sole shareholder and its president. Gahan, in her 90s when the project commenced but now deceased, was also the mother of Harvey Smith, who later purportedly absconded with $2.45 million in loan proceeds. Smith acted as the representative of Country Club in connection with the construction project.
In order to finance the project, Smith sought out and obtained investments from James March, Ron Sykora, and Charles and Karen Fleming. None of these individuals knew Smith prior to their investment. Ultimately, Sykora personally invested or loaned $700,000 to the venture. March, Sykora, and the Flemings became nonmanaging members of Country Club.
General contractor Bray began work on the project prior to Banks loan. The project ran out of money, and a loan was necessary to complete it. Center, through Smith, applied to Bank for a construction loan to finish the project. Center was the designated borrower, with Smith the sole contact between Bank and Center.
Bank loaned Center $2,450,000. The land and the office building to be constructed secured the loan.
The escrow instructions directed Placer Title to obtain the signature of general contractor James Bray on the "Guaranty of Completion and Performance."
Prior to the close of escrow, Placer Title Escrow Officer Holly Lusk provided copies of the completion guaranty to Bray for his signature. The completion guaranty required Bray to finish the project and to waive priority of any mechanics lien remedy. James Bray stated he could not sign the completion guaranty until his counsel reviewed it. Placer Title returned the loan documents to Bank, informing Smith and a Bank loan processor that Bray had not signed the completion guaranty.
Bank authorized escrow to close. Bank granted a temporary 30-day waiver to obtain a signed completion guaranty from Bray. Placer Title proceeded to close escrow on Banks oral communication to not wait for Brays signed completion guaranty.
At trial, Douglas Marr, Banks chief credit officer, testified about the significance of the Bray completion guaranty. Marr testified such guaranties are important because they "require[] the contractor to complete his assignment." In addition, they "require[] the contractor . . . to complete the construction in a lien-free manner." Marr waived the requirement of the Bray completion guaranty even though Banks deed of trust would no longer be in the first position and there would be no assurance the building would be completed. Bank waived the requirement despite these risks.
Following the close of escrow, Center defaulted on Brays invoices. James Bray informed Smith he would not sign the completion guaranty. Bray informed Smith and guarantor Charles Fleming he would stop work because of the nonpayment.
Bank disbursed all but $250,000 of the loan proceeds to Center. Most of the funds never reached Bray or its subcontractors. After Bray ceased work on the project, Vincent Dudash stepped in as a replacement contractor.
Bray and numerous other parties filed mechanics liens against the project. Priority liens in excess of $2 million mounted against the property.
Smith met with Bank without his mother, Isabel Gahan, president of Country Club, to discuss the loan and mechanics liens. Eventually, Sykora, March, and the Flemings took control of Center and ejected Country Club as managing member.
Out of the projects ashes arose inevitable litigation. Center and the guarantors sued Bank and Placer Title for fraud, negligence, and breach of contract based on Banks failure to obtain Brays signature on the completion guaranty. Bank cross-complained against the guarantors to enforce the individual guarantees.
In its cross-complaint, Bank sued Dudash to enforce the guaranty of completion signed by Dudash after he replaced Bray. Dudash cross-complained against Bank and Center to foreclose upon the unpaid amounts due him and his subcontractors.
Center v. Bank
Bank, after tendering the terms of the proposed settlements to Center, March, Sykora, and the Flemings, entered into written settlements with all outstanding and perfected mechanics lien claimants except Dudash. Under the settlement, each of the mechanics lien claimants assigned its claim to Bank. Bank, in turn, filed a motion with the court to substitute itself as plaintiff in each of the mechanics lien foreclosure actions. The court granted the motion and Bank, as substituted plaintiff, commenced prosecution of the actions that had been assigned to it. On the first day of trial, the parties stipulated to dismissal of those claims as to Center and individual guarantors March, Sykora, and the Flemings.
Bank incorporated the $2,018,526 paid out to lien claimants in the outstanding debt. The total outstanding debt included unpaid principal, interest, and fees of $2,659,984.95. Bray received approximately $1.4 million.
After recording a notice of default, Bank nonjudicially foreclosed upon the office building. The notice of trustees sale reflected an outstanding debt of $4,727,581.24, which included all the mechanics lien settlements. Bank obtained a trustees deed to the property by credit bidding $3,000,000.
Center filed a motion for summary judgment, which the court denied, and Bank filed a motion for summary adjudication, which the court granted in part and denied in part. Prior to the jury trial, Center filed two motions in limine. In the first, Center argued as a matter of law that the assignments of lien rights to Bank in connection with the settlement with various contractors precluded Bank from including the amounts paid in settlements in its claims against the guarantors. In the second motion, Center argued Bank could not proceed upon its individual guaranties because they were secured and subject to antideficiency protections once Bank nonjudicially foreclosed. The court denied both motions.
A jury trial followed. Following the trial, the court granted Banks motion for nonsuit of the damages claims of Center. In granting a directed verdict to Bank on its enforcement action, the court determined the Bray completion guaranty was "solely a condition of the Banks to funding the loan" and was not a condition to any individual guaranty; the individual guarantors had no reasonable expectation one way or the other whether the completion guaranty would be furnished.
Further, "the Bank was under no duty to inform or seek the consent of the Individual Guarantors under any of the loan documents or the Individual Guarantees. . . ."
Finally, the court found that the course of dealing between Bank and Center was solely through Smith, who acted as the agent for the individual guarantors, and Bank, which had no contact with the individual guarantors during loan negotiations, reasonably relied upon Smith to communicate any material information to Centers investors; "[t]he Individual Guarantors presented no testimony or evidence that any of them intervened to limit Smiths agency." The court entered judgment jointly and severally against the four individual guarantors for $1,832,570.75.
Dudash v. Bank
Prior to obtaining the construction loan from Bank, Country Club entered into a standard American Institute of Architects (AIA) form construction contract with Bray, a licensed general contractor. An entity controlled by Smith, AESV, Inc. (AESV), managed the property and entered into a design/construction management contract with Center. AESV would prepare the plans and specifications and provide management services for the project.
A short time later, Center obtained the construction loan from Bank. The entire proceeds of the loan, except for $900 for tenant improvements, were intended to finance the construction of the shell of the building.
Dudash entered into a written agreement with AESV (AESV contract) to provide construction and management services on various AESV projects for the sum of $1,000 per week. Dudash provided such services at AESV properties, receiving $1,000 per week from May 1, 2001, through November 2001. Dudash continued to provide these services while working on the project.
Smith suggested Dudash make tenant improvements and do painting at the project, work not contracted to Bray. Dudash entered into a form AIA construction contract (AIA contract) with Center to provide tenant improvements. The AIA contract provided that Dudash would work on a time and material basis, plus overhead and profit, with a fixed maximum of $746,773.
After Bray failed to sign the Bray completion guaranty, Center requested that Dudash sign a guaranty of completion and performance (guaranty of completion). The guaranty of completion states: "Borrower has requested that Guarantor duly execute and deliver this Guaranty guaranteeing the lien-free completion of the construction of the Project and the performance of other covenants . . . ." The guaranty of completion also states: "the project will be constructed and completed free and clear of all liens and encumbrances, including without limitation all mechanics liens . . . ." In addition, the guaranty of completion provides: "Loan of Borrower . . . shall be superior to any claim that Guarantor may now have or hereafter acquire against Borrower . . . . Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower . . . to any claim that Lender may now or hereafter have against Borrower."
On June 13, 2001, Bank sent the guaranty of completion to Center. Although Dudash did not recall signing the documents, the documents with his signature were returned to Bank on August 1, 2001.
The guaranty of completion is dated April 3, 2001. Dudashs acknowledgment of assignment of construction contracts is dated June 22, 2001. According to Dudash, both documents were sent at the same time and received by Bank at the same time.
By July 2001 construction had slowed on the project. Center contacted Bray about the lack of progress and the rising construction costs. Bray complained of not being paid $575,791.44. Bray threatened to quit if he wasnt paid. As of the last disbursement of loan proceeds, Center had not yet discovered the loan money was missing.
On or about September 1, 2001, Bray pulled its men and materials off the project. Bray recorded its mechanics lien on September 4, 2001, and filed suit on September 7, 2001, to foreclose its lien. Subcontractors filed additional mechanics liens and lawsuits to foreclose the liens.
Center approached Dudash and asked him to restart the project. After being informed money was available, Dudash agreed to do so. On September 30, 2001, the AIA contract was amended to provide that Dudash would complete both the shell and the tenant improvements on a time and materials basis plus an 8.5 percent profit. Dudash, now general contractor, restarted the project.
By February 2002 Dudash completed the building shell and was engaged in tenant improvements. Dudash and his subcontractors provided work and materials to the project totaling $1,827,541.24.
That same month, Bank contacted Dudash to, under the terms of the guaranty of completion, complete the project and perform "all obligations of Guarantor covered under Events Of Default in the Guaranty." The following month Center shut down the project and locked Dudash out. Dudash filed his mechanics lien against the project in the amount of $1,349,931.
Bank cross-complained against Dudash, arguing Dudash was liable for all mechanics liens and for completion of the project. Dudash filed a cross-complaint seeking foreclosure of his mechanics lien.
Bank purchased the project at a trustees sale for $3,000,000. Bank entered into settlements with the majority of the mechanics lien claimants. Each of the claimants assigned its claim to Bank, and Bank filed a motion to substitute as plaintiff in each of the mechanics lien foreclosure actions.
A three-phase trial followed; only phases one and two are at issue here. In phase one, the court considered the validity of the guaranty of completion. The court held the guaranty unenforceable because it was not supported by consideration. The trial court denied Banks request for a written tentative ruling.
In phase two, the court determined the amount secured by Dudashs mechanics lien. The court found Dudash had a lien secured by the project in the amount of $284,171.49.
Following entry of judgment, Dudash filed a motion for attorney fees. The court awarded Dudash $250,000. Bank filed notices of appeal.
DISCUSSION
Consideration for the Enforcement of the Guaranty of Completion
Bank contends the trial court erred in its analysis of the consideration necessary for the enforcement of the guaranty of completion signed by Dudash. Bank faults the trial court for misconstruing which party owed consideration to Dudash for the execution of the guaranty of completion. According to Bank, the trial court mistakenly believed Bank, not Center, must supply consideration to Dudash in exchange for the guaranty of completion. To address this contention, we briefly review the law on suretyship.
There are three parties to a suretyship: the debtor, or principal, responsible for the original obligation; the creditor to whom the obligation is owed; and the guarantor, who promises to answer for the debt, default, or miscarriage of the debtor. (Civ. Code, § 2787.) In suretyship, the risk of loss remains with the principal while the surety lends its credit to guarantee payment or performance in the event the principal defaults. (Schmitt v. Insurance Co. of North America (1991) 230 Cal.App.3d 245, 257.)
All further statutory references are to the Civil Code unless otherwise designated.
Several statutes govern the consideration necessary to support a guaranty of performance. Under section 1614, a written instrument is presumptive evidence of consideration. The party seeking to avoid responsibility under such an agreement bears the burden of demonstrating a lack of consideration. (§ 1615.)
Most relevant here, section 2792 states: "Where a suretyship obligation is entered into at the same time with the original obligation . . . no other consideration need exist. In all other cases, there must be a consideration distinct from that of the original obligation."
Bank urges that section 2792 be read in conjunction with section 1642. Under section 1642, "Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." It is a question of fact as to whether several writings comprise one transaction. (Nevin v. Salk (1975) 45 Cal.App.3d 331, 338 (Nevin).)
When determining whether separate consideration supports a guaranty, "[a]ny benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise." (§ 1605.)
Bank and Dudash expend a great deal of sound and fury arguing over whether the trial court imposed the burden of consideration on Bank or on Center. For our purposes such a focus is a red herring. Regardless of who provided it, some consideration must have been given to Dudash in exchange for the guaranty of completion, unless the guaranty was entered into at the same time as the original obligation.
Bank argues Dudash entered into the guaranty of completion as part of the "overall transaction" of assuming Brays duties to Center. Therefore, under section 2792 no other consideration need be shown.
However, section 2792 does not require that the guaranty be executed as part of an "overall" transaction. It requires that the guaranty be executed at the same time as the original obligation. Bank contends the construction contract entered into between Dudash and Center is "related" to the guaranty, and therefore under section 1642 the two documents are to be taken together.
However, Dudash signed the guaranty of completion prior to August 1, 2001. Bray ceased working on the project on or about September 1, 2001, and the parties amended the AIA contract to allow Dudash to complete the project on September 30, 2001. As Dudash points out, there is no evidence of any connection between the two agreements.
Nor does the authority cited by Bank compel a contrary result. Both Cadigan v. American Trust Co. (1955) 131 Cal.App.2d 780 and Nevin, supra, 45 Cal.App.3d 331 consider section 1642, but neither discusses section 2792. As the Nevin court observed: "Under section 1642 of the Civil Code, it is the general rule that several papers relating to the same subject matter and executed as parts of substantially one transaction, are to be construed together as one contract. [Citation.] Thus, a note, mortgage and agreement of sale constitute one contract where they are part of the same transaction. [Citation.] The documents need not be executed contemporaneously; it is a question of fact as to whether several writings comprise one transaction." (Nevin, at p. 338; italics added.) Here, the evidence supports a finding that the guaranty of completion and the amended AIA contract were not substantially one transaction sparking application of section 2792.
Bank argues that even if consideration were required, Center provided consideration for the guaranty of completion in the form of the additional duties and monies promised Dudash when he took over from Bray. The trial court considered this proferred consideration and found it wanting. The court noted there was nothing left of the original loan at that point with which to pay Dudash, rendering any vague promise of payment purely illusory.
Bank strenuously argues that since the court mistakenly focused on whether Bank provided the necessary consideration, we owe the courts findings no deference. We disagree. While the court mulled over who should provide the benefit to Dudash, it also correctly attempted to discern exactly what benefit Dudash received from any party in exchange for the guaranty. Our review of the trial courts conclusion is deferential. We review the record pertaining to the amount of consideration in the light most favorable to the judgment. (Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1250.) We find no reason to reject the trial courts determination that the agreement was not supported by consideration.
Amount of Mechanics Lien
Bank claims the trial court erred in determining the amount of Dudashs lien. According to Bank, the trial court failed to determine which contract, the AIA or AESV, controlled in determining the lien amount. Bank argues that under either contract, Dudashs lien is worth nothing after deducting the appropriate offsets. Instead, according to Bank, the court improperly employed a "quantum merit" [sic] valuation of the lien.
Banks claim that the trial court failed to determine which contract controlled is belied by the trial courts statement of decision. The trial court considered both contracts and determined: "[Bank] contends that the court should find that Dudash performed his work under the May 1, 2001 contract with AESV. The AESV contract is not at issue here. It is a general non-specific contract for work to be performed for AESV, Inc. [¶] The May 1, 2001 [AIA] contract as amended on September 30, 2001 is a specific contract dealing directly with the subject matter of construction of the 150 Hughes Road project by [Center]. [¶] In any event, the real issue to be decided is the amount of the mechanic lien claim of Dudash regardless of the contract existing between Dudash and [Center]. The issue presented is not a breach of contract between Dudash and [Center] but rather the value of the benefit bestowed on the property by one claiming a mechanics lien."
The AIA contract entered into between Dudash and Center is dated April 22, 2001.
Bank argues Dudash failed to perform his duties under the AIA contract by failing to submit timely invoices and therefore any recovery is barred. At trial, Bank presented expert testimony that Dudashs failure to conform to an invoicing process and his failure to use a schedule of values should limit Dudashs recovery to only the reasonable value attributable to a construction supervisor.
The court acknowledged the testimony but concluded: "[T]he evidence does not support [the experts] conclusion. True, Mr. Dudash was not experienced as a general contractor and his business practices in this case were wanting. However, he assumed this contract in a state of confusion made even worse by the continued secretive conduct of Harvey Smith. Nonetheless he was able to move the project forward and within a relative short period of time to place tenants in portions of the building."
Despite Banks claims to the contrary, substantial evidence supports the trial courts conclusion that the AIA contract was controlling. Under the AESV contract, Dudash agreed to provide work on various AESV projects for $1,000 per week. Dudash provided services under the contract through November 2001. In contrast, the AIA contract specifically pertained to the tenant improvements on the project; Brays contract was limited to the construction of the buildings shell. After Bray left the contract, the AIA contract was amended to provide Dudash would complete the entire project on a time and materials basis plus 8.5 percent profit. There was no price limitation on the amendment to the project. We cannot find, as Bank requests, that as a matter of law Dudashs lien must be valued pursuant to the AESV contract.
Bank also contends the court ran afoul of section 3140 in valuing Dudashs lien. Section 3140 states: "Any original contractor or subcontractor shall be entitled to recover, upon a claim of lien recorded by him, only such amount as may be due him according to the terms of his contract after deducting all claims of other claimants for labor, services, equipment, or materials furnished and embraced within his contract."
Bank argues Dudash cannot recover under section 3140 but can only recover under the terms of the contract. The trial court disagreed: "Section 3140 allows the original contractor to recover all amounts due him less all claims of subcontractors whose services or materials are embraced by the original contract. That section does not preclude the original contractor from recovering amounts on behalf of his subcontractors under the original contractors lien."
Bank labels the trial courts reasoning as "completely contrary to the express provisions of Civil Code §3140 and the authorities which have interpreted the meaning of that section." We are not persuaded by Banks characterization.
Section 3110 provides that contractors, subcontractors, and others shall have a lien upon the property upon which they have bestowed labor and materials "for the value of such labor done or materials furnished." Section 3123 provides that the lien shall be for the "reasonable value of the labor . . . or materials furnished or for the price agreed upon by the claimant and the person with whom he or she contracted, whichever is less." Section 3140 limits the contractor to his contract price after deducting claims of other claimants.
Here, after Bray walked off the job, Dudash agreed to complete the project. Accordingly, the AIA contract was amended to provide that Dudash would complete both the shell and the tenant improvements on a time and materials basis plus an 8.5 percent profit. At trial, Dudash presented testimony by certified public accountant Ross McCoy as to Dudashs cost, overhead, and profit for the work performed under the amended contract.
The trial court, finding this testimony credible, adopted McCoys calculations. The court determined the reasonable value of the work and materials provided to the property by Dudash and his subcontractors was $1,827,541.24. The court further found the unpaid balance of $284,171.49 had become a lien on the subject property and granted Dudashs request to foreclose the mechanics lien in that amount. The court retained jurisdiction over the proceeds of the lien sale to insure that the $111,128.00 due various subcontractors and material men was properly paid out to any claimants.
The trial court appropriately considered the evidence of the reasonable value of Dudashs services under the amended AIA contract, added the 8.5 percent profit provided under the contract, subtracted the payments to Dudash from all sources, and arrived at the lien amount. Contrary to Banks assertions, the court did not base its lien calculations on a quantum meruit theory. The courts action does not run afoul of section 3140, and Bank fails to challenge the sufficiency of the evidence in support of the courts calculations.
Bank also claims the court erred in including in the lien any amounts due to subcontractors who had not filed lien claims. The court acknowledged amounts due to 16 subcontractors and material men who had not filed lien claims or pursued litigation directly in the total amount of $111,128.00. As noted, the court retained jurisdiction over the proceeds of the lien sale for the purposes of insuring that the $111,128.00 due to the various subcontractors and material men "is paid to those persons and entities, or apportioned if required when the result of the lien sale is known."
Bank argues none of the subcontractors testified at trial that they intended to pursue any cause of action against Dudash. According to Bank, "once the applicable statute of limitations has run on the time in which to record a lien or to file a complaint to foreclose the lien, as it happened in this case, there is no justification for the general contractor to pursue these abandoned claims."
However, the trial court, in including these amounts in Dudashs lien, cited legal authority for its actions. In C. Norman Peterson Co. v. Container Corp. of America (1985) 172 Cal.App.3d 628, the court awarded a contractor amounts due a subcontractor without indicating if the subcontractor had filed a lien. In D. A. Parrish & Sons v. County Sanitation Dist. (1959) 174 Cal.App.2d 406, 416, the court noted a general contractor can recover damages that included an allowance for claims made upon it by its subcontractors even though such claims were unliquidated. The trial court did not err in including the amounts due subcontractors who had not filed liens.
Attorney Fees
Finally, Bank contends the trial court abused its discretion in awarding Dudash attorney fees by awarding him fees incurred in actions unrelated to the guaranty of completion. Although Bank concedes Dudash, under the terms of the guaranty, was entitled to recover attorney fees, Bank argues Dudash could recover only those attorney fees incurred in connection with the enforcement of the guaranty.
The attorney fees provision in the guaranty of completion states: "Attorneys Fees; Expenses: Guarantor agrees to pay upon demand all of Lenders costs and expenses, including Lenders attorneys fees and Lenders legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lenders attorneys fees and legal expenses whether or not there is a lawsuit, including attorneys fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court."
Dudash filed a motion for attorney fees based upon the guarantys attorney fees provision, claiming $300,063.18 in attorney fees. The trial court awarded Dudash attorney fees in the amount of $250,000.
In opposing Dudashs motion, Bank argued the guarantys attorney fees provision should be construed narrowly. In its tentative decision, the trial court disagreed: "Moving parties are entitled to recover attorneys fees incurred `in connection with enforcement of the performance guarantee. The court disagrees with the opposing parties narrow interpretation of that language. Not only did they contend that moving partyies [sic] mechanics lien was not good by virtue of the guarantee, they also contended that moving parties were liable for all the mechanics liens of the subcontractors. Therefore, the subcontractor mechanics lien litigation and the mechanics lien litigation of moving parties were connected with enforcement of the guarantee."
In its opposition to Dudashs motion, Bank argued that allocation between various aspects of the litigation was required. The court responded: "The court has considered the estimated allocation of the opposing parties concerning the performance guarantee cause of action and the estimated apportionment of moving parties regarding the Dudash lien cause of action. In addition, the court has independently analyzed the billings and the time that reasonably was spent on the causes of action between Dudash and the personal guarantors . . . . Based on all of the facts and law presented, and the courts analysis of the factors to consider in awarding attorneys fees, including time spent, the court awards moving parties attorneys fees in the amount of $250,000."
Bank argues the trial court erred in finding the various claims between the parties "inextricably intertwined" and "interrelated," making it impractical, if not impossible, to separate the actions into compensable time units. Bank contends most of Dudashs attorney fees were incurred in conjunction with aspects of the overarching litigation not involving Banks enforcement of the guaranty of completion. Bank objects to the inclusion of fees incurred in the litigation between Center and Bank, the personal guarantors and Bank, and Dudashs defense of actions brought by his own subcontractors resulting from his failure to pay amounts under their subcontracts.
We disagree with Banks gloss on the litigation. Bank initially demanded Dudash perform under the guaranty of completion, making him liable for all mechanics liens and the costs of completing the project. Therefore, the subcontractors lien litigation, Banks litigation against the individual guarantors, and Banks suit against Dudash were "so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not . . . ." (Akins v. Enterprise Rent-A-Car Co. (2000) 79 Cal.App.4th 1127, 1133.)
Given this Gordian knot of conflicting liabilities and interests, the court acted appropriately in independently reviewing the fees requested and ascertaining that Dudash incurred $250,000 in attorney fees in representing his interests in the litigation.
Motion for Sanctions
Dudash filed a motion for sanctions against Bank. Dudash argues Banks appeal is frivolous and was filed solely for the purpose of delay. Specifically, Dudash accuses Bank of presenting the underlying facts in a false and misleading manner and of misstating the law and the record.
In determining whether an appeal is frivolous because it lacks merit or was filed for purposes of delay, the question is not whether the attorney acted in the honest belief he or she had grounds for appeal. Rather, the question is whether any reasonable person would agree the point is totally and completely without merit and therefore frivolous. (Doran v. Magan (1999) 76 Cal.App.4th 1287, 1295.)
Appellate courts should apply any definition of "frivolousness" so as to avoid a serious chilling effect on the assertion of litigants rights on appeal. An appeal that is simply without merit is not by definition frivolous. The difficulty is in striking a balance that will insure both that indefensible conduct does not occur, and that attorneys are not deterred from the vigorous assertion of their clients rights. (Coleman v. Gulf Ins. Group (1986) 41 Cal.3d 782, 790.) An appeal should be held to be frivolous only when it is prosecuted for an improper motive, or when it indisputably has no merit, and punishment should be used most sparingly to deter only the most egregious conduct. (Id. at pp. 790-791.)
Here, although Dudash presents numerous objections to Banks characterization of the facts and law, we cannot find counsels conduct in pursuing this appeal egregious enough to merit sanctions and so deny Dudashs motion for sanctions.
DISPOSITION
The judgment in case No. 49809; the judgment entered January 21, 2005, in case No. C048826; and the judgment in favor of Dudash entered November 24, 2004, in case No. C048826 are affirmed. Dudash shall recover costs on appeal. Dudashs motion for sanctions is denied.
We concur:
HULL, J.
ROBIE, J.